Highmark, Ultra reports and Medicare Audits – handle them by yourself at your own risk (or, why smart Doctors lawyer up) June 1, 2011
Posted by jefhenninger in Articles.Tags: Medicare Audit, Medicare Fraud, ULTRA Report
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Medicare is a pain to deal with. That’s why you love your billing manager so much right? Well, if you get a letter from Highmark indicating that an ULTRA report shows an aberrancy in your practice with regard to certain billing codes, I suggest you call a good Medicare fraud lawyer right away. The problem with the initial letter from Highmark is that is not really that threatening. It just lets you know that there is an issue. For the most part, you don’t really have to even do anything; there is nothing to even fill out. You could just file it away and ignore it right?
That could be a huge mistake. Sometimes after the letter with the ULTRA report, you will be targeted for an audit. The audit starts with a request for medical records for approximately 25 to 35 patients or services. These medical records will be reviewed internally which will generate an analysis that either supports your utilization or determines that the services were not covered for a variety of reasons, i.e., medical necessity, failure to abide by policies such as mandatory surgical second opinions or some other cause such as fraud. You will then be permitted to submit additional information which can then be submitted to an outside reviewer. Clearly, the big issue here is whether it appears that you are billing for services that did not occur or that you are intentionally over billing.
When records are requested, you should an attorney helping you through the process. The records you initially supply will be used to determine whether you will be subject to a refund request and further review. This could be your last opportunity to present all of the information necessary to support your actions in an attempt to avoid a costly audit and investigation. Your attorney should help you decide what to say and how much information to provide although it generally helps to provide as much information as possible but the records have to be organized and easy to read/understand. Your attorney may also have the records reviewed by an outside reviewer to bolster your position that your actions/practices are correct.
Please keep in mind that Medicare and Highmark can/will use the records that you have provided as a sample to generate refund requests covering the three year period prior to the services. For example, if 20 services are reviewed and it is determined that 10 of those services were unnecessary, then you may be subject to a refund request for 33% of all of the money that was paid for you for those services for the prior three years. That could be a very large sum of money.
Of course, you can and should speak to your attorney about disputing the ULTRA report and not waiting for the audit. First, review the ULTRA report to make sure that you are correctly characterized with regard to specialty as your practices are compared to your peer group (i.e. other physicians in your specialty). I’ve had cases where Highmark’s ULTRA report was not correct because my client had a very unique practice and thus, the peer group was not correct. You then need to review your billing practices with regard to those procedure codes in order to defend your practices or to revise that practice. In other words, assume you had to testify tomorrow. Would you be able to explain everything you did or your billing manager does? Are all of your records in order? Could you prove everything as if the burden of proof was on you? You also want to see how far above the 95% percentile you are. The closer you are to being off the charts, the greater the danger for not only an audit, but also a fraud investigation or prosecution.
Remember, even if you are found not guilty, your reputation is too important to risk. Don’t handle this yourself. Call a good attorney right away.
New Jersey Medicare Fraud Lawyers
Mortgage Companies hire private investigators to investigate mortgage fraud April 10, 2011
Posted by jefhenninger in Articles.Tags: Mortgage Fraud
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Law enforcement is permitted to lie to you to secure a confession. However, there are restrictions in what they could lie about. However, private citizens including private investigators can lie to you. Thus, if you get contacted by an investigator that is looking into your loan application, you may want to speak to an attorney before you say or do anything. I would be especially concerned if the investigator actually shows up at your house. To illustrate this point, consider this example from a recent case I had:
My client (who denied any wrong doing) was visited by a local investigator who was working on behalf of a company called Armitage & Associates based out of Milwaukee, Wisconsin. The letter indicates that “Armitage & Associates and Investigative Solutions, LLC have been retained by Mortgage Guaranty Insurance Corporation (MGIC) to reverify, as part of an internal control process, the facts and circumstances surrounding the mortgage loan application by ….”. The letter goes on to say that “a quality control audit is in effect for the above mortgage loan transaction. This is NOT an attempt to collect a debt or legal issues; this is strictly an attempt to confirm information on your original loan application, which is required as part of a routine quality control audit. Your interview is necessary in order to finalize and close this file. Your prompt attention and cooperation is appreciated”.
OK, let’s break this down. This company is going through some type of quality control audit for a mortgage that was written some time ago. Oddly enough, the property in question went into foreclosure. If there is a quality control audit going on, couldn’t they just call you and ask you some questions? Or, couldn’t they just mail you some information to fill out? Instead, MGIC would rather hire one company that would then hire another company to come to your house and speak with you. Of course, instead of just sending anyone to you, they hire and send out “investigators”. Why are private investigators involved in a quality control audit? Why are they spending so much money just to look into quality control for an application from several years ago? None of it adds up does it?
Looking at Armitage’s website, one will see that they have a big focus on mortgage fraud. They say that: “Our mortgage fraud investigation team is comprised of former mortgage insurance industry insiders – loan originators, underwriters and loan processors. Along with our unique blend of innovative and traditional investigative techniques, we have the knowledge and insights to know exactly what information is needed and how to obtain it. You can rely on our mortgage fraud investigation team for reliable research, detailed reports and prompt turnaround time.”
Their website also includes testimonials, such as this one “Over the past 4 years we have used Rico Garcia and Armitage & Associates to investigate mortgage fraud involving lenders, brokers, mortgage loan originators, processors, realtors, appraisers, and borrowers. The success of each of our lawsuits against any of the above named “fraudsters” was the direct result of the investigative work of Armitage & Associates.” Doesn’t sound like an audit to me. While Armitage does indicate that they offer quality control services, mortgage fraud does seem to be a major focus for them.
