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Executive Charged in Multi-Million-Dollar Fraud Case March 2, 2010

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Michael G. Spada was charged yesterday by information with wire fraud, bank fraud, filing a false tax return, and making a false statement to the federal government in a fraud case involving more than $6 million.

Spada is accused of embezzling more than $6 million from his former employer and hiding that embezzlement from both a bank, that extended him a $3.2 million line of credit, and from the Internal Revenue Service. According to the information, Spada is a former controller and chief financial officer of Scannapieco Development Corporation and related companies. The information alleges that Spada embezzled the funds by diverting company checks to his own account and taking more than $400,000 in unauthorized salary between 2000 and 2009.

Spada failed to report most of the embezzled money on his tax returns and lied to IRS agents about his embezzlement during a meeting on June 22, 2009.   This sounds like a classic case of a person buying their own B.S.  As a result, it seems like he lied to his attorney, himself and the IRS which only dug the whole that much deeper.

4 California men charged with hacking into Ticketmaster and other sites March 1, 2010

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Federal prosecutors in New Jersey say four California men,Kenneth Lowson, Kristofer Kirsch, Faisal Nahdi and Joel Stevenson,  fraudulently obtained more than a million tickets to concerts and sporting events by hacking into Ticketmaster.com and other Web sites.  The men are charged with multiple wire fraud counts and gaining unauthorized access to computer systems.  The Government alleges that their company, Wiseguy Tickets, allegedly devised computer programs that impersonated individual ticket buyers to bombard ticket Web sites.   The programs were able to bypass safeguards which are meant to restrict the number of tickets each customer can buy.  They then allegedly resold the ticket making more than $25 million.

Story is here.

Former Fuel Purchaser Arrested for Defrauding Royal Caribbean Cruises February 26, 2010

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Jamil Murni, 60, of Houston, Texas, has been arrested on an indictment charging him with nine counts of wire fraud and one count of money laundering. He will appear in federal court in Texas before facing charges in Miami. 

According to the indictment, Murni was a Commodity Manager for Royal Caribbean Cruises, Ltd. In that position, he was responsible for negotiating fuel prices and deliveries for Royal Caribbean. From late 2003 through late 2006, he allegedly devised a scheme to defraud Royal Caribbean of over $600,000. 

According to court documents, in 2003, Murni registered “Sea Fuels Trading” as a fictitious name with the Florida Department of State’s Division of Corporations. He then opened and maintained a bank account in the name of Sea Fuels Trading. On December 19, 2003, Murni applied to have Sea Fuels Trading become a fuel provider for Royal Caribbean. In that application, he fraudulently concealed his ownership of the company. Royal Caribbean subsequently approved Sea Fuels Trading as a fuel vendor and paid Murni’s company money at a rate greater than would have been paid to a legitimate fuel vendor.  Why this was not picked up by anyone else at Royal  Caribbean remains unclear.

Title Company Owner Arrested on Mortgage Fraud and Money Laundering Charges February 16, 2010

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Daniel E. Fink Jr.,  of Baltimore, who owned and operated Homemaxx Title & Escrow LLC (Homemaxx), a title company that conducted residential real estate closings with offices in Middle River and Parkville, Maryland, was arrested in Palm Beach, Florida yesterday. He was a fugitive since March 26, 2009 when a federal grand jury in Baltimore returned an indictment charging him with wire fraud and money laundering in connection with a scheme to defraud lenders and homeowners of over $500,000.

According to the five count superseding indictment, from February 2003 to July 2004, Fink caused Homemaxx to fail to pay outstanding first mortgages on real estate transactions or to record deeds in the real estate records of local and state governments. Fink allegedly transferred substantial amounts of money from a Homemaxx escrow account into other Homemaxx accounts, as well as to accounts not associated with Homemaxx, and used the money intended to be disbursed pursuant to real estate closing documents for personal expenditures unrelated to real estate transactions. In connection with a particular real estate refinancing transaction by one of his customers, Fink allegedly diverted funds from the escrow account and then used the proceeds to purchase a new 2004 CLK Mercedes. As a result of this scheme, Fink is alleged to have defrauded lenders and homeowners of more than $500,000, and to have used $93,228 of the criminal proceeds for money laundering. The indictment seeks the forfeiture of $593,228.

Annapolis Mortgage Broker Charged in Fraud Scheme February 2, 2010

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Mortgage broker David Wehrs, Sr. of Annapolis, Maryland, has been charged with wire fraud in connection with a scheme to defraud investors and financial institutions of approximately $2.3 million.  According to the information and court documents, Wehrs owned Maryland Title and Escrow Company, Inc., located in Annapolis, and operated a small home remodeling company called Show-Me. From 2007 to October 2009, Wehrs allegedly induced individuals to invest money through Maryland Title into a purported FDIC-insured money market fund that Wehrs “guaranteed” would pay monthly interest payments of 10.85 percent. Instead of depositing the money into an “American Funds Fixed Rate Money Market” as promised, Wehrs allegedly deposited investor funds into one of two bank accounts he controlled in the name of his title company. Wehrs then wire transferred a large portion of these investor funds to a brokerage account in the name of his title company at Terra Nova Financial LLC located in Chicago, Illinois.

