The late Jim Croce sang about Bad, Bad Leroy Brown from the south side of Chicago, and there is a Leroy Brown in New Jersey who has been charged with stealing over $385,000 from the Salvation Army from 1995 to 2002 while he worked for the organization as a financial manager. A press release (here) issued by the U.S. Attorney’s Office for the District of New Jersey states that the indictment (here) alleges that Brown "used his position at the Salvation Army’s Newark office to generate fraudulent rental assistance checks. According to the Indictment, Brown and a co-conspirator, who was not employed by the Salvation Army, would cash the checks at a business in Newark and divide the proceeds. Brown and his co-conspirator, who pleaded guilty on Monday, allegedly cashed approximately 585 fraudulent checks between October 1995 and July 2002, stealing approximately $385,760 from the Salvation Army." Brown is charged with conspiracy, embezzling from a program receiving over $10,000 in federal funds (Sec. 666), and tax evasion. Jim Croce’s Leroy "looked like a jigsaw puzzle with a couple of pieces gone" after messin’ with the wife of a jealous man, while this Leroy may be facing a substantial term of imprisonment for defrauding a charitable organization. (ph)
Category: Fraud
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When Lord Conrad Black was forced out as CEO and controlling shareholder of Hollinger International Inc. in 2004 for financial misconduct, there was — needless to say — a flurry of lawsuits and governmental investigations. The result of the company’s determination that Black had siphoned company assets was that the SEC filed civil securities fraud charges and, in 2005, a grand jury in Chicago indicted Black on fraud, obstruction of justice, conspiracy, and RICO charges. Black has hired dozens of lawyers to defend him in the various civil and criminal cases, and one part of the litigation was his demand that Hollinger pay his attorney’s fees under an indemnification agreement with the company. Such agreements are standard in larger corporations, and Delaware law, the jurisdiction in which Hollinger incorporated, is considered quite friendly to claims by former executives seeking indemnification and advancement of attorney’s fees. Hollinger and Black settled their dispute about the attorney’s fees in an agreement that the company’s recent Form 10-K discloses (here):
Pursuant to the settlement agreement, the Company will advance approximately $4.4 million for legal bills previously submitted to the Company for advancement, which reflects an offset for amounts previously advanced to Black that he was required to repay as a result of the rulings against him in the Delaware Litigation. In connection with future legal bills, the Company will advance 75% of the legal fees of attorneys representing Black in the criminal case pending against him in the United States District Court for the Northern District of Illinois and 50% of his legal fees in other matters pending against him. All such advancement is subject to Black’s undertaking that he will repay such fees if it is ultimately determined that he is not entitled to indemnification.
Hollinger has not been charged with an offense, and it does not appear to be viewed by either the SEC or U.S. Attorney’s Office as a target or subject of the investigation. Therefore, its payment of Black’s attorney’s fees will not be viewed as a sign of a lack of cooperation under the Thompson Memo on charging corporations with crimes. While it may appear odd that the "victim" of a crime pays the perpetrator’s legal fees, in fact such payments are not at all out of the ordinary, and the fact that Black may be acquitted shows that an indictment does not mean a contractual obligation can be ignored. (ph)
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Whatever happened to harmless student fun like stealing your biggest rival’s mascot or engaging in a little "harmless" fraternity hazing? A group of former students at Texas Tech were sentenced for their roles in a scheme to qualify students for Pell Grants that they were not eligible to receive, and then split the money. The ringleader, Rojelio Hernandez, received a 30-month term of imprisonment, while the former students who acted as "go-betweens" received six-month home confinement sentences. Students who agreed to the use of their names and social security numbers and entered guilty pleas have received terms of probation. According to a press release issued by the U.S. Attorney’s Office for the Northern District of Texas (here):
Hernandez completed, signed, and submitted approximately 31 fraudulent signature pages on the grant applications. Even after he left employment in the financial aid office, he continued to remotely access the university’s computer system to continue the scheme. He altered or removed verification for approximately 26 students. In total, Hernandez falsely qualified approximately 33 students as eligible to receive Federal Pell Grants. The students paid half of the money they received to the “go-betweens,” who in turn delivered the remainder to Hernandez. Hernandez retained approximately $72,525.00 from the scheme for personal use. The total amount of this part of the scheme is approximately $200,000.
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The Recorder reports (here on Law.Com) that two named partners at class action law firm Milberg Weiss Bershad & Schulman, David Bershad and Steven Schulman, will be indicted shortly for fraud related to secret payments to representative plaintiffs in class actions. Seymour Lazar, who served as the named plaintiff in a number of cases litigated by Milberg Weiss’ predecessor firm, was indicted in 2005 on fraud charges related to the receipt of the secret payments. Lazar has asserted that they payments were referral fees, although the usual rule is that a representative plaintiff is not permitted to receive any compensation other than that authorized by the court. The class actions were filed before the adoption of the Private Securities Litigation Reform Act in 1995, so any prosecution of Bershad and Schulman may face possible statute of limitations problems if there is not a waiver.