Why would MGIC be looking into old mortgage applications? When a bank forecloses on a home with an insured mortgage, companies such as MGIC are on the hook for the payments. If they can prove that there was fraud, they may be able to get out of paying up. For example, in one California case involving a dispute with Countrywide, MGIC indicated that they performed an investigation and “first, contrary to Countrywide’s insurance application, [the borrower] was never an account executive at GNG Investments. There is no such enterprise operating in Santa Clara or anywhere else in California. Nor did she earn $13,494 per month, as Countrywide represented. Instead, she earned $3,901.58 per month as a janitor for Santa Clara Valley Medical Center. … she never had a bank account at Wells Fargo, let alone one worth $45,000. Nor did she put a $30,000 down payment—or a down payment of any amount—on her house”.
How do you think they found out all of that information?
Defending Credit Card Fraud Conspiracy Charges November 27, 2010
Posted by jefhenninger in Articles.Tags: credit card fraud
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As New Jersey Credit Card Fraud Defense Lawyer, I’ve seen many credit card fraud cases. Many small credit card fraud cases usually involve one person stealing a credit card or using one that they find on the floor. Depending on the jurisdiction and the attorney handling the case, the punishment can be relataviely minor. However, a vast credit card fraud conspiracy may be prosecuted on the federal level and as a result, can come with severe penalities. While there are many ways to defend such a case, the case of U.S. v. Samaria, 239 F.3d 228 (2nd Cir. 2001) provides an excellent starting point for attorneys.
Because this was a conspiracy case, the case is titled in the last name of Samaria but the main defendant at issue is named Frank Elaiho. The other two codefendants, Lance Samaria and Eric Rondell Glover pled guilty to participation in a complex criminal credit card fraud scheme. Over a several month period, Samaria and Glover stole credit card numbers, rented mailboxes from Mailboxes, Etc. and set up voice mail accounts. They changed the addresses and phone numbers corresponding to the credit cards numbers they had stolen, and requested credit-line increases for some of the cards. They then placed orders for expensive computer equipment and had the items mailed to Mailboxes etc. In furtherance of the scheme, they provided additional identifying information over the phone and faxed copies of fake drivers’ licenses they had obtained under the cardholders’ names. Eventually, the Secret Service started an investigation.
During the investigation, Secret Service agents observed Samaria loading a large box into Elaiho’s car. According to testimony at trial, one of the agents saw Elaiho “kind of looking around where other people [were] walking.” Of course, this was speculation but there is no indication if there was an objected. After Samaria finished loading the box into the car, the agent saw Elaiho sit in the passenger’s seat, with Samaria behind the wheel, and a third person, assumed to be Glover, in the backseat. The license plate number was later traced to Elaiho’s rental car.
A few days later, agents saw the same car pull up to the same Mailboxes, Etc. store with Elaiho driving this time. Samaria was in the passenger’s seat and Glover in the backseat. Samaria went inside and returned with two boxes. He hailed a cab and got in with the boxes. Elaiho testified that Glover told him to follow the cab which stopped a few blocks away. There, Samaria unloaded the two boxes from the cab at the curb and crossed the street toward some pay phones. Glover got out and stood by the boxes, and Elaiho remained in his car. Within minutes, all three were arrested at the scene. Inside the two boxes was found computer equipment purchased with a stolen credit card number.
The Government case against Elaiho consisted of assertions that he had (1) made false exculpatory statements when arrested; (2) observed the items themselves; (3) served as a “lookout” during the one delivery; (4) consciously avoided discovery of the nature of the conspiracy; (5) constructively possessed the stolen items; (6) rode as a passenger in his car during the first pickup and was present at the second pickup. The Appellate Court addressed each issue and this tearing apart of the circumstantial evidence is a vital exercise for every defense attorney to engage in.
1. When Elaiho was arrested, he stated that he did not know Samaria or Glover, had never been to the particular Mailboxes, Etc. prior to the date he ewas arrested, and had not lent his car to anyone else who could have driven it to that location for the first pick-up. Clearly, a jury could reasonably find these statements were false and made by Elaiho in an attempt to exculpate himself from involvement in criminality. However, the Court found that the statements do not by themselves supply the evidence of Elaiho’s knowledge and specific intent otherwise lacking from the evidence in the Government’s case. Although false statements may strengthen an inference already supplied by specific indicia of knowledge and intent, they do not, by themselves, prove that Elaiho knowingly and intentionally acted in furtherance of a conspiracy to receive or possess stolen property or engaged in, aided and abetted, or conspired to commit credit card fraud.
2. The government maintains that because Elaiho aided in the pickup of stolen goods, he intended to participate in the crimes charged. The Court noted that this argument rests upon the unproven assumption that Elaiho knew that the goods were stolen. That is because what Elaiho saw during these pickups was not necessarily or even reasonably indicative of any criminal activity at all, much less sufficient to support the conclusion that he knew that the goods were stolen or purchased through credit card fraud. Even if he suspected that the other two were involved in a criminal enterprise of some sort, the exterior appearance of the boxes was also consistent with any number of different criminal offenses such as receipt and possession of drugs, illegal weapons, counterfeit currency, or the receipt of legal goods such as drug paraphernalia that would later be employed in a criminal endeavor. Thus, a defense attorney must fight a prosecutor’s attempt to argue that because criminal activity took place, the defendant must have known and participated in the criminal activity. This circular logic must be vigrously fought.
3. As previously stated, the agent’s opinion that Elaiho acted as a lookout was riduclous. The Court found that there was no evidence that Elaiho was ever armed, or that he said or did anything in his role as “lookout” except, as the agent put it “kind of looked around where other people were walking. This should have been objected to preserve the issue for appeal. The prosecutor can make the argument to the jury but this is improper opinion testimony for the agent. There are many cases on lookout and conspiracy cases, but one of the more helpful ones to the defense is United States v. Dean, 59 F.3d 1479, 1487 (5th Cir.1995) in which the court held that “Evidence sufficient to support a reasonable inference that a defendant was knowingly acting as a lookout was insufficient support for the further inference that the defendant knew what he was protecting.”.
