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Woman Charged with Defrauding American Red Cross February 26, 2010

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With any disaster, you just know that there will be fraud.  Years from now, we will hear about all of the fraud connected to the earthquake in Haiti.  Years after Hurricane Katrina, we are just now hearing about:

CHRISTY ALEXANDER, age 24, a resident of Hammond, LA, who is charged in a one-count bill of information with mail fraud relating to fraudulent applications she made to the American Red Cross for financial assistance during the aftermath of Hurricane Katrina.

According to the bill of information, the American Red Cross made disaster assistance money of up to $1,565 available to those affected by the hurricanes of 2005 on a one-time only basis. The bill alleges that on three occasions between September 2005 and October 2005, ALEXANDER applied for and received disaster assistance funds from the Red Cross and based on these fraudulent applications, she obtained $2,830 from the American Red Cross that she was not entitled to.

Kind of a low money case for the Federal Government to be concerned with in my opinion.  However, she sure picked the wrong event (Katrina) to involve herself with because it gets headlines which makes it easy for the Government to get involved.

Man charged with selling stolen Andy Warhol artwork November 27, 2009

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James S. Bier has been charged with mail and wire fraud in Manhattan federal court, in connection with a joint investigation conducted by the FBI and the Westchester County Police Department into his possession of numerous pieces of notable artwork believed to have been stolen from his former employer. The federal charges relate to his sale of one of those pieces of artwork, a Heinz 57 box created by the artist Andy Warhol, to an unwitting collector in New York City.

According to the Complaint:

In July 2008, Biear sold a Andy Warhol silkscreen on a wooden crate mimicking a Heinz 57 case of ketchup (the “Warhol Heinz 57 box”) to an art collector in New York City for approximately $220,000. In connection with the sale, Biear claimed that the Warhol Heinz 57 box had been gifted to him from his uncle who had legal title to the Warhol Heinz 57 box. In truth and in fact, Andy Warhol had gifted the Warhol Heinz 57 box to an art collector (the “Art Collector”) in 1964. In or around April 2007, the Warhol Heinz 57 box was noticed to be missing from the Art Collector’s New York residence after a birthday party. Biear had been employed by the Art Collector at the time that the Warhol Heinz 57 box was believed to have been stolen.

Photo of Heinz Box Painting by Andy Warhol

Biear is charged with one count of mail fraud and one count of wire fraud. He also faces charges brought by the Westchester District Attorney’s Office. According to the Felony Complaint filed in Westchester County court, Biear is charged with Criminal Possession of Stolen Property in the second degree in connection with Biear’s possession of artwork also believed to have been stolen from his prior employer, specifically, an ink drawing by Francis Picabia titled, “Jean Cocteau par Francis Picabia.” If convicted, he  faces a maximum sentence of 15 years in prison.

Hedge Fund Manager Charged With Fraud November 27, 2009

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This is an interesting case because it seems like this guy suffered some huge losses but tried to cover it up to avoid facing the music.  Based upon my conversations  with my own client, I am sure he thought that he would make it back at some point not matter how impossible that may have seemed to a rational person.  Denial is very powerful. 

Jay C. Nolan allegedly defrauding a handful of victims of approximately several million dollars they invested in a commodity futures hedge fund he managed. He has been charged with mail fraud in a criminal complaint filed in the Northern District of Illinois.

According to the complaint, Nolan operated Lodge Capital Group, LLC and managed a hedge fund known as Lodge Diversified Fund LP, which maintained a futures trading account with ADM Investor Services, Inc.

Investor A told federal agents last Saturday that in 2005, he invested approximately $720,000 with Nolan in the Lodge Diversified Fund and made additional investments of approximately $1.5 million in 2006 and $750,000 in 2007. Investor A told agents there were six other investors with Nolan in the Lodge Diversified Fund, according to the charges. Investor A said that he received monthly account statements in the mail since 2005, listing the balance for the fund as well as Investor A’s personal account balance and other investment details. Beginning in 2007, the statements were printed on ADM Investor Services letterhead, and Nolan reported each week’s investment activity by telephone.

Earlier this month, Investor A reported that he received an account statement showing that his balance at the end of October was $5,611,901.26, and that the Lodge Diversified Fund had a balance of $6,308,409.51. Investor A contacted ADM Investor Services and learned that the Lodge Diversified Fund had an account balance of approximately $170,000. Investor A, accompanied by Investor B, then met with Nolan and allegedly learned that Nolan had lost much of the money in the hedge fund in 2006 and had been sending false statements to investors to hide the substantial losses that he had incurred. A bank account that purportedly contained millions of dollars in government securities to collateralize the ADM futures trading account, allegedly had a recent balance of approximately $100,000. Despite the losses, Nolan allegedly continued taking a two percent monthly management fee from the investors.