The Government also alleges that Wehrs then used the money he obtained to “day trade.” During the scheme, Wehrs is alleged to have conducted millions of dollars of stock trades per month.  In addition to day trading, Wehrs allegedly used some of the investor funds to: pay “monthly interest” and “redemptions” to other investors; pay expenses of his other businesses, including Show-Me; make escrow payments for his title company; buy real estate and personal property; and pay other personal expenses.

The Government further alleges that when Wehrs had no money left in his personal bank accounts or day trading accounts to pay interest due to investors, he used $630,611 earmarked to pay lending institutions for mortgage payoffs from his escrow account at Maryland Title to pay investors, causing a loss of such amount to a title insurance company. He also allegedly used $100,000 from the Maryland Title escrow account that was earmarked as earnest money for the purchase of an individual’s home to pay interest to investors, causing a loss of $100,000 to the home buyer.

As a result of the scheme, Wehrs is alleged to have caused a total loss of $2,371,06 to investors and the title insurance company. The worst part for Wehrs is that it seems like he doesn’t have a ton of money to pay back to make this go away.

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.

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.

Former Bordentown, NJ car dealership owner arrested on bank fraud charges August 10, 2009

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I actually had a case like this, just on a smaller scale; but still involving a ton of money.  My client ran a small dealership and became in debt to a several customers.  My client called me at the first sign of trouble and as a result, law enforcement never called.  We just worked everything out. In this case, it sounds like everything just went out of control.

 This is one of those cases where you have to look into her personal finances and determine if he is just a bad businessman who got in over his head or a greedy scammer who thought he could just get away with it. With a nice house on the water, he certainly wasn’t living a frugal lifestyle on the surface. 

TRENTON – The former operator of a Bordentown car dealership was arrested today on a federal Indictment in connection with his check-kiting scheme that resulted in losses of more than $7 million to banks, Acting U.S. Attorney Ralph J. Marra, Jr., announced.

Denis Kelliher, 39, who resides in both Toms River and Monroe Township, was arrested at his home in Toms River by Special Agents with the FBI and IRS Criminal Investigation early this morning. Kelliher is scheduled to make his first appearance in federal court and be arraigned on the 11-count Indictment today at 1:00 p.m., before U.S. District Court Chief Judge Garrett E. Brown, Jr., in the federal courthouse in Trenton.

On August 6, 2009, a federal grand jury returned the Indictment which charges Kelliher with two counts of bank fraud, one count of wire fraud, and eight counts of money laundering. ccording to the Indictment, Kelliher was the principal operator of Cartec Motors, LLC, (“Cartec”) located on Route 206 in Bordentown, which was in the business of buying and selling both new and used motor vehicles, including recreational vehicles.

The Indictment describes a scheme in which Kelliher attempted to create artificial balances in checking accounts that he controlled, including Cartec accounts at KeyBank, Commerce Bank (now known as TD Bank), 1 his personal account at 1st Constitution, by transferring monies between these accounts.

Kelliher allegedly wrote checks on accounts that he controlled, and deposited these checks into other accounts that he controlled, while knowing there were insufficient funds in the accounts against which the checks were drawn – a scheme commonly known as “check kiting.” The Indictment charges that as a result of the defendant’s check kiting activity, Cartec’s account at KeyBank was overdrawn by more than $6.9 million, and that its account at Commerce was overdrawn by more than $200,000.

In addition, the wire fraud count charges Kelliher in connection with a separate scheme in which he approached a prior Cartec customer for a $410,000 loan purportedly to be used to purchase recreational vehicles for re-sale. The Indictment alleges that Kelliher provided the former customer, identified only as “Victim-1” in the Indictment, with a personal financial statement which claimed that as of Dec. 31, 2008, Kelliher’s net worth exceeded $6.2 million. The Indictment alleges this financial statement was false and that it failed to disclose that, in September 2008, KeyBank obtained a judgment for approximately $27 million against Cartec and Kelliher individually.

Counts One and Two of the Indictment, charging Kelliher with bank fraud, each carry a maximum penalty of 30 years in prison and a fine of $1 million. Count Three, which

 

st Constitution Bank and Roma Bank, and charges wire fraud, carries a maximum penalty of 20 years in prison and a fine of $250,000 or twice the aggregate loss to the victims or gain to the defendant. Counts Four through Eleven, charging money laundering, each carry a maximum penalty of 10 years in prison and a fine of $250,000 or twice the aggregate loss to the victims or gain to the defendants.

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.