4. The conscious avoidance doctrine provides that a defendant’s knowledge of a fact required to prove the defendant’s guilt may be found when the jury “is persuaded that the defendant consciously avoided learning that fact while aware of a high probability of its existence.” United States v. Finkelstein, 229 F.3d 90, 95 (2d Cir.2000). In such circumstances, a conscious avoidance instruction to the jury “permits a finding of knowledge even where there is no evidence that the defendant possessed actual knowledge.” United States v. Ferrarini, 219 F.3d 145, 154 (2d Cir.2000). The Court found that even assuming that the conscious avoidance instruction given to the jury in this case was proper, any such inference could do no more than establish Elaiho’s knowledge of the criminal endeavor, not his specific intent to participate in the crimes charged.
5. Prosecutor’s love constructive possession and too many defense attorneys think that if something illegal is in the car and no one “owns up to it”, everyone is going down. The unexplained possession of recently stolen property may permit an inference that the possessor knew that the property was stolen. See Barnes v. United States, 412 U.S. 837, 845-46 (1973). “Constructive possession exists when a person has the power and intention to exercise dominion and control over an object.” United States v. Payton, 159 F.3d 49, 56 (2d Cir.1998). Thus, what most attorneys forget is that “mere presence at the location of contraband does not establish possession.” United States v. Rios, 856 F.2d 493, 496 (2d Cir. 1988). The Court found that the boxes were only in Elaiho’s car on the first occasion. Furthermore, he was there is no evidence that Elaiho handled any of the boxes or directed where they were to be taken or what was to be done with them. At all times, Elaiho appeared to follow the directions of Samaria and Glover. Elaiho did not, therefore, exhibit the dominion and control over the boxes necessary to find that he constructively possessed them.
6. The Court simply found that just by being in the car offers no indicia that Elaiho was aware of the specific crimes charged and that Elaiho had the specific intent to participate in those crimes.
The Court found that the evidence was insufficient to show that Elaiho knowingly and intentionally participated in a conspiracy to receive or possess stolen goods. Likewise, it was also insufficient to support a conviction on the fraud offenses. The government contended that “it was reasonable for the jury to infer that Elaiho knew that this merchandise had been purchased with a credit card since the merchandise was clearly purchased using mail-order delivery.” The Court found that without the knowledge that the boxes contained stolen goods, Elaiho could not have intended to engage in credit card fraud, conspire to commit such fraud, or aid and abet such a fraud. The government offered no evidence that Elaiho knew that he had parked near a Mailboxes, Etc. location, or that Elaiho, an immigrant from Nigeria, knew the significance of such a business for those interested in mounting a fraud scheme involving stolen credit card numbers. This topic, essential for the government’s case, was never broached during Elaiho’s extensive testimony and no other evidence was introduced to suggest that Elaiho possessed such knowledge outside of the agent’s testimony that Elaiho stood across the street from a Mailboxes, Etc. store on November 13, 1998.
While this exact fact pattern may not be present in most credit card fraud conspiraicies, the issues of specfic intent, being a look out, constructive possession and conscious avoidance may be present in many cases. Just like the Court in this case tore apart the Government’s case point by point, so must the defense attorney address each issue. Too many attorneys read a police report and view the case as a normal person. Hearing the Government’s side of the story, a lay person may have said that Elaiho is clearly guilty. However, a defense attorney cannot afford to think like a normal person. He or she must view the case in terms of admissible evidence and legal arguments. When this is done effectively, the Government may have a tough time proving a credit card fraud conspiracy.
Third Degree Official Misconduct is Only an Exception April 4, 2010
Posted by jefhenninger in Articles.Tags: official misconduct
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In State v. Phelps, 187 N.J. Super. 364, 375 (App. Div. 1983), aff’d, 96 N.J. 500 (1984), the Appellate Divsion held that official misconduct is a crime of the second degree and that, rather than forming a substantive element of the offense, the part of the statute that reads:
“any offense proscribed by this section is a crime of the second degree. If the benefit offered, conferred, agreed to be conferred, solicited, accepted or agreed to be accepted is of the value of $200.00 or less, any offense proscribed by this section is a crime of the third degree”
“carves out an exception” where the benefit obtained or sought to be obtained is of a value of $200 or less. Id. at 373-74. The Phelps Court found that the Legislature intended for courts construing the official misconduct statute to “start from the premise that the offense is of the second degree.” Id. at 375. The carved out exception “is clearly pecuniary in nature” and did not apply to “a benefit not subject to pecuniary measurement.” Ibid. Applying this same reasoning, the Appellate Division has also affirmed a conviction for second-degree official misconduct of a volunteer firefighter who repeatedly called in false fire alarms in order to experience the joy of responding to them and possibly to give the volunteer fire department enough work to justify its existence, holding that “[b]ecause there was no pecuniary benefit, the misconduct was second degree.” State v. Quezada, 402 N.J. Super. 277, 286 (App. Div. 2008).
Official Misconduct Must Somehow Relate to the Defendant’s Public Office April 4, 2010
Posted by jefhenninger in Articles.Tags: official misconduct
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Official Misconduct has become a very popular crime over the last decade. With NJ’s economy further falling into the abyss, the public will demand that public officials be prosecuted and law enforcement, always ready to make headlines, will look for utilize this statute any chance they get. With that desire however, comes over reaching. There have been several cases where the State has charged official misconduct only to have the court throw it out.
When confronted with an official misconduct charge, a defense lawyer must assume the facts are true (for now) in order to make sure that the charge is proper.