Bergen County lawyer pleads guilty in contract fraud September 29, 2009

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Dennis Oury, a former Bergen County Democratic Party lawyer and adviser to several municipalities has pleaded guilty to corruption charges two days before his scheduled trial date. He pled to a mail fraud conspiracy charge and to failing to file a 2006 tax return.

He was indicted in September with former Bergen County Democratic leader Joseph Ferriero, who also faces conspiracy and mail fraud charges.  Federal prosecutors allege that the two men used their political influence to get government contracts for their jointly owned consulting firm without disclosing that they stood to benefit from the deals.   Ferriero’s trial is still going forward on Thursday but of course, that may change as a result of today’s plea.

Story is here.

U.S. Commodity Futures Trading Commission inquiry eventually leads to ponzi scheme indictment August 12, 2009

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This is a very interesting case because an investigation into Paul Robert Karr’s activity started in 2004 but he was just indicted now.  I’d really like to know what took so long here.  How does it take 5 years to put this together?  Hopefully Karr used his time wisely and has prepared for his defense over the years. 

The only good thing about all of these ponzi schemes at this point is that a defense attorney can keep track of all of the sentences that are starting to go down so that they can advise their client accordingly.  Of course, the bad thing though is taking these cases to trial is very difficult for many reasons, the least of which is the public’s attitude on these cases.

Jeffrey H. Sloman, Acting United States Attorney for the Southern District of Florida, and Michael J. Folmar, Acting Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, announced today that Paul Robert Karr, f/k/a Paolo Roberto Correa (“Karr”), a North Miami Beach resident, was arrested earlier today on mail and wire fraud charges arising from an investment fraud scheme in which more than 100 investors lost approximately $4,000,000. Karr is currently being held without bond. A pre-trial detention hearing is scheduled for Friday, August 14, 2009 at 10:00 AM, before the duty Magistrate Judge.

As alleged in the Indictment, from January 2002 through November 2004, Karr defrauded investors by soliciting investments for the purported purpose of trading foreign currencies in the international foreign exchange market. Karr caused investors to believe that, based on his alleged extensive experience trading foreign currencies, he would trade foreign currencies on the investors’ behalf in return for a share of the profits generated by his trading activities. Investors were led to believe that Karr was generating positive monthly returns trading foreign currencies each and every month during the course of the scheme. In fact, during most of the scheme’s existence, Karr did not even attempt to trade foreign currencies, and, when he did attempt to do so, he lost significant amounts of investors’ money.

As the Indictment alleges, Karr used most of the investors’ money for his own personal benefit and to make payments in Ponzi scheme fashion to investors who occasionally sought to redeem some of the money that they had invested with Karr and his various corporate entities. In October/November 2004, the scheme collapsed after Karr received inquiries from the U.S. Commodity Futures Trading Commission (“CFTC”) concerning his activities in the international foreign exchange market.

Mr. Sloman commended the investigative efforts of the FBI and the assistance of the staff of the CFTC’s Chicago Office. The criminal case is being prosecuted by Assistant U.S. Attorney Harold E. Schimkat.

Georgia attorney faces 77 count indictment August 10, 2009

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This is pretty sad.  As an attorney, Eichholz should have known that he should have another attorney talk for him.  Instead, he allegedly tried to cover everything up which, as always, only makes everything worse.  Lesson for today, if the Department of Labor comes knocking, call an attorney right away; even if you are an attorney yourself!

SAVANNAH, GA—Edmund A. Booth, Jr., United States Attorney for the Southern District of Georgia, announced today the return of a seventy-seven count indictment by the federal grand jury against Savannah attorney Benjamin Sheftall Eichholz, age 58, charging an alleged scheme to embezzle more than $950,000 from employee pension benefit plans established to provide retirement benefits to present and former employees of the Eichholz Law Firm. The charges against Eichholz include Embezzlement from Employee Pension Benefit Plans in violation of Title 18, United States Code, Section 664; Money Laundering in violation of Title 18, United States Code, Section 1957; Mail Fraud in violation of Title 18, United States Code, Section 1341; False Statements in Documents Required to be Filed by ERISA in violation of Title 18, United States Code, Section 1027; Obstruction of Justice in violation of Title 18, United States Code, Section 1505; and False Statements in violation of Title 18, United States Code, Section 1001.

