Three Former Financial Services Executives Indicted for Roles in Fraud Schemes July 28, 2010

Three former financial services executives were indicted today for their participation in fraud schemes and conspiracies related to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts.  The 12-count indictment was filed today in U.S. District Court in New York City and it charges Dominick P. Carollo, Steven E. Goldberg, and Peter S. Grimm, all former executives at financial service companies or financial institutions, with participating in wire fraud schemes and separate fraud conspiracies at various time periods from as early as 1999 until 2006.

The charged conspiracies and schemes all relate to the provision of a type of contract, known as an investment agreement, to public entities, such as state, county, and local governments and agencies throughout the United States. Major financial institutions, including banks, investment banks, insurance companies, and financial services companies are among the providers of investment agreements and other related municipal finance contracts. Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued to raise money for, among other things, public projects. Public entities typically hire a broker to conduct a competitive bidding process among various providers for the award of an investment agreement to invest such money. Competitive bidding for these agreements is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds. The companies that employed Carollo, Goldberg, and Grimm all marketed financial products and services, including services as a provider of investment agreements.

The indictment charges that Carollo, Goldberg, and Grimm conspired with various brokers to attempt to increase the number and profitability of investment agreements and other municipal finance contracts awarded to the provider companies where they were employed. According to court documents, Beverly Hills, California-based Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products, was one of the co-conspirator brokers. Carollo, Goldberg, and Grimm obtained from CDR and other co-conspirator brokers information about the prices, price levels or conditions in competing providers’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations. As a result of the information, various providers won investment agreements and other municipal finance contracts at artificially determined price levels. In exchange for this information, Carollo, Goldberg, and Grimm submitted intentionally losing bids for certain investment agreements and other contracts when requested, and, on occasion, agreed to pay or arranged for kickbacks to be paid to CDR and other co-conspirator brokers.

The indictment also alleges that Carollo, Goldberg, Grimm, and co-conspirators misrepresented to municipal issuers or bond counsel that the bidding process was in compliance with U.S. Treasury regulations. This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process. Such conduct placed the tax-exempt status of the underlying bonds in jeopardy.

According to court documents, the efforts by Carollo, Goldberg, Grimm, and their co-conspirators to control and manipulate the bidding for investment contracts, and the execution of a variety of certifications that covered up their scheme, also obstructed the Internal Revenue Service’s (IRS) ability to monitor compliance with U.S. Treasury regulations and impeded the IRS’s ability to determine whether municipal issuers had correctly accounted for any money that was owed to the U.S. Treasury.

Former Continental Airlines Sales Agent Charged in Fake Ticket Voucher Scheme April 1, 2010

VICTORIA SCARDIGNO, a former sales agent for Continental Airlines at Newark Liberty International Airport in New Jersey, was arrested this morning on wire fraud charges stemming from a $1 million scheme involving the sale of hundreds of fake ticket vouchers.

According to the Complaint unsealed in Manhattan federal court:

While employed at the airline, SCARDIGNO misappropriated from its offices hundreds of vouchers that the airline uses to compensate customers who had already paid for travel on Continental Airlines for flight delays, cancellations or situations in which customers were denied boarding due to, for example, overbooking. After taking the vouchers, SCARDIGNO hatched a scheme to sell them to prospective passengers, on the fraudulent pretext that they could be redeemed for a round-trip ticket anywhere in the world. SCARDIGNO sold over 1,750 such vouchers, at a purchase price of approximately $500 to $600. SCARDIGNO took in approximately $1 million from the fraud, which was deposited directly into her personal bank account.

In fact, Continental Airlines offers no such voucher program, and SCARDIGNO’s representations that the vouchers could be redeemed for air travel were false. When passengers attempted to redeem their vouchers through SCARDIGNO, she used some of the fraud proceeds to purchase tickets for these passengers, in order to keep the fraudulent scheme going. As a result, since the cost of the tickets far exceeded the cost of the vouchers, most of the voucher purchasers were unable to redeem their vouchers. SCARDIGNO used at least some of the illicit proceeds to pay off personal debts and to purchase thousands of dollars of luxury goods from stores such as Louis Vuitton and Coach.

SCARDIGNO, 32, of Weehawken, New Jersey, is charged with one count of wire fraud, which carries a maximum penalty of 20 years in prison, a fine of $250,000 or twice the gross gain or loss, and restitution.