The 2009 case of State v. Kueny is a great example of what happens when the State goes too far and how to analyze these cases.
a. He commits an act relating to his office but constituting an unauthorized exercise of his official functions, knowing that such act is unauthorized or he is committing such act in an unauthorized manner; or
The defendant’s oath as a police officer to defend and obey the laws of New Jersey, in of itself, does not make him strictly liable for official misconduct for all crimes he may commit. The Supreme Court has stated that, although the oath of office “is a necessary condition to assumption of office, of itself it creates no particular duty, transgression of which” would be indictable. See State v. Silverstein, 41 N.J. 203, 205 (1963). Nor was there introduced into evidence any statute, Mount Laurel Police Department standard operating procedure, order, rule or regulation which prescribed that a police officer had a duty to return lost money that is discovered while the officer is off-duty, on vacation or outside of Mount Laurel. In New Jersey “‘the fundamental duty of a policeman . . . is to be on the lookout for infractions of the law and to use due diligence in discovering and reporting them.'” Ballinger v. Del. River Port Auth., 172 N.J. 586, 604 (2002) (quoting City of Asbury Park v. Dep’t of Civil Serv., 17 N.J. 419, 429 (1955) (brackets omitted)). However, as a rule “a governing body can directly exercise its police power only within its jurisdictional boundaries, absent a statute broadening those powers.” State v. Cohen, 73 N.J. 331, 342 (1977).
The jurisdiction of officers of New Jersey municipal police departments is generally limited to “within the territorial limits” of their municipalities. N.J.S.A. 40A:14-152. An exception to this rule is that a municipal police officer has “full power of arrest for any crime committed in said officer’s presence and committed anywhere within the territorial limits of the State of New Jersey.” N.J.S.A. 40A:14-152.1. See State v. White, 305 N.J. Super. 322, 327 (App. Div. 1997); State v. Montalvo, 280 N.J. Super. 377, 381 (App. Div. 1995); see also Barna v. City of Perth Amboy, 42 F.3d 809, 817 (3d Cir. 1994).
Subsection b, the “omission to act” phase of this offense, has reference to a public servant who consciously refrains from performing an official non-discretionary duty, which duty is imposed upon him by law or which is clearly inherent in the nature of his office. In addition, the public servant must know of the existence of such non-discretionary duty to act. Thus, such duty must be either one that is imposed by law, or one that is unmistakably inherent in the nature of the public servant’s office, i.e., the duty to act is so clear that the public servant is on notice as to the standards that he must meet. In other words, the failure to act must be more than a mere breach of good judgment. In the absence of a duty to act, there can be no conviction.
[II Final Report of the New Jersey Law Revision Commission, Commentary 291 (1971).]
The proposition that it is an inherent duty of every police officer to obey the law, and therefore police officers are strictly liable under
Stated differently, the misconduct must somehow relate to the wrongdoer’s public office. There must be a relationship between the misconduct and public office of the wrongdoer, and the wrongdoer must rely upon his or her status as a public official to gain a benefit or deprive another. State v. Corso, 355 N.J. Super. 518, 526 (App. Div. 2002) (off duty officer has a duty to arrest persons committing a crime in the officer’s presence; conviction upheld), certif. denied, 175 N.J. 547 (2003). See also State v. Bullock, 136 N.J. 149, 157 (1994) (suspended officer displayed State Police identification card to his victims; conduct sufficiently related to office to constitute misconduct); State v. Mason, supra, 355 N.J. Super. at 305 (dismissal of misconduct count affirmed; defendants were private citizens performing services pursuant to government contracts); Cannel, New Jersey Criminal Code Annotated, comment 4 on N.J.S.A. 2C:30-2 (collecting cases).
Understanding Willful Blindness April 3, 2010
Posted by jefhenninger in Articles.Tags: money laundering, willful blindness
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If the Government is investigating your client for money laundering, they may mention that your client is guilty via “willful blindness”. Unlike most crimes which require a specific mental intent, money laundering via willful blindness will ensnare defendants who simply turned a blind eye to the crime. As a result, your client may have a hard time understanding how he did anything wrong.
The line between innocence and guilt due to willful blindness can be rather thin and a careful examination of all of the surrounding facts and circumstances will help you make a proper determination. Of course, early attorney involvement and cooperation with the Government may prevent prosecution even if the facts tend to show guilt. A good example of willful blindness is found in the case of U.S. v. Flores, 454 F.3d 149, 156 (3d Cir. 2006.
Luis Flores was an attorney who had a solo practice in Queens. In 1998, he was visited in his office by German Osvaldo Altamirano-Lean (“Altamirano”). Altamirano presented himself as an Ecuadorian businessman eager to establish his flower, fruit, and seafood import/export business in the United States. According to Flores, a naturalized American citizen and native of Chile, he was persuaded that Altamirano was who he purported to be. Flores had recently finished work on a matter for the Republic of Argentina, and was interested in developing a practice assisting
South American businessmen. Over the next several years, Flores opened several corporations for Altamirano, ultimately naming himself as the
nominal president of those companies. He also established several business checking accounts for each of the corporations at different banks, signed myriad blank checks drawn on those accounts, and authorized numerous wire-transfers from the accounts to various foreign and domestic recipients.
Ultimately, Altamirano, Flores and others were indicted for conspiracy to commit money laundering and other offenses. Altamirano cooperated with the Government and testified at Flores’ trial. The Government’s theory of the case was that Flores was “willfully blind” to Altamirano’s unlawful activities. The defense, on the other hand, argued that Altamirano had
deceived Flores into believing that he was a legitimate businessman and that Flores was Altamirano’s unknowing victim and not his co-conspirator.
In January 1999, Flores attemptedto obtain tax identification numbers for three corporations using first one and then another social security number provided byAltamirano, but in each instance Flores was informed that the
numbers were false. He warned Altamirano about the unlawfulness of using invalid social security numbers, and offered to take steps to obtain valid numbers. Instead, Altimirano removed the corporate books from Flores and gave them to co-conspirator Victoria Hernandez. Altamirano paid Hernandez $2,000 per week to open corporations and manage
his relationships with the banks. In April 1999, Altamirano learned that Hernandez had been stealing from him. Altamirano thus decided to return the books to Flores, who agreed to open and oversee bank accounts for the corporations in exchange for the $2,000 weekly salary that Hernandez had received. Flores was paid the $2,000 each week in cash.