The indictment alleges that beginning in or before 2001 and continuing to in or about October 2008, through a variety of different means, Eichholz embezzled more than $950,000 from two employee pension benefit plans at the Eichholz Law Firm, and then repeatedly executed, mailed and filed false documents with the United States Department of Labor in order to both execute and conceal his embezzlement. The indictment further alleges that during an investigation by the United States Department of Labor of Eichholz and the two employee pension benefit plans at the Eichholz Law Firm, Eichholz made numerous false statements to an investigator with the Department of Labor, and committed other acts to obstruct justice, in a further effort to cover up his embezzlement from the employee pension benefit plans.

Booth noted that, if convicted of the charges, Eichholz faces the following maximum statutory penalties:

Counts One Through Thirty – Embezzlement from Employee Pension Benefit Plans
Imprisonment for not more than five (5) years;
Fine of up to $250,000 (18 U.S.C. § 3571), or both;
Not more than three (3) years supervised release (18 U.S.C. § 3583);

Counts Thirty-One Through Thirty-Four – Money Laundering
Imprisonment for not more than ten (10) years;
Fine of up to $250,000 (18 U.S.C. § 3571), or both;
Not more than 3 years supervised release (18 U.S.C. § 3583);

Counts Thirty-Five Through Forty-Four -Mail Fraud
Imprisonment for not more than twenty (20) years;
Fine of up to $250,000 (18 U.S.C. §3571);
Not more than three (3) years Supervised Release (18 U.S.C. 3583);

Counts Forty-Five Through Fifty-Four False Statements in Documents Required to be Filed by ERISA
Imprisonment for not more than five (5) years;
Fine of up to $250,000 (18 U.S.C. §3571);
Not more than three (3) years Supervised Release (18 U.S.C. 3583);

Count Fifty-Five – Obstruction of Proceedings Before Departments, Agencies, and Committees
Imprisonment for not more than five (5) years;
Fine of up to $250,000 (18 U.S.C. §3571);
Not more than three (3) years Supervised Release (18 U.S.C. 3583);

Counts Fifty-Six Through Seventy-Seven – False Statements
Imprisonment for not more than five (5) years;
Fine of up to $250,000 (18 U.S.C. §3571);
Not more than three (3) years Supervised Release (18 U.S.C. 3583);

National Prearranged Services executive indicted for fraud August 10, 2009

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I’d really like to know if Randall Sutton had an attorney in 2007  when regulators came calling.  A good attorney should have been able to sniff out these lies and counsel him accordingly.  One of the primary reasons to get an attorney at the first sign of danger is to have a mouthpiece that is detached from your personal situation.  Looks like Sutton tried to do the talking for himself which really made things go from bad to worse.

ST. LOUIS, MO—Randall Sutton was indicted on mail fraud, wire fraud and money laundering charges involving a ten-year multi- million dollar fraud scheme involving the sale of pre-paid funeral services, Acting United States Attorney Michael W. Reap announced today.

Randall Sutton was the Chief Financial Officer, Director, and President of National Prearranged Services, Inc., headquartered in Clayton, MO, an entity that sold prearranged funeral services in 19 states. Customers either purchased prearranged funeral services directly from National Prearranged Services, or from funeral homes who in turn purchased these services from National Prearranged Services. National Prearranged Services purchased life insurance policies from Memorial Service Life Insurance Company and Lincoln Memorial Life Insurance Company of Austin, Texas in order to fund the funerals when customers died. Sutton was Director of both of those companies.

According to the indictment, beginning in 1998 and continuing until 2008, Sutton and others, defrauded National Prearranged Services’ customers, states’ guaranty funds, and funeral homes doing business with National Prearranged Services.

The purchase of prearranged funeral services involves a pre-payment of a substantial sum by the customer, in exchange for the promise that funeral services will be provided at no further expense upon the customer’s death. In the ordinary course of business, the seller of prearranged funeral services uses the customer’s pre-paid funds to purchase a life insurance policy, holds the funds in trust, or otherwise makes reasonable use of the funds, to ensure that funds are available to provide the funeral services upon the customer’s death. The customer reasonably expects that the business will operate in such a way so that the pre-purchased services will be available upon death.

