Recently in Economic Crimes Category

Georgia Man Indicted in Nashville for Investment Fraud and Money Laundering

According to an FBI press release, Rajesh Patel, a 55 year old man from Duluth, Georgia, was recently indicted on several counts of fraud and money laundering.

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Mr. Patel's alleged scheme sought $500,000 from an investor to purchase a hotel. Mr. Patel later approached the same investor for $750,000 to purchase a beachfront hotel. The investor was told that the $750,000 would grant him a 25% interest in ownership of the hotel. Mr. Patel is accused of altering the partnership agreement by removing the investor's name from the documents, and for using the funds collected from the investor on Mr. Patel's unrelated personal expenses. Following the indictment, Mr. Patel pled not guilty.

Mr. Patel's indictment alleges five counts of wire fraud, four counts of money laundering, and one count of mail fraud. Each count of fraud carries a sentence of up to 20 years in prison. Each count of money laundering carries a sentence of up to ten years in prison. Also, if convicted, fines may be issued as well as the repossession of any assets obtained as a result of the alleged offenses.


Sources
http://www.fbi.gov/memphis/press-releases/2014/georgia-man-arraigned-on-fraud-and-money-laundering-charges
http://www.justice.gov/usao/tnm/pressReleases/2014/5-28-14.html

Maryville, Tennessee Couple Pleads Guilty to Procurement Fraud

December 13, 2013, by The McKellar Law Firm, PLLC

After five years of using his position as a Department of Defense contractor to scam the U.S. Military, the Afghan National Army, and private vendors, Maryville, Tennessee residents Keith Johnson and his wife, Angela Gregory Johnson pled guilty last month to a nearly $10 million procurement fraud scheme, according to a press release from the Dept. of Justice.

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In statements filed with the U.S. District Court for the Eastern District of Virginia, Keith Johnson and his wife filed fraudulent quotes in order to secure private industry supply contracts for the repair and maintenance of the Afghan National Army's vehicles while employed in Afghanistan. Mr. Johnson, using his position and credentials as a defense contractor, wrote letters to justify illegal purchase orders to receive the needed vehicle parts. Ms. Johnson, using her maiden name, aided in the double dealings by the solicitation of quotes from known venders without the proper recommendations or competitive procedures.

In addition the couple conspired with two additional employees of the central maintenance facility who provided "kickbacks" for the procurement of subsequent vehicle parts that were funneled through their work as subcontractors at the central maintenance facility. All parties concealed their business relationships in order to defraud reputable venders so that all contracts would be awarded to their private companies.

For their fraudulent activities, Mr. Johnson faces a maximum penalty of twenty (20) years in prison and his wife faces a maximum penalty of five (5) years when sentenced on February 14, 2014.

Knoxville, Tennessee Man Sentenced to 46 Months Imprisonment for Possessing $2.5 Million Worth of Counterfeit Money Orders

April 4, 2013, by The McKellar Law Firm, PLLC

On February 15, 2013, Knoxville, Tennessee resident Bernard Addison was sentenced to 46 months imprisonment for conspiring to counterfeit U.S. Postal Service money orders. Addison was a radio news broadcaster in Knoxville, Tennessee, for WIVK FM 107.7 in the 1990's. Coincidentally, he reported on criminal cases for the radio station. Addison had been receiving counterfeit money orders from the country of Ghana for several months.

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After an investigation performed by the U.S. Postal Inspection Service and U.S. Secret Service, Addison was charged with a violation of 18 U.S.C. § 500. Robert Wagner, an inspector for the U.S. Postal Service, retrieved several packages addressed to Addison that contained over 3,000 fake money orders that totaled more than $2.5 million. Addison was receiving a weekly MoneyGram payment of $250.00 a week for his involvement in the scheme.

Pursuant to 18 U.S.C. § 500, federal law makes it a crime for anyone "with intent to defraud" to falsely make, forge, counterfeit, or print any order "purporting to be a blank money order or a money order issued by or under the direction of the Post Office Department or Postal Service." The punishment according to the statute is a maximum prison sentence of 5 years and/or a fine. The sentencing judge will also take into consideration United States Sentencing Guidelines §2B5.1, which sets forth the guidelines for "Offenses Involving Counterfeit Bearer Obligations of the United States."

Tennessee Woman Pleads Guilty to Possession of Counterfeit Securities and Money Laundering

November 17, 2011, by The McKellar Law Firm, PLLC

An Eastern Tennessee woman has pled guilty to one count of possession of counterfeit securities and one count of money laundering in the U.S. District Court of Eastern Tennessee.

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Joan Black of Maynardville, Tennessee admitted before a judge that in 2007 she began soliciting investors to purchase annuities through her company, Benefit Capital, Inc. Part of her solicitation consisted of promising the investors that an insurance company in Galveston, Texas guaranteed to pay an annual interest rate of 10% on the annuities. In reality, Ms. Black created fake portfolios by printing the name and logo of the Galveston insurance company at a print shop in Knoxville. The insurance company had no knowledge that their name and logo were being fraudulently used.