In early May 1999, Flores arranged for the incorporation of three new companies and opened an account for each of them at four banks: Republic National Bank, European American Bank, Chase Manhattan Bank, and Citibank. As noted previously, Flores held himself out as the president of these corporations, and was the only person authorized to sign
checks, transfer money, and act on behalf of the entities. For each checkbook, Flores signed about 25 to 30 blank checks; Altamirano retained two or three of these checks to make transfers from one account to another, and sent the remaining checks to Columbia. As soon as the accounts were opened, multiple cash deposits were made and money began to be wired
in and out of the accounts and between accounts. Individual deposits were always less than $10,000, but on any given day the aggregate amount deposited in any account could exceed $10,000.
Just weeks after he had opened the new accounts, Flores received a letter from Republic National Bank (1) explaining what “structured” transactions are and why they are illegal, and (2) informing him that “when an account receives a large incoming wire [transfer of money] and immediately sends an outgoing wire or wires for approximately the same amount,
without apparent commercial justification, it mirrors the activity of an account opened by money launderers.” Flores and Altamirano were asked to attend an in-person meeting at Republic National Bank in late May 1999, at which they were expected to supply documentation of the source of the funds in the bank accounts. When they failed to do so, a bank employee
requested they speak with the bank manager, Thomas Grippa.
In response to Grippa’s questions concerning the number of accounts and seemingly “structured” cash transactions, Altamirano stated that he maintained multiple accounts to create the appearance for his Ecuadorian suppliers that he had many profitable businesses and to get certain credits from the government of Ecuador. He also explained that he was paid in
cash by a customer at the Hunts Point produce market and that he had lost a lot of money after a hurricane delayed his ship and a large shipment of food spoiled. Grippa testified that he did not accept any of these excuses. Ultimately, both Republic National Bank and European American Bank closed the accounts. Flores told Altamirano that he felt more comfortable
working with Citibank and Chase, where he had personal contacts.
Flores’ accountant, Israel Rivera, who was hired to perform work for Altamirano in April 1999 due to the increasing difficulty of balancing Altamirano’s books, testified that he asked Flores for copies of invoices to document the source of funds in the accounts. He also reported that he had voiced concern to Flores about large payments to European
companies that bore no apparent relationship to the import/export of fruit, flowers, and fish from Ecuador. According to Rivera, he received neither an explanation nor copies of invoices in response to his requests.
Flores remained the sole signor and receiver of the companies’ multiple account statements for several additional months, during which approximately $1,288,085 passed through the companies’ remaining bank accounts. It is undisputed that the cash was transferred via checks and wire transfers signed by Flores to recipients in Columbian-operated
brokerage houses on the Black Market Peso Exchange. As a result of these activities, the Government charged Flores with
conspiracy to launder money, money laundering, and conspiracy to structure currency transactions. A jury convicted Flores on
all counts.
Flores argues that the Government failed to prove beyond a reasonable doubt that he knew or was willfully blind to the fact that the money laundered by Altamirano either “represent[ed] the proceeds of some form of illegal activity,” 18 U.S.C. § 1956(a)(1), or was “criminally derived property,” 18 U.S.C. § 1957(a). According to Flores, “[t]he only form of
unlawful activity identified at trial was drug trafficking. Yet the evidence the Government presented was wholly insufficient to establish [his] knowledge of, or willful blindness to, the fact that the funds originated in drug trafficking or any other crime.”
To prove conspiracy to commit money laundering, the Government was required to show, inter alia, that Flores consorted with others in a money laundering scheme, knowing that the property involved in a financial transaction represent[ed] the proceeds of some form of unlawful activity [and] conduct[ed] or attempt[ed] to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity. 18 U.S.C. § 1956(a)(1). It is undisputed that the financial transactions Flores conducted on behalf of Altamirano “in fact involve[d] the proceeds of specified unlawful activity,” to wit, narcotics trafficking. Thus, the only question is whether the Government produced evidence that Flores knew of or was willfully blind to the fact that the funds originated in some form of unlawful activity, sufficient to obtain a conviction under § 1956(h). See 18 U.S.C. § 1956(c)(1) (stating that it is sufficient if “the person knew the property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony under State, Federal, or foreign law”) (emphasis added). Accordingly, the defense’s argument that the Government needed to prove that Flores knew of, or was willfully blind to, the fact that the funds originated in drug trafficking is off point.
To prove money laundering, the Government was required to show that Flores, knowingly engage[d] or attempt[ed] to engage in
a monetary transaction in criminally derived property of a value greater than $10,000 and is derived from specified unlawful activity. 18 U.S.C. § 1957(a). Again, because the monetary transactions that Flores conducted on behalf of Altamirano were “derived from specified unlawful activity,” the only question is whether the Government produced sufficient evidence that Flores knew that the monetary transactions represented the proceeds of criminally derived property. For the same reasons provided above, the defense’s argument—that the Government needed to prove that Flores knew of, or was willfully blind to, the fact that the funds originated in drug trafficking to obtain a money laundering conviction—fails. See 18 U.S.C. § 1957(c) (“[T]he Government is not required to prove that the defendant knew that the offense from which the criminally derived property was derived was specified unlawful activity.”).
Our remaining task is to determine whether there is substantial evidence in the record, viewed in the light most favorable to the Government, that Flores knew that the property involved in the financial transactions represented the proceeds of some form of unlawful activity and/or criminally derived property. Knowledge may be demonstrated by showing that a defendant either had actual knowledge or “deliberately closed his eyes to what otherwise would have been obvious to him concerning the fact in question.” United States v. Stewart, 185 F.3d 112, 126 (3d Cir. 1999). The Government establishes willful blindness by proving that a defendant “was objectively aware of the high probability of the fact in question,” Brodie, 403 F.3d at 148 (citation omitted), and “could have recognized the likelihood of [illicit acts] yet deliberately avoided learning the true facts.” Stewart, 185 F.3d at 126.
