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Indictment for $1.7 million in securities fraud illustrates an important first step for attorneys July 22, 2009

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I often say that, in the context of white collar crime, the difference between a criminal case and a civil case is thin, usually blurry line.  One of the key factors that pushes a case over to the criminal side of the line is personal use of money.  In other words, if the money at issue was used solely for business purposes, it will likely be a civil case.  Likewise, as soon as you use the same money to enrich yourself, you will be looking at criminal charges.

Thus, the first thing I do in any case that could turn into a white collar crime case is to get my client’s financial records to assess their criminal exposure.  The attorney’s actions at the first sign of trouble could impact the entire case.  If this is a civil case but the State thinks otherwise, you may have to play this card now.  If there is some serious criminal exposure, trying to get a favorable resolution early on may we worth considering.

A good example of a white collar crime case where the defendant’s personal expenses will be at the heart of the State’s case is found in the press release below:

TRENTON – Attorney General Anne Milgram announced that a Bergen County man was charged today with defrauding hundreds of investors of more than $1.7 million by selling unregistered shares of stock in his startup horseshoe manufacturing company, which he claimed already had a prince from Dubai as a client.

The man allegedly stole more than $350,000 in investor funds to pay for personal expenses. Although he also spent funds in an effort to launch the company, the venture failed.

According to Director Deborah L. Gramiccioni, the Division of Criminal Justice filed a criminal complaint today in Superior Court in Bergen County charging Samuel M. Serritella, 64, of Garfield, with the crimes of securities fraud, theft by deception, misapplication of entrusted property, money laundering and misconduct by a corporate official, all in the second degree.

The charges resulted from an investigation by the New Jersey Bureau of Securities. Also today, Bureau of Securities Chief Marc B. Minor issued an order assessing a penalty of $20,000 against Serritella for violation of the New Jersey Uniform Securities Law. The Bureau Chief found that Serritella committed securities fraud and sold unregistered securities as an unregistered agent.

“This defendant sold $1.7 million in fraudulent and unregistered securities to trusting investors,” said Attorney General Milgram. “He repaid their trust by stealing hundreds of thousands of dollars of their money and leaving them with worthless shares in a failed company.”

Serritella was president, chief financial officer and chairman of International Surfacing Inc., which was based at 5 Erie Street in Garfield. It is charged that between February 2004 and May 2006, Serritella fraudulently obtained in excess of $1.7 million from more than 300 investors, most of whom were New Jersey residents, by selling them shares of International Surfacing. The shares were not registered with the Bureau of Securities as required by law, and Serritella was not registered as an agent authorized to sell securities in New Jersey.

Serritella held investment conferences where he told investors they could get in on the ground floor by purchasing shares in a company he planned to take public. He allegedly told at least one group of investors during a hotel meeting that the venture’s clients included a prince in Dubai.

Serritella allegedly deposited the investors’ funds into several bank accounts that he controlled. He allegedly misappropriated funds totaling approximately $354,720 for personal expenses. Seritella allegedly wrote checks to himself, made cash withdrawals at ATMs, paid credit card bills, and made debit card purchases using investor funds in the accounts. He used the funds to pay for such personal expenses as airline and hotel bills, tavern bills, and medical costs. He also allegedly used investor funds to make personal loans to three friends totaling $84,000.

Serittella used some funds for startup costs for the company, such as rent for a building, salaries, and payments to a company contracted to assist in manufacturing horseshoes.

“The Division of Criminal Justice is focusing on more complex white collar crime cases, including securities fraud cases such as this one,” said Director Gramiccioni. “In prosecuting this case, we are working closely with the Bureau of Securities, which thoroughly investigated the alleged fraud and thefts committed by Serritella.”

“Investors need to protect themselves by remembering that an offer which seems too good to be true is often precisely that – untrue. Investment fraud is on the rise in these difficult economic times and investments that promise ‘guaranteed results’ or offer unusually high profits should be carefully scrutinized before any investment is made,” Bureau Chief Minor said.