The indictment alleges that rather than making reasonable use of the assets of their business, Randall Sutton and others used a series of deceptions to extract funds from National Prearranged Services and related entities such as Lincoln Memorial Life. As a result of this fraudulent scheme, National Prearranged Services and Lincoln Memorial Life were unable to meet their mounting obligations and collapsed in 2008. Sutton and others at National Prearranged Services led funeral homes and customers to believe funds paid for prearranged funeral services would be held in trust or used to purchase life insurance policies in order to ensure that money would be available to pay for customers’ funeral services when needed. Funeral homes and customers who paid the entire cost of pre-need funerals up-front were given “Paid in Full” certificates. Customers were not informed that their purchase of prepaid funerals involved risk. They also failed to disclose to funeral homes and custom

For example, at the time they purchased prearranged funeral services, many customers completed applications for life insurance policies indicating they were making payment in full for insurance policies that would fund their funerals. Employees at National Prearranged Services, with the knowledge and under the direction of Sutton, simply whited-out the indications that payments had been made in full and altered the documents to make it appear as though the customers had made partial payments. The altered documents were forwarded to life insurance companies such as Lincoln Memorial Life, who adopted the policies and assumed the obligation to pay a lump sum at the time of the customer’s death. National Prearranged Services, meanwhile, diverted the difference between the true full payments and the falsified partial payments from the customer’s insurance policy, thus retaining the vast majority of the customer’s lump-sum payment while transferring the obligation of future pay.

As another example, National Prearranged Services’ employees used white-out or cross-outs to change the names of beneficiaries on insurance applications in order to extract money. Customers completed applications for life insurance policies naming themselves or their funeral homes as a beneficiary. With Sutton’s knowledge, employees at National Prearranged Services simply whited-out or crossed-out other beneficiaries named in the applications and made National Prearranged Services the sole beneficiary. Once National Prearranged Services was listed as the sole beneficiary on policies, it was able to extract money from customers’ policies in at least two separate ways:

First, customers’ insurance policies were pledged as collateral for loans to National Prearranged Services without the customers’ knowledge. Typically, the loans were made by insurance companies within the same family of corporate entities, such as Lincoln Memorial Life, allowing Sutton and others to extract funds from these insurance entities under false premises. In total, as alleged in the indictment, National Prearranged Services received in excess of $65 million from such policy loans. Often, the proceeds of these policy loans were immediately turned around and used to pay outstanding premiums due from other customers.

Second, once it had altered applications to name itself as sole beneficiary, National Prearranged Services then converted customers’ whole life insurance policies to monthly renewable term polices, extracting from the insurance company the difference between the cash surrender value of the whole life policy and the first monthly premium of the renewable term policy. By doing so, National Prearranged Services extracted more than $40 million from the customers’ policies at Lincoln Memorial Life without their knowledge.

As another example, National Prearranged Services failed to invest the funds it received from roll-over accounts as promised. Instead, they often purchased large blocks of prearranged funeral contracts from funeral homes that had sold prearranged funeral services in the past. These block purchases were referred to as “roll-overs” because the prearranged funeral contracts were rolled-over from the originating funeral homes to National Prearranged Services. National Prearranged Services promised to invest 80 percent of the underlying customers’ funds in safe investments for 30 days, and then to use the money to purchase life insurance. Instead, National Prearranged Services failed to invest the money for 30 days as promised, and after 30 days failed to invest the money in life insurance policies as promised. Instead, the roll-over funds were used for other purposes, only to be replaced with “debentures” or promises to repay the funds. Sutton and others then caused false mo

The indictment states that Randall Sutton and others at National Prearranged Services agreed to manage a $1.7 million custody account for the Muehlebach Funeral Home located in Kansas City, MO. The Muehlebach Funeral Home needed this account to pay for its customers’ funerals when they died. National Prearranged Services invested this money in speculative futures contracts, lost most of the money, and then sent monthly statements to the Muehlebach Funeral Home showing false balances in its “Custody Account.”

As another example, Randall Sutton and others at National Prearranged Services caused over $50 million to be taken from the Company in exchange for promissory notes from related individuals or companies. Unlike legitimate promissory notes, these notes were often backdated, sometimes interest was paid back to National Prearranged Services with money that originated from National Prearranged Services itself in “round trip” transactions, and promissory notes were often replaced with new promissory notes when they came due. Over $10 million of these funds were funneled through various entities and used to purchase a company known as Professional Liability Insurance Company of America which is owned by RBT Trust II.

During 2007, regulators and funeral homes from various states began to increase scrutiny of National Prearranged Services’ practices. In response, Randall Sutton and others gave false information to state regulators and funeral homes. For example, regulators and concerned funeral homes were told falsely that “policy loans” were not taken by National Prearranged Services, or that policy loans had been repaid, or that senior management was not aware of the policy loans. As another example, regulators and concerned funeral homes were told falsely that senior management was not aware of the practice of whiting out and altering customers’ life insurance applications, or they were told falsely that National Prearranged Services was permitted to do so based on language in the applications.