Here, the jury reasonably concluded that Flores participated in the money laundering conspiracy either knowingly or with willful blindness. The following record evidence, inter alia, created in Flores objective awareness of the high probability that Altamirano was involved in money laundering: (1) one of Flores’ initial interactions with Altamirano involved the supply of two false social security numbers; (2) as soon as Flores opened multiple bank accounts for the corporations, large amounts of cash began flowing in and out of the accounts, despite the fact that the corporations
had just opened for business and had no physical location other than Flores’ own offices; (3) Flores received a letter from the Republic National Bank explaining what “structured” transactions are and why they are illegal, and informing him that “when an account receives a large incoming wire and immediately sends an outgoing wire or wires for approximately
the same amount, without apparent commercial justification, it mirrors the activity of an account opened by money launderers”; (4) the manager of Republic National Bank disbelieved Altamirano’s explanation concerning his numerous accounts and financial transactions and told Altamirano and Flores that the accounts were “evidently” being used for “money
laundering”; (5) Flores’ accountant, Rivera, testified that he had sought invoices documenting the source of the funds but never received the documentation he requested; and (6) Rivera also questioned Flores about why the funds were being sent to foreign companies with no apparent relationship to the Ecuadorian fruit, fish or flower trade.
In response to the substantial evidence that Altamirano was involved in some sort of illegal activity, Flores willfully blinded himself to the truth. He never requested any proof of the legitimacy of the transactions from Altamirano or even any further explanation addressing either the bank manager’s or accountant’s concerns. That Flores “did not ask the natural
follow-up question[s] to determine the source of those funds could reasonably be considered by a jury to be evidence of willful blindness.” United States v. Wert-Ruiz, 228 F.3d 250, 257 (3d Cir. 2000). Indeed, when faced with the above-detailed
evidence, instead of making obvious inquiries, Flores engaged in additional money laundering transactions. For example, he continued to sign checks and wire transfers and to receive account statements documenting the flow of over $1,200,000 through the accounts. Moreover, Flores dissuaded Altamirano from discontinuing suspicious financial transactions after the
meeting with Republic National, and instead opened accounts at other banks, stating that he needed the $2,000 per week he was being paid in cash to oversee the bank accounts. Thus, the jury could have inferred that Flores was motivated to avoid learning the truth because the money laundering operation was profitable to him. See Brodie, 403 F.3d at 158.
Unemployment fraud investigations on the rise in New Jersey: confusion and bad information likely cause March 12, 2010
Posted by tsclaw2209 in Articles.Tags: unemployment fraud
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The amount of unemployment fraud cases I have been involved in here in New Jersey has dramatically increased. I have cases involving small amounts and large amounts, cases where my client has already been indicted and some where no one has even contacted my client yet. So, I thought that I would share some more information as this situation is likely to continue for years to come.
Miscommunication and Confusion
Have you tried to call the New Jersey unemployment office lately? Good luck getting anyone on the phone. However, if you do get someone on the phone, you may get bad information. I’ve had several people call me who are now involved in an unemployment fraud investigation when they thought that they did everything the right way. Confusion often arises with people are who self-employed, working part-time on and off and who are working on a per-diem or contract basis. Whether they should continue claiming unemployment benefits in New Jersey and how these situations should be handled leads to confusion. The worst part is, when some people call the New Jersey Unemployment Office for advice, they are either given wrong information or there is a miscommunication. As a result, they may wind up being investigated months or even years later.
Legal Assistance
Keep in mind that anything you say to anyone at the unemployment office can and will be used against you if you are prosecuted. Thus, an attorney speaks for you so that the case can be resolved before you incriminate yourself. As innocent as your explanation may sound to you, to an investigator it may be taken as an admission of guilt. Besides speaking for you, an attorney can also help prevent you from being prosecuted.
While every case is different, two of my cases provide a great example of how a New Jersey unemployment fraud defense lawyer can help. One client owes over $45,000. We are trying to work out a payment plan at the moment but he will not be prosecuted. Another client just hired me yesterday that owes about $25,000. He has been indicted and we had court today. What’s the difference? The first client came to me the moment there was any indication of a problem. The second client tried to handle it by himself, confessed and could not resolve it. I am now in the case at the last minute.
Thus, while you may not “need” a lawyer, getting one at the first sign of trouble may be the best investment you ever make. Not only can you save money by avoiding court appearances and litigation, but you can keep your name out of the paper. The New Jersey Attorney General’s Office often publishes the names of those charged with unemployment fraud. Of course, if you are never charged, your name will not appear along with everyone else who was charged.
Whether your unemployment fraud case was the result of intentional wrong-doing or an accident, give me a call to discuss how I can help protect you from criminal charges and a criminal record.
Understanding Mortgage Fraud for Lawyers March 7, 2010
Posted by jefhenninger in Articles.Tags: Mortgage Fraud
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I have been involved in a number of mortgage fraud related cases. In some cases, my client was clearly guilty while in others, my client was innocent. As a lawyer, you need to evaluate your client’s criminal liability and the evidence against them right away in order to provide effective advice. This is especially important in white collar crimes for two reasons. First, your client may either be in denial about his guilt or may not be aware that his activity is really illegal. Second, clients under investigation for a white collar crime often come to you long before an arrest is made. A lawyer should use this time start preparing for trial. Unfortunately, many lawyers allow the file to collect dust while the Government continues to build their case.
The Players
A mortgage fraud case may involve dozens of people. It is important to trace the transaction from beginning to end to identify everyone involved and where your client fits into the picture. In very complex cases, the primary victim is the lender. A builder/seller may recruit realtors, who, in turn, recruit straw buyers. In order to defraud the lender, the mortgage broker, closing attorney, appraiser and title company may also be in on the scheme or may be willing to look the other way. In addition, there may be “specialists” who provide fake Ids, false pay stubs and false bank statements. If the straw buyers are unemployed, other people may provide a phone number to verify the fake employment. Once everyone associated with the case is identified, everyone should be interviewed to lock them into a story. Due to cost issues, this is rarely done; but it should be done as soon as possible.