The Bureau of Securities investigation was conducted by Acting Chief of Investigations Rudolph Bassman. Deputy Attorney General Victoria Manning represented the Bureau in its investigation.

Serritella has been ordered to appear before Superior Court Judge Harry G. Carroll in Bergen County on Wednesday, July 29 at 10 a.m.

Ohio attorney charged in 40 count indictment May 26, 2009

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Columbus Attorney Mark Shelnutt faces 31 counts of money laundering, three counts of false statements, one count of attempted bribery, and one count of witness tampering.  All of this stems from his representation of convicted drug dealer Torrance Hill. 

According to U.S. Attorney’s Office, Shelnutt was allegedly aiding and abetting Hill’s drug organization, as well as laundering money for him.  Specifically, the indictment cites to several transactions that allegedly involve drug money to the CB&T account of Shelnutt’s wife, as well as cash payments for a mortgage on a house in Florida.

This is tough.  There is a good chance that Shelnutt’s career is over and that the defense of this case is going to be very tough on him.  I know little about the facts but it at least sounds like this is a defensible case.  I see nothing that indicates incredibly eggregious conduct.  When it comes to white collar crime, the line between normal conduct and criminal conduct is often very, very fine.

Representing a fellow criminal defense attorney would be interesting.  One one hand, it would be nice to have a client that can help you.  On the other hand, you don’t want to have your client run the whole case.  Finding that balance could be tough.

Story is here.

Ex-congressman faces long fight in fraud charges March 3, 2009

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Wes Cooley, a former Congressman from Oregon has been charged with filing false tax returns and several counts of money laundering.   Authorities allege that Cooley and two other men who were associated with the former auction site, bidbay.com used the Internet to get investors to buy unregistered stock.  Cooley is also alleged to have lied to investors when he claimed that eBay would buy the company for $20 per share.

The unregistered stock issue is usually a red flag here and it will likely be a major issue if this case goes to trial.  An example of whay may have happened here is that Cooley and/or others may have registered the stocks with Form S-8, which is for securities issued by a company to employees or certain types of consultants. This is a short-form document that is not as detailed as registration forms required for a public offering of stock.   As a result, a public sale of the stock can done without informing the public about the company’s true condition or status.

While not the end of the world, I think Cooley’s biggest problem will come from the money laundering charges.  When it comes to white collar crimes like this, the case is usually very circumstantial.  For example, no one witnessed a person stealing money out of a safe.  The Government will take various business transactions and other activities and argue that everything put together shows that the activity is illegal. 

The claim that eBay would buy the company for $20 could have been a misunderstanding or could have come from someone else.  After all, everyone can make a mistake or be a bad businessman.  Getting people to buy stock; that’s what you do as an officer of the company.  However, if all of your activities are legit, why hide the source of the money?  That is the problem here. 

However, like many of the Ponzi scheme defendants I have blogged about, Cooley is old.  At 76 years old, where is he really going here?  His best defense may be to flip and secure a four year sentence to he can get out in his 80’s.  However, this could be tough due to the was the Federal sentencing schemes work.  But, if it doesn’t happen, there is nothing else to do but fight all the way.

Story is here.

Yet another lawyer is alleged to have stolen money from clients January 29, 2009

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Steven Rondos, a New York attorney that lives in New Jersey is accused of stealing over 4.7 million from his clients.  As if people didn’t hate attorneys enough, he allegedly stole from people with physical or mental disabilities; people he was suppose to help as their appointed guardian. 

He is charged with money laundering, grand larceny and scheme to defraud.  Another problem he has is that his best bargaining chip, money that he can pay back to the alleged victims, may already be frozen because a civil suit has also been filed against him and his wife (who is also his law partner in the firm Raia & Rondos).  However, his wife will probably not be charged.  It seems that the Government is pretty confident that they can find the money.

He also faces charges in New Jersey.  Attorney David Frankel represents him in New York while Daniel A. D’Alessandro (who does not seem to practice criminal law, let alone white collar crime) represents him with regard to charges he may be facing in New Jersey.  Based upon his New Jersey attorney’s statements, it seems like they are already working on a plea deal where they just throw him on the mercy of the court and blame everything on depression and other mental illnesses.