Within one year, she was paid over $673,500 by at least five different investors. Instead of investing those funds, Joan deposited that money into her bank account for her own personal use. Her activity was discovered after an investigation was conducted by both the U.S. Postal Inspection Service and the IRS Criminal Investigation. Her sentencing has been set for January 2012.

Pursuant to 18 U.S.C. § 513(a), a person who "makes, utters or possess a counterfeited security of a state or a political subdivision thereof or of an organization, or whoever makes, utters, or possesses a forged security of a state or political subdivision thereof or of an organization, with intent to deceive another person, organization, or government" can be found guilty of possession of counterfeit securities. If a person is found to be guilty of such a crime, they can either be fined, imprisoned up to 10 years, or both.

Under subsection (b) of the same United States Code, a person can also be fined and/or imprisoned up to 10 years if they have either made, received, possessed, sold, or "otherwise transfer[red] an implement designed for or particularly suited for making a counterfeit or forged security with the intent that it be so used."

Georgia Man Charged with Securities Fraud and Insider Trading

September 15, 2011, by The McKellar Law Firm, PLLC

Two "old friends" were arrested last week for alleged securities fraud and insider trading. The Wall Street Journal reports that Scott Allen of Atlanta, Georgia, was a financial consultant who received inside information about acquisitions by pharmaceutical companies. Allen then released that information to his friend, John Bennett of Norwalk, Connecticut, an independent film producer and former investment professional. Bennett profited over $2.6 million in pharmaceutical stocks while giving Allen $100,000 in kickbacks.

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An "insider" is typically someone who is either a company's officers, directors, or someone who has control of at least 10% of a company's equity securities. A company is required to report trading by corporate officers, directors, or other company members with significant access to privileged information to the Exchange Commission or to have it be publicly disclosed.

Insider trading is when an individual has inside access to confidential or non-public information and takes advantage of such information. Insider trading violates a fiduciary duty that a company has given an insider. Insider trading can also increase the cost of capital for securities traders and therefore have a negative effect on economic growth.

As was the case with Allen and Bennett, when an insider "tips" off a friend about non-public information, the friend then has the same fiduciary duty as the insider, i.e., they now cannot make a trade based upon the inside information. But in order for a friend to be convicted, it must be proven that they knew or should have known that the information was company property.

Both Allen and Bennett were released on $500,000 bond and could face up to 45 years in prison and more than $10 million in fines.

Nashville Man Sentenced to Federal Prison for Involvement in Ponzi Scheme

Nashville, Tennessee area resident, Barron A. Mathis, 30, who was the former Vice-President of J.C. Reed & Co., Inc., was sentenced on May 20, 2011, by United States District Court Judge Aleta Trauger to 72 months in prison, and ordered to pay $2,823,091.06 in restitution, according to a press release from Jerry E. Martin, United States Attorney for the Middle District of Tennessee. U.S. Attorney Martin said, "Mathis stole the hard-earned money of individuals without any consideration for the destruction caused to the lives of his victims. Mathis repeatedly encouraged people to invest by falsely promising security, growth and returns on their money, but instead the investors lost their savings as part of an elaborate Ponzi scheme."

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The press release alleges that Mathis served at various times as a director, vice president, president, and portfolio manager of J.C. Reed, a financial services company located in Franklin, Tennessee. The company, J.C. Reed, operated a residential mortgage originating business and brokered a variety of marketable securities, including certificates of deposit, private placements, partnerships, and mutual funds. John C. Reed, who is now-deceased, was the founder of J.C. Reed. Prior to his death in 2008, Reed and Mathis conspired to devise a scheme to defraud investors who deposited funds with J .C. Reed by soliciting and obtaining money from clients, friends, and acquaintances and falsely promising to invest and manage the money in growth-oriented, traditional instruments, such as investments with fixed annual returns, or in established marketable securities.

The press release further states that customers were solicited by Mathis to purchase J.C. Reed stock. Mathis represented that the stock was a safe investment; however, Mathis was aware that the purchase of J.C. Reed stock was a high-risk investment and that J.C. Reed clients, who were mostly elderly and unsophisticated growth-oriented investors, would not have invested in the stock but for his false assurances. Mathis falsely assured customers that J.C. Reed was profitable and "making money." However, as Mathis well knew, J.C. Reed was not profitable, and virtually all of its operating capital was received from shareholder investments. Mathis also falsely represented to investors that a market existed for J.C. Reed stock and that their investment in J.C. Reed stock would increase in value and be readily redeemable. However, Mathis knew that no market existed for J .C. Reed stock and that no realistic possibility existed for the redemption of J.C. Reed stock other than redemption by family or friends of Reed.