Finally, the indictment alleges that Randall Sutton held himself out to be licensed by the Missouri Department of Insurance. Sutton did in fact hold a Producer License issued by the Missouri Department of Insurance and this license was renewable every two years upon the successful completion of a qualifying exam. In truth, Sutton had his secretary study for and take the qualifying exam on-line rather than taking it himself.

“Money laundering is not a victimless crime as innocent people are often “duped” by various schemes” said C. Steve Howard, Acting Special Agent in Charge of IRS Criminal Investigation. “We will continue to work with our law enforcement partners to financially disrupt criminal organizations that commit crimes against our society and our economy.”

“Fraud schemes have a pronounced economic impact that eventually increase costs for all of us,” said John V. Gillies, Special Agent in Charge of the FBI in St. Louis. “Investigators work hard to unravel this complex type of corporate fraud. The FBI and our partners are committed to protecting the public by eliminating dishonest and unscrupulous greed.”

Sutton, 63, Chesterfield, MO, was indicted by a federal grand jury on six felony counts of mail fraud, one felony count of money laundering, and two felony counts of wire fraud. He is expected to appear in federal court this morning, in St. Louis.

If convicted, each count of mail and wire fraud carries a maximum penalty of 20 years in prison and/or fines up to $250,000; money laundering carries a maximum penalty of 10 years in prison and/or fines up to $250,000. Restitution is mandatory.

Nigerian man faces little hope at trial February 22, 2009

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Paul Gabriel Amos, a Nigerian man is accused of sending fake documents to Citibank in an effort to allegedly steal $27 million dollars.  The documents claimed to authorize transfers to accounts around the world controlled by Amos and coconspirators.  His public defender says that he is in plea negotiations.  You think?

Any Nigerian accused of a fraud case is going to find it very difficult to pick a jury due to the famous Nigerian scam aka 419 scam.  I doubt the judge would let the jury voir dire get that extensive and I don’t trust a juror’s answers half the time anyway.  There has been so much talk including Dateline NBC specials on the Nigerian scam that a jury would take it out on the client.  These guys are rarely prosecuted too so I’m sure the Government would love to get this guy.  Hopefully, he’s got a good attorney.

Story is here.

Female financial planner arrested for alleged ponzi February 3, 2009

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Judith Zabalaoui’s case may seem like every other ponzi scheme that has made the news over the past few months.  However, the fact that she is female and there are no males involved that she was working for makes her case very unique.  Unfortunately for her, I doubt this will really help her out here. 

Like many of the other cases out there, the first sign of trouble involved a law suit.  She is also 71 which, like some of the other cases, make plea deals rather difficult to work out since 10 years could be a life sentence.  She is alleged to have stolen over $3 million from 1993 to 2007. 

Another interesting aspect of her case is that the evidence against her seems to be incredibly strong.  At least Madoff and others had companies.  Prosecutors allege that her companies were fake and she even crafted fake letters between herself and fake employees!  That is so incredible that I would want to have her head examined.   While mental health issues may not prevent a conviction, it can be used in mitigation.  Most criminals take advantage of her situation but for an older female to go to this length to pull off a scam like this is rather unique. 

Story is here.

Ponzi scheme hits Long Island, New York January 26, 2009

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This is really starting to get out of hand.  Arrests for Ponzi schemes are just exploding in the past few weeks.  It is actually getting a little boring, at least for me as it is an old scam and not a very creative one.  Nevertheless, I’ll continue to blog about the more interesting stories and since I’m in the NY media market, I feel compelled to discuss this one.

Authorities allege that Nicholas Cosmo, founder of Agape World Inc in Hauppauge. New York stole over $380 million from investors by using a Ponzi scheme.  He has a big problem as he is a convicted felon. 

In 1997, Cosmo was working as a stockbroker at Continental Broker-Dealer Corp. where he was accused of misappropriating funds. He pleaded guilty to a federal charge in 1999 and was sentenced to serve 21 months in prison.  Not only will this increase his exposure for sentencing but the Government may be able to use this prior conviction against him in what is known as 404(b) evidence.  As if his attorneys didn’t have it hard enough huh?

I’m sure there will be many reasons why it will be difficult for his attorneys to find legitmate excuses for his actions.  Besides his prior conviction, another one will be that he said Agape started in 1999 even though he didn’t get out of prison until 2000. 

Story is here.