Prosecutors had been investigating the roles of Melvyn Weiss and William Lerach, two of the best-known plaintiff class action attorneys in the country who were partners until their firm split in 2004. They have now been dropped from the case, although they are likely to be witnesses for one side or the other if Bershad and Schulman are indicted. The Recorder story notes that three Milberg Weiss partners and two former clients have been granted immunity, and attorneys for the two lawyers have traveled to Washington D.C. to speak with the Criminal Division at the Department of Justice to try to block an indictment. If indictments are handed up, it promises to be a bitter fight involving seasoned litigators as the defendants. (ph)
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There is nothing worse than going to the dentist, but how often does the dentist moonlight by engaging in mortgage fraud. A press release from the U.S. Attorney’s Office for the District of New Jersey (here) describes a scheme by Terrance Stradford, a Staten Island dentist, and a friend, Christina Hachadoorian, to mortgage the same property three times in 2004 when it was already encumbered by first and second mortgages. The government charged the two defendants with conspiracy, wire fraud, and money laundering for mortgage the property for $500,000, $585,000, and $275,000 in June, August, and September 2004 with three different mortgage lenders. Among the items purchased with the proceeds of these loans was property in North Carolina, a 1998 Maxum 46′ yacht, and a 2005 GMC Yukon Denali. No word on whether the good doctor found time to practice dentistry at the same time. (ph)
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Gear Pump Distributors (USA), a subsidiary of the South African company Dosco GPM Holdings (PTY), Ltd., entered a guilty plea to honest services fraud for enticing an employee of a competitor to share secret pricing information from his company. A press release issued by the U.S. Attorney’s Office for the Northern District of Ohio (here) describes how Gear Pump got an executive at Permco, Jack Buffin, to provide it with "internal price lists for both the U.S. and European markets, internal cost lists, copies of internal Permco e-mails, internal customer trip reports, Permco customer purchase specifications, business opportunities of Permco, and Permco supplier information." According to the press release:
Gear Pump admitted that, beginning in approximately 2001, Dosco began exploring the opportunity of increasing its presence in the United States market. In or about December 2003, Dosco approached Buffin about the possibility of setting up its operations in the United States. Dosco eventually made a formal offer of employment to Buffin in September 2004, to take effect December 2004; in reality, Buffin began working with Dosco/Gear Pump prior to receiving a formal employment offer.
It was part of the scheme that representatives of Dosco would have secret meetings with Buffin to discuss its plans for the United States market. While still a full-time employee at Permco, Buffin took two trips to South Africa to discuss his role in Dosco’s business development in the United States. Buffin also attended secret meetings with representatives of Dosco at a trade show in Dallas, Texas.
Buffin assisted in the creation of Dosco’s United States operations in Ohio, the Gear Pump corporation, while a full-time Permco employee.
Buffin entered a guilty plea in February 2006 to a charge of violating the Economic Espionage Act for supplying trade secrets to Gear Pump. The company will pay a $190,000 fine and restitution to Permco of $95,000. It is an awfully competitive business environment out there these days, especially in the manufacturing sector, and resorting to these tactics to gain an advantage is a sign of how great the pressure if to achieve results. (ph)
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The second trial of Tenet Healthcare Corp. and the former CEO at its Alvarado Hospital Medical Center ended in another mistrial after the jury deliberated for 60 — yes, sixty — days. The government charges relate to relocation agreements that prosecutors claim were really disguised kickback arrangements to encourage the doctors to refer patients to the hospital. The retrial in San Diego, which included U.S. Attorney Carol Lam as a member of the prosecution team, lasted seven months and went to the jury in December 2005. After two long trials in which the government was unable to secure a guilty verdict, I think it’s fairly likely that the government will look to the civil investigations of Tenet by the SEC and CMS as the better means to a final resolution of the issues. A Bloomberg story (here) discusses the mistrial and other investigations. (ph)
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As part of the deferred prosecution agreement with the Department of Justice, the University of Medicine and Dentistry of New Jersey (UMDNJ) appointed former federal judge Herbert Stern as its outside monitor to investigate corruption and financial fraud at the school. Stern’s first report (here) to the U.S. Attorney’s Office identifies significant problems, ranging from inappropriate expenses to hiring practices tainted by political influence. According to the report, "Our investigation revealed that UMDNJ, for several decades, was besieged by politicians looking to use UMDNJ, and in particular, its large workforce, as a vehicle for patronage and favor peddling. In short, politicians exerted significant pressure and used their offices to influence hiring practices and decisions at UMDNJ." Another issue raised in the report concerns whether a state Senator who chaired the appropriations committee steered millions of dollars worth of appropriations to the school after it retained him as a part-time consultant. A Newark Star-Ledger story (here) discusses the report. If Stern’s investigation uncovers significant instances of corruption, federal prosecutors are likely to commence a grand jury investigation of the individuals involved, if it has not started already. (ph)
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White collar defendants are being sentenced higher than ever before. Just ask Bernie Ebbers, former CEO of WorldCom who was sentenced to 25 years, John Rigas, founder of Adelphia who was sentenced to 15 years; or his son Timothy Rigas, the CFO of Adelphia who was sentenced to 20 years. And we haven’t even mentioned the ridiculous sentence that Jamie Olis originally received – over 24 years – that was remanded for resentencing by the Fifth Circuit Court of Appeals.
There is now a newcomer to the club, and his name is David Wittig, the former CEO of Westar who received a sentence of 18 years. And the former executive VP, Douglas Lake, received a 15 year sentence. And there were also fines – "Wittig to pay $14.5 million in restitution and [ ] Lake to pay $2.785 million." (see Wall Street Journal here)
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Fraud Update includes a link here to a press release from the US Attorney’s Office for the Western District of Virginia telling of pleas entered by two individuals to the crime of conspiracy to commit money laundering. According to the press release:
"Evidence presented during the defendants’ plea hearings showed that beginning some time in 1997, there was a well-planned scheme to convince stock investors to purchase non-existent stock. The scheme involved the use of a bank account at a Chase Manhattan Bank branch in New York that was set up in the Oppenheimer name and that was used, in part, to launder the funds by having people like the defendants find a way to cash “Oppenheimer” checks. During this scheme, someone also set up a mailbox with a “67 Wall Street” address to which investors sent checks that they believed were being mailed to Oppenheimer and were being used to purchase real stocks. The Wall Street address, however, did not in fact belong to Oppenheimer but rather was the address of a company that provided mail services for small businesses and individuals."
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