Mathis was paid a commission for identifying and soliciting new clients for investment. Whenever he successfully solicited a new investor, Mathis would deposit the investor's funds into a "discretionary account" with J .C. Reed, thus enabling him to control purchases and sales within the account with few limitations. Mathis frequently used his discretionary authority to liquidate traditional investments from various client portfolios and used the funds to purchase shares of J.C. Reed stock, all without the knowledge or authorization of J.C. Reed clients. At various times, he also withdrew or liquidated assets from individual client accounts and used the funds to make investment purchases for the accounts of other clients or to open new client accounts. In order to disguise his unauthorized purchases and sales of client securities, Mathis created fraudulent invoices, forged client signatures on trading documents, and prepared fictitious account statements that falsely reported client investment holdings.

Man Sentenced to 1 Year in Federal Prison for Fraudulently Pretending to Be His Ex-Wife

March 25, 2011, by The McKellar Law Firm, PLLC

Apparently, even though all may be fair in love and war, all is not legal in love and war. According to the U.S. Attorney's Office in Idaho, Ricky Barry, a 60-year-old resident of Montana, was sentenced earlier this week to a year and a day in federal prison for unauthorized use of an access device by pretending to be his ex-wife while ordering a mattress and a laptop. Barry also paid $7,700 in restitution.

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Barry's plea agreement states that in May, 2008, Barry opened a line of credit in his ex-wife's name and ordered a Tempur-Pedic bed and sheets. The unauthorized access device used during the transaction was the Tempur-Pedic account number opened in his ex-wife's name. Tempur-Pedic recorded telephone calls Barry made on May 30 and July 3, 2008. In those calls, Barry pretended to be his ex-wife when speaking to company representatives and placing the order. Barry also signed the delivery documents with his ex-wife's name at the time the merchandise was delivered. The bed and sheets were later seized by federal agents when Barry's residence was searched pursuant to a federal search warrant.

This type of crime is codified generally in 18 U.S.C. § 1029 [Fraud and related activity in connection with access ­devices]. "Unauthorized access device" is defined at 18 U.S.C. § 1029(e)(3) as "any access device that is lost, stolen, expired, revoked, canceled, or obtained with intent to defraud." The relevant Sentencing Guidelines provision for this crime is found in USSG § 2B1.1, which covers economic fraud crimes generally.

Bankruptcy Fraud Lands Iowa Couple in Jail

February 8, 2011, by The McKellar Law Firm, PLLC

Bankruptcy Fraud Attorneys are familiar with the law codified at 18 U.S.C. § 157, which sets forth the law concerning federal bankruptcy fraud. An Iowa couple, Gerald and Fay Schuerer, have also been forced to become familiar with this law as they were sentenced earlier this week to a combined 6 years in federal prison and nearly $400,000 in restitution for their role in a "complicated bankruptcy scheme."

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Prosecutors argued that the Schuerers made sham sales of assets, such as vehicles, jewelry and stocks, to relatives with an agreement that they would get receive their possessions back after going through bankruptcy. Prosecutors further claim that the Schuerers then claimed to move to Florida where bankruptcy exemptions are more liberal than in their home state of Iowa, filed for bankruptcy protection, and then returned to Iowa to retrieve their property.

The U.S. Attorney's Manual states:

Title 18 U.S.C. § 157 prohibits devising or intending to devise a scheme or artifice to defraud and, for purposes of executing or concealing the scheme either (1) filing a bankruptcy petition; (2) filing a document in a bankruptcy proceeding; or (3) making a false statement, claim, or promise (a) in relationship to a bankruptcy proceeding either before or after the filing of the petition; or (b) in relation to a proceeding falsely asserted to be pending under the Bankruptcy Code.

Bankruptcy fraud cases will vary from cases like the Scheurers to false filings, multiple filings, concealment of assets, and petition mills. The penalties for bankruptcy fraud are up to 5 years imprisonment, fines, and restitution. Additionally, bankruptcy fraud cases often are accompanied by tax evasion charges, wire and bank fraud charges, and mail fraud charges.

Sixth Circuit Tackles Valuation Under the Computer Fraud and Abuse Act

January 31, 2011, by The McKellar Law Firm, PLLC

Although the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, has been alive and well for 25 years, Courts have varied in their approach on determining valuation under this statute. Under the CFAA, valuation plays a pivotal role in determining whether the crime will be treated as a misdemeanor or felony, the appropriate Sentencing Guidelines Range, and the amount of restitution.