The Records
At some point, there is a good chance that the Government is going to take every piece of paper in your client’s office and home. If your lucky, you may see some of it some day. So why risk that? Get copies of everything now and review it for red flags. In addition, get all of your client’s bank records and tax returns to look for evidence of kick backs, tax evasion and money laundering.
The many faces of Mortgage Fraud
Mortgage fraud is really an umbrella term that covers a number of schemes.
Fraudulent Property Flipping – Fraudulent flipping often occurs when the suspect purchases property falsely appraised at a higher value and then quickly sells it, profiting from the false appraisal. In fact, sometimes the suspect may own the property for less than 48 hours.
Silent Second – Silent Second fraud occurs when a buyer borrows the down payment from the seller through the issuance of a non-disclosed second mortgage which leads the primary lender to believe that the borrower has invested his own money in the down payment. The second mortgage may not be recorded to further conceal it from the primary lender. Another variation of this involves the builder/seller fronting all closing costs including the down payment. This is made easier when the down payment is less than 20%. Again, this is not disclosed to the lender.
Nominee Loans/Straw Buyers – Straw buyer fraud occurs when a person conceals his identity through the use of a nominee with that nominee’s consent, often relying on the nominee’s better credit history, to apply for a loan the person otherwise could not have obtained.
Fictitious/Stolen Identity – the suspect uses a fictitious or stolen identity to apply for a loan or to co-sign for the loan. With these cases, the lender will attempt to go after the victim who may have an uphill battle to prove that their identity was stolen.
Foreclosure Rescue Schemes – In rescue scheme fraud, the suspect identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. He then misleads the homeowners into believing that they can save their homes if they transfer to the suspect the home’s deed and up-front fees or purchase loans through the suspect. The suspect profits by remortgaging the property or pocketing fees paid by the homeowner.
Equity Skimming – In equity-skimming fraud, the suspect may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer’s name. After closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and often rents the property for additional profit until the inevitable foreclosure on the property.
Air Loans – Perpetrators of Air Loan fraud obtain property loans for which there is no property or other collateral. The perpetrator may invent borrowers and properties, establish accounts for payments, and maintain custodial accounts for escrows. He may even set up telephone numbers for the “employer,” “appraiser,” etc., to provide the lender with “verification” of the false information. Ponzi Schemes – The suspect solicits money from investors, selling interest in the same property to multiple investors or simply pocketing money and providing false documentation for the transactions.
Combination of the above – Some complex fraud schemes may involve a combination of the above schemes for maximum profit.
Signs of Mortgage Fraud
When reviewing documents from your client, it is important that you carefully scrutinize everything to see if there are any problems that need to be handled at some point. Common issues to look out for include:
Kick backs – while bonuses may not be illegal, they may be a sign of mortgage fraud. Why is your client getting these payments, how they are paid and whether they are disclosed are important questions to ask.
Exclusive use of the same company – Use of the same appraiser, title company, etc by a real estate agent is not uncommon. However, the exclusive use of one company by a builder, mortgage company, etc may be a sign that there is a fraud occurring and that this other person/company is in on it.
Unexplained payments to third parties – “Specialists” often provide fake pay stubs, bank records, etc. Unexplained payments to the same person or consistent withdraws may be evidence that a specialist is involved in providing false information.
Higher than normal fees – In order to entice people to get involved in illegal activity, a higher payment or commission is offered. There is so much competition in the real estate market that there is rarely a need for higher than normal payments.
Non-local buyers – Straw buyers or buyers that have no intent on paying a mortgage may have to be recruited from hours away. The chances of one person consistently dealing with buyers who don’t live anywhere near the properties in question shows that they may have been recruited.
False information on applications – while false information is likely mortgage fraud itself, some false information on minor issues may not cause that much of an alarm. However, it is important to look for patterns of false information and to understand why that information is important.
Conclusion – A passive lawyer lets a file collect dust and relies upon hope that the Government’s investigation will not turn up evidence against the client. An aggressive lawyer starts to prep for trial from day one. This includes investigating other people and your client. Of course, this cannot be done if you don’t understand mortgage fraud. Hopefully, this article will allow you to better represent your client.
Lawyers must scrutinize all documents associated with a securities fraud investigation February 26, 2010
Posted by jefhenninger in Articles.Tags: securities fraud
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You get a call from a client who is under investigation for securities fraud. To make your job even easier, you are able to figure out (because you are told or you are good enough to piece it together) the specific trades at issue. So, you focus your attention on the circumstances and documents surrounding the trade itself. You think that the Government has nothing and they will figure that out eventually (probably with your help). Case closed right? Not quite.
Consider the case of Kevin O. Kelley. From 1999 until 2004, he operated Acorn Research & Management, Inc. (“Acorn”), where he worked as a stock broker. Kelley was also employed as a registered representative of Royal Alliance, a broker-dealer, and served as the managing executive of
its Stamford, Connecticut office. He defrauded his stock brokerage clients through schemes involving four separate securities: Coyote Network Systems (“Coyote”), First Venture Leasing (“FVL”), E-Tel Corporation
(“E-Tel”), and AusAm Biotechnologies (“AusAm”).
While the schemes involved different companies, they all had a similar pattern. Kelley had an ownership (and/or other) interest in these companies but he failed to disclose this to his clients. He advised his clients to buy the companies and that they were good and/or safe investments. These companies failed and investors lost money. In addition, Kelley misappropriated some funds for his own use that should been used for investments.