Eight Arrested in Connection with Cleveland-Based Retail Fraud Ring April 1, 2010

The following individuals have been charged with conspiracy to commit wire fraud:

Andre Reese, age 36, of Cleveland, Ohio; Dimorio McDowell, age 33, of Trenton, New Jersey; Jeffery McClain, age 39, of Cleveland, Ohio; Kevin McBride, age 33, of Cleveland, Ohio; Michael Sailes, age 50, of Cleveland, Ohio; Edwin Peavy, age 51, of Cleveland, Ohio; Daniel Ashford, age 36, of Cleveland, Ohio; and Jay Paul Williams, age 27, of Cleveland, Ohio.

According to the FBI:

These charges are the result of a large-scale retail fraud scheme by which these individuals utilized “private label” credit card accounts which are accounts offered to consumers specific to a particular retail chain and are backed by independent financial institutions. The retail chains identified include Lowe’s, Home Depot, Staples, Best Buy, hhgregg, Macy’s, Nordstrom, Saks Fifth Avenue, and Sears. The financial institutions include GE Capital, Citigroup Financial, and HSBC. In this scheme, these individuals conspired together to contact creditor customer service departments and utilized a variety of tactics to obtain legitimate and active credit account information. This information was used to defraud employees of these customer service departments into adding an authorized user to an account, or change the account holder information to reflect that of individuals that were part of this conspiracy who would act as “runners.” After these “runners” were added as an authorized user, the “runner” along with one or two associates would then go to a victim retailer and request that a store employee look-up their account from personal identifiers that were obtained from the scheme. At times, the “runners” had to show their valid ID or recite the last four digits of the account holder’s social security number as proof they were authorized to use the account. The “runners” would then purchase items and charge them to the account. The individuals involved in this conspiracy had customers who would then purchase these items from them.

The victims of this scheme are the independent financial institutions who believe that they have suffered losses of approximately $500,000 to $1,000,000.

This case was investigated by the Bath Township Police Department, Stow Police Department, Mentor Police Department, Willoughby Police Department, Cleveland Heights Police Department, Cuyahoga County Sheriff’s Department, Bedford Heights Police Department, Strongsville Police Department, Richmond Heights Police Department, University Heights Police Department, Beachwood Police Department, Jackson Township Police Department, Cleveland Division of Police, United States Postal Inspectors, United States Bureau of Prisons, Newark Division – Trenton Resident Agency of the FBI, and the Cleveland Office of the FBI.

The United States Bureau of Prisons and the Trenton Resident Agency of the FBI had initiated an investigation to identify an inmate at Fort Dix Federal Correctional Institution in New Jersey who was conducting a fraud scheme via telephone. Law enforcement agencies in Northern Ohio were also attempting to identify individuals involved in the aforementioned scheme and were looking to identify an individual using telephone communications to coordinate the operations here in Ohio from New Jersey. A joint investigation in New Jersey and Ohio led to the arrest of the aforementioned individuals.

Father and Son Indicted on Federal Charges Relating to Operation of 4 Aces Bail Bonds March 18, 2010

A federal grand jury has indicted Milton Tillman, Jr., age 53, and his son, Milton Tillman, III, a/k/a “Moe,” age 35, both of Baltimore, Maryland, for conspiracy to defraud the Treasury Department, making false statements on tax returns, and unlawfully engaging in the business of insurance. Milton Tillman, Jr. is also charged with wire fraud in connection with a scheme to defraud Ports America Baltimore, Inc., where he worked as a member of the International Longshoremen’s Association AFL-CIO (ILA).

“The indictment alleges that Milton Tillman, Jr. and Milton “Moe” Tillman, III conspired to defraud the IRS and operate a bail bond business in violation of federal law, while Milton Tillman, Jr. collected pay for a no-show job at the Port of Baltimore,” said U.S. Attorney Rod J. Rosenstein. “Because the bail bond industry plays a major role in Maryland’s criminal justice system, the integrity of the system is jeopardized by corrupt bail bondsmen.”