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In United States v. Batti, 2011 WL 111745, (6th Cir., Jan 14, 2011), the Defendant was charged with violating the CFAA and particularly with improperly accessing information from a protected computer, in violation of 18 U.S.C. § 1030(a)(2)(C) and (c)(2)(B)(iii). Batti appealed the trial court's finding that the value of the information that he obtained exceeded $5,000 and the district court's order of $47,565 in restitution. The Sixth Circuit determined that the trial court properly used the "value of production" in determining the value of the information that Batti illegally took, and the Court further decided that the trial court did not abuse its discretion in ordering restitution in the amount of $47,565.

18 U.S.C. § 1030(a)(2)(C) sets out the prohibited conduct as follows:

(a) Whoever ... (2) intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains ... (C) information from any protected computer ... shall be punished as provided in subsection (c) of this section.

Per the indictment, the prosecution sought a felony conviction by alleging, pursuant to subsection (B)(iii) of the CFAA, that Batti "obtained information valued in excess of $5,000.00." The only portion of this charge that Batti challenged in the court below was whether the value of the information that he obtained exceeded $5,000. The appellate court ultimately agreed with the trial court's valuation for both sentencing and restitution purposes.

Batti first argued that since he did not damage the stolen information, the "value of the information obtained" could not have exceeded $5,000. The Sixth Circuit echoed the view of the trial court by stating, "There simply is no requirement under the pertinent subsections of § 1030 that Defendant's unauthorized access must have led to any sort of loss, that the value of the information must have been diminished as a result of his conduct, or that he somehow must have profited from his actions. Rather, the trier of fact-in this case, the Court-is called upon only to determine the value of the information through some appropriate means."

Batti also argued that there was no "market value" to the information that was stolen, and accordingly, the court could not assess a value to the information. Again, the Sixth Circuit rejected this argument by stating, "We believe there is also no merit in this argument, because, as we explain below, although there may be no readily ascertainable market value for the video footage that Batti obtained, the cost of production of that footage was a permissible basis on which the district court could rely in determining whether the value of the information obtained exceeded $5,000."

The Sixth Circuit Court of Appeals concluded:

...where information obtained by a violation of § 1030(c)(2)(B)(iii) does not have a readily ascertainable market value, it is reasonable to use the cost of production as a means to determine the value of the information obtained. The district court here believed that the amount Campbell-Ewald paid for the "spots" or video footage that Batti later obtained could be viewed as the footage's market value, but the district court also recognized that footage of this type is not sold on a typical retail market. As a result, the district court believed that the amount that Campbell-Ewald paid for the footage could also be viewed as the cost of production for the development of advertisements or commercials. We see no error in this approach.

The Court acknowledged that the "value of production" method is not the only way to calculate value under the CFAA, and in fact, other circuits have not agreed with the analysis used by the Sixth Circuit. However, computer fraud attorneys in the Sixth Circuit should be aware of the implications of this ruling on a client's sentencing and restitution amounts.

Tennessee Engineers Found Guilty of Stealing Trade Secrets

December 11, 2010, by The McKellar Law Firm, PLLC

A federal jury in Knoxville, Tennessee has found two Greenback, Tennessee engineers guilty of stealing and making use of trade secrets. Clark Alan Roberts and Sean Edward Howley were found guilty on all counts, including charges of conspiracy, theft and attempted theft of trade secrets, and wire fraud. Sentencing is scheduled for April 14, 2010.

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According to an article by Ed Marcum with the Knoxville News Sentinel, federal prosecutors argued that Roberts and Howley, who worked for Greenback-based Wyko Tire Technology Inc., faced a tight deadline to produce tire-making machinery for a Chinese company that wanted to make a certain specialized type of over-sized tires, which Wyko had not previously made. However, prosecutors contended that Goodyear, for which Wyko was a supplier, had developed such machinery. Prosecutors claimed that the defendants made a visit to a Goodyear plant Kansas in May 2007 so that defendant Howley could secretly use a cell phone camera to photograph such a machine.

Violations of federal trade secrets law fall under the guise of The Economic Espionage Act of 1996, which is codified at 18 U.S.C. Sections 1831 and 1832. To be found guilty of violating Section 1832 of the Economic Espionage Act, the Government must prove beyond a reasonable doubt that:
(1) the defendant stole, or without the owner's authorization obtained, sent, destroyed, or conveyed information;
(2) the defendant knew or believed that the information was a trade secret;
(3) the information was in fact a trade secret;
(4) the defendant intended to convert the trade secret to the economic benefit of somebody other than the owner;
(5) the defendant knew or intended that the owner of the trade secret would be injured; and (6) the trade secret was related to, or was included in, a product that was produced or placed in interstate or foreign commerce.

A defendant is also prohibited from attempting to steal a trade secret, or to receive, purchase, destroy, or possess a trade secret which the defendant knew was stolen. 18 U.S.C. §§1832(a)(2) - (4).

Additional Resources
"Jury Finds Two Greenback Engineers Guilty," Knoxnews.com, December 10, 2010
Dept. of Justice Press Release, December 9, 2010