To hide the fact that his investors had lost money or that their money was never used for investments to begin with, he started to issue bogus account statements. Prior to the start of the jury trial, Kelley moved to strike the portions of the superseding indictment that referred to bogus account statements, arguing that the use of bogus account statements is insufficient to establish a securities violation because the false statements were not
made in connection with the sale or purchase of securities. The motion was denied by the District Court. On appeal, Kelley argued that because the bogus account statements were created and disseminated two to four years after the purchases of the related securities, they were not made in connection with the sale or purchase of a security. Thus, they should not have been admitted into evidence.
However, the 2nd Circuit held that references to the bogus statements were admitted as evidence because they tended to demonstrate Kelley’s intent to defraud his clients and the scope of the schemes he employed. See Perez, 387 F.3d at 209 (“While falsehoods told by a defendant in hope of evading prosecution are not themselves sufficient evidence on which to base a conviction, such falsehoods may strengthen an inference of guilt supplied by other evidence.”). They were never offered as proof of independent violations but instead, they were relevant evidence with respect to the charged securities law violations. See SEC v. Holschuh, 694 F.2d 130, 143 (7th Cir. 1982) (“[A] scheme to defraud may well include later efforts to avoid detection of the fraud.” (internal quotations omitted)). The statements provided the jury with evidence both that Kelley had intended to defraud his clients and that he continued efforts to avoid detection by deceiving his clients about the value of the investments, often up to two years after a particular investment ceased to have any value. The account statements also indicate that Kelley’s actions in defrauding his clients were not simple mistakes but were instead part of a larger, intentional scheme to defraud. See id. at 144 (“The court was entitled to consider the lulling activities because they were evidence of a scheme which, viewed as a whole, was sufficiently closely connected to the sale and was relevant to the question of intent.” (footnote omitted)).
It is often this “other crimes evidence” that is the most difficult to deal with. It seems like Kelley was not prepared to meet this evidence at trial and that he had hoped that it would have been kept out. Any lawyer handling this type of case must examine all evidence that can be connected with the investment at issue no matter how remote it may seem (in this case, years later).
Misrepresentations without intent to cause loss is enough for securities fraud February 26, 2010
Posted by jefhenninger in Articles.Tags: securities fraud
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In US v Hickey, the 9th Circuit reiterated the fact that the intent to cause a loss to investors is not an element for securities fraud. For Hickey, his misrepresentations to investors is what did him in.
John A. Hickey (“Hickey”) and his business partner, Mamie Tang (“Tang”), induced over 700 individuals to invest approximately $20 million in two real estate development funds. Their plan was to purchase land in Northern
California, prepare the land for residential development, and then resell the properties to developers at a profit. As it turned out, however, the investors were duped by false representations regarding land title, guarantees, and securitization of the funds. This was problem number one.
Forensic accounting also showed that Hickey and Tang appropriated money from the funds for personal use. This was problem number two.
As the investment scam progressed, it devolved into a Ponzi scheme; and this was before Madoff made “ponzi scheme” a household word. Hickey used the money from later investors to pay earlier investors the “interest” they were owed. When the money ran out and the fraud was exposed, the investors had lost approximately $18.5 million.
When the investment scheme fell apart in mid-1994, the Securities and Exchange Commission (“SEC”) filed a civil enforcement action against Hickey, resulting in a consent decree that included a $1.1 million disgorgement payment. The investors also obtained an as-yet-unpaid $10 million civil judgment. Like many of these cases, the civil case eventually lead to a criminal case as Hickey was indicted in July of 1997.
With all of these problems in his case, you would be surprised that his attorney took this case to trial huh? Well the case did go to trial and it seems like Hickey had a flawed trial strategy as it seemingly ignored the problems in the case.
Hickey hired an expert witness, Stephen Roulac, who testified at length
about real estate finance—about the topic generally, market conditions, the reasonableness of Hickey’s plan for the funds, whether the amount of money Hickey raised was reasonable given his stated plan, and whether the plan was likely to succeed. Of course, none of this took into account that Hickey lined his pockets while he was lying to his clients about the investment. His trial theme seems to have been that lying is ok if he had good intent (or a lack of criminal intent).
The district court barred him from testifying that he believed that if the SEC had not intervened, Hickey’s investments would have been profitable and the investors would not have lost money. Hickey argued that this testimony would have established that he did not have an intent to
defraud investors. However, both the district court and the 9th Circuit found that loss to investors is not an element of either mail fraud or securities fraud, nor is an intent to cause loss. See United States v. Utz, 886 F.2d 1148, 1151 (9th Cir. 1989) (for mail fraud, “[i]t is enough . . . that the government charge and the jury find either that the victim was actually deprived of money or property or that the defendant intended to defraud the victim of same.”) (emphasis in original); United States v. Benny, 786 F.2d 1410, 1417 (9th Cir. 1986) (actual loss is not an element of securities fraud).
At trial, Hickey was free to advance the claim that he did not intend to defraud the victims. While an honest, good-faith belief in the truth of the misrepresentations may negate intent to defraud, a good-faith belief that the victim will be repaid and will sustain no loss is not a defense.” Benny, 786 F.2d at 1417. In other words, even if Hickey genuinely believed his
investment scheme would be profitable and would result in gains for his investors, he would still be guilty of securities fraud and mail fraud if he knowingly lied to investors about the risks associated with his plan. As a result, his expert’s testimony was properly excluded.
Not only was his expert’s testimony properly excluded by the trial court, it should have been excluded by the defense attorney. Several years went by between the civil suit and the criminal case. There was no reason why this case should not have been prepared for trial unless the client bought his own line of BS which is a common problem in these cases. Convincing someone that they need to spend a large sum of money to prep for a trial when they haven’t even been arrested yet is not easy. If the trial prep was done, witnesses could have been interviewed and all of these problems could have been dealt with.
This case shows us that while intent is important, the focus needs to first be on the misrepresentations. Its one thing to make a mistake or leave out some important information, its another thing to do that while your investors lose money and you make a ton.
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