In these cases, attorneys are held to a higher standard and when you take advantage of victims who are more or less helpless, you are looking at a very tough sentence.  I fully expect this case to plea out and plea out sooner rather than later; or without extensive litigation.  With money frozen, he may not even have the money to litigate this case if he wanted to.  He would probably need at least $1,000,000 to litigate both cases from start to finish and I doubt he has it.

NY Times article is here.

NJ woman gets 10 years for mortgage fraud December 20, 2008

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I’m sure the average citizen thinks this sentence is great.  However, as a criminal defense attorney, I have a real problem with the outcome of this case.

In June, Crystal Velitschkow pleaded guilty to second degree State money laundering charges.  Although the plea called for 10 years, the range is 5 to 10 years.  Thus, in order for the judge to give her 10 years, he would have to find that the aggravating factors strongly outweigh the mitigating factors.  Even though she had no record (I assume)  and she flipped on her boyfriend, she still got the 10 years!  Her attorney only asked for 7. 

As always, I know next to nothing about this case, but I just can’t imagine a situation where I would have told my client to take this plea.  I also don’t understand why her attorney did not ask for 3 years.  While the range is 5 to 10, the just could go as low as 3 years if there were a lot of mitigating factors present.  The whole situation makes no sense to me.

The State alleged that she conspired with her boyfriend Spiro Pollatos, ran numerous scams to steal more than $2.7 million.  Pollatos targeted victims in the Greek community by advertising his mortgage company in a Greek newspaper.  He offered to secure loans for victims and then charged clients excessive loan commissions and fees.  One part of the scam involved mortgaging homes well beyond their value while another part involved him keeping money that was suppose to be used for a down payment. 

Another one of his scams that he perpetrated involved the Yellow Rose Diner in Keyport, New Jersey.  He found a victim to secure $500,000 in loans to invest in the diner.  The sale was never completed and the victim lost all of this money.

Pollatos has also pled guilty and he is on track to get 15 years even though he was the mastermind and has a prior record.   I have a client right now that was in the same type of situation Velitschkow was.  Although it appears my client has a better case and involved only about one-third of the the money (1 million as opposed to almost 3), my client stands to come out far better than Velitschkow.  I hope to tell you about it soon.

The story is here.

Jeffrey Southard arrested for being NJ’s version of Bernard Madoff December 18, 2008

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Talk about timing huh?  Jeffrey Southard of Pittsgrove, New Jersey arrested today for allegedly operating a ponzi scheme to that  (allegedly again) stole over $1.6 million from 16 elderly investors.  He is charged with first-degree money laundering, second-degree misapplication of entrusted property, second-degree theft by deception, and second-degree securities fraud.  Those are some very, very heavy charges.   (See why I don’t blog about national news like Madoff?  We have enough going on here in New Jersey).

Although I am sure he has no prior record, it will be tough for his attorneys to come up with some good mitigating factors.  The state money laundering charge does not merge and the first degree charge carries 10 to 20 years in prison.  Thus, at a minimum, he is looking at 15 years in prison.  However, there are several aggravating factors that will apply at sentencing if he is convicted.  Besides the usual ones that apply in every case, the State will allege that he took advantage of a position of trust and that the crime involves elderly victims.  That would be at least 4 aggravating factors right from the start.  So, a sentence closer to 20 years would be possible if found guilty of all counts.

On the other side, it will be tough to get these victims into court.  But since there are so many of them, it is likely they could get some of them to trial.  As an attorney, you can’t beat up an 80 year old person on the stand either. 

With any of these cases, the big upper hand the defense always has is that victims are out money.  If this guy goes to prison for a long time, he would have spent a ton of money on his defense and the victims stand to get little to nothing.  A good resolution would allow the victims to be made whole in exchange for a (much) lesser sentence.  It seems like he has been under investigation for some time, so hopefully his attorneys have been working hard for him.  They have a lot of work ahead of them.

Click here for the story.