According to the 28 count indictment, Moe and Milton Tillman operated 4 Aces Bail Bonds, Inc. (4 ACES) with offices at 2332 E. Monument Street in Baltimore and 1101 North Point Boulevard, Suite 121 in Baltimore. 4 ACES engaged in the bail bonding business, securing the release of individuals who were charged in the District and Circuit Courts of Maryland and elsewhere. Beginning on December 28, 2004, 4 ACES also did business as Global Surety, incorporated by Moe Tillman. In return for assuming the risk of an arrestee’s future appearances in court, 4 ACES collected a fee, usually a percentage of the bail amount set by the court. A percentage of each fee collected by 4 ACES was forwarded to the surety insurance company insuring the bond. 4 ACES’ share of the fees constituted virtually all of the company’s gross receipts. Between 2001 and 2006, the number of bail bonds written increased quickly, so that the company’s gross receipts reported to the IRS went from $188,337 in 2000, to $5,822,588 in 2006.

The indictment alleges that from 2001 through October 2007, Milton and Moe Tillman structured the ownership and business operations of 4 ACES in ways that concealed from the IRS Milton Tillman’s control of the company and the amount and disposition of the income Moe and Milton Tillman derived from the company. The indictment alleges that Moe and Milton Tillman failed to report to the IRS the use of 4 ACES funds to pay some of Milton Tillman’s personal expenses, such as payments on life insurance policies, car payments on his 2004 BMW, and payment of his personal income taxes. In addition, Milton and Moe Tillman allegedly transferred 4 ACES funds to themselves or corporations they controlled and used the funds for their personal gain. The Tillmans allegedly used the pretense that some of the transfers were non-taxable loans, then used the funds to invest in real estate through the payment of earnest money deposits, closing costs and monthly mortgage payments, as well as for other purposes.

Milton Tillman was also a member of the International Longshoremen’s Association AFL-CIO and was assigned to particular shifts to unload or load cargo vessels on behalf of Ports America Baltimore, Inc., a stevedoring company. The indictment alleges that in addition to misrepresenting to the IRS the extent to which he worked as a longshoreman, Milton Tillman allegedly defrauded Ports America, obtaining wages and fringe benefit payments for hours that he did not work at his job. The indictment alleges that Tillman obtained approximately 64 payroll checks that included payment for hours he did not work, including hourly wages and benefits he received while on vacation in Brazil, Spain and Las Vegas.

Specifically, the indictment charges that Milton Tillman filed false tax returns for 2002 through 2006, substantially underrreporting his total income, and that Moe Tillman did the same with his 2005 and 2006 tax returns. In addition, the indictment charges that Moe Tillman filed false corporate tax returns for 2004 through 2006. Furthermore, the indictment charges that Milton Tillman was prohibited from engaging in the business of insurance due to a previous conviction involving dishonesty and that Moe Tillman was aware that his father was prohibited from engaging in the business of insurance, but still permitted his father to participate in the bail bond business. Finally, Milton Tillman is charged with wire fraud in connection with the scheme to defraud Ports America.

Florida Man Charged with Defrauding Hawaii Residents March 16, 2010

A federal indictment in Hawaii charging Patrick H. Rakotonanahary, age 34, a resident of Florida, with 21 counts of wire fraud was unsealed late yesterday upon Rakotonanahary’s arrest in Florida. The indictment was previously returned by a federal grand jury on March 10, 2010, but sealed until his arrest.

According to the indictment, Rakotonanahary, as president and chief executive officer of Cyber Market Group, LLC, marketed an investment program which purported to pay investors six to 10 percent interest per week based on the trading of foreign currencies (Forex). The indictment alleges that between Dec. 20, 2007 and May 2009, Cyber received approximately $10,255,300 in investments from more than 100 individuals, which included $7,994,300 from 64 individuals or entities in Hawaii.

According to the indictment, instead of using investor money to engage in Forex trading, Rakotonanahary primarily paid investment returns to earlier investors with investment funds from later investors as part of a “Ponzi scheme,” using only about $1,864,000 for Forex trading, which generated losses of $814,806. Instead, Rakotonanahary used approximately $8,375,703 to pay investment returns and another $1 million personally.

The criminal case resulted from a joint investigative effort by the FBI, the Commodity Futures Trading Commission (CFTC), and the State of Hawaii Department of Commerce and Consumer Affairs (DCCA). Both the CFTC and DCCA filed related actions against Rakotonanahary. The CFTC filed a civil complaint in federal court, while the DCCA issued a preliminary order to cease and desist.