It is interesting to see how some individuals will move from one scheme to the next and still be able to lure investors, sometimes even boasting about how they’ve tangled with the law. Vladislav "Steven" Zubkis was charged with 36 counts of mail/wire fraud and money laundering in the Southern District of California related to two construction projects that did not pan out. A San Diego Union-Tribune story (here) discusses other problems Zubkis has had with some of his business ventures, including a current venture involving a luxury time share in Baja California that may not exist. The SEC obtained a judgment against Zubkis in 2001 related to a fraudulent scheme involving the Stella Bell Corp., including an order to pay over $21 million in disgorgement and prejudgment interest (see Litigation Release here). Zubkis filed for bankruptcy in October (joining the rush to avoid the revised bankruptcy laws, no doubt) in a move the SEC claims is designed to avoid paying the earlier judgment, for which the Commission has already seized a 75-foot yacht (see Litigation Release here). Zubkis is being held after a bail hearing in which the government asserted he was a flight risk, and it’s unlikely he’ll be able to meet any significant bond requirement because that will draw the SEC’s attention to the assets to pay the earlier judgment. (ph)
Category: Fraud
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The Office of the Inspector General (OIG) of the Department of Health and Human Services has proposed what is, in effect, the nuclear option by issuing a notice that it will seek to bar a hospital from participating in all federal health care programs, most importantly medicare and medicaid. Such an exclusion would effectively put the hospital out of business, and this is the first time the OIG has proposed such a sanction against a hospital. The civil charges involve South Shore Hospital and Medical Center in Miami (now called South Beach Community Hospital), which settled a False Claims Act case in 2002 by paying over $900,000 and agreeing to a Corporate Integrity Agreement (CIA) that it is now accused of violating. According to the OIG press release (here):
South Shore repeatedly failed to timely submit complete and accurate implementation and annual reports, and failed to implement all of the Independent Review Organization requirements of the CIA, which called for particular types of cost reporting reviews and engagement procedures. South Shore also failed to notify OIG, as required, of its sale to new owners, who are also subject to the terms of the CIA.
The hospital has 30 days to respond to the OIG notice, and according to a story in the Miami Herald (here) management was taken by surprise by the government’s proposed action and will seek to resolve the problem. While the hospital has a troubled history, including a bond default, the OIG may be using the case to send a message to hospitals nationwide that it will take recidivism more seriously as it tries to combat healthcare fraud. (ph — thanks to Delia Johnson for passing along the information)
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Adam Kidan, who was indicted along with lobbyist Jack Abramoff on conspiracy and fraud charges related to a $147 million loan to purchase a casino ship company, is scheduled for a change of plea hearing on Dec. 15 in Miami. If Kidan cooperates with the government’s investigation, which appears very likely, then the pressure on Abramoff goes up yet another notch. Recently, one of Abramoff’s former lobbying partners, Michael Scanlon, entered a guilty plea to a conspiracy charge that sets forth in extensive detail questionable payments and gifts from Abramoff — identified as Lobbyist A — to Ohio Congressman Bob Ney — identified as Representative #1. The Southern District of Florida case involves rather significant potential losses, which could trigger a substantial prison sentence if Abramoff were convicted. With each plea agreement, Abramoff’s ability to fight the actual and potential charges becomes more difficult as his closest business associates provide the government with information that will be used against him. A Bloomberg.com story (here) discusses the Kidan’s potential plea. (ph)
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The trial of former Duke Energy trader Timothy Kramer ended with a hung jury on the 12 remaining charges of fraud related to the alleged submission of inflated prices for power and gas trades by the company in 2001 and 2002. Earlier, Kramer and fellow trader Todd Reid were acquitted of charges, with the jury returning a not guilty verdict on all counts against Reid and seven of the charges against Kramer. The court gave the government until Jan. 10 to decide whether to retry Kramer on the 12 counts. A Houston Chronicle story (here) discusses the verdict. (ph)
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It is no surprise to see the Wall Street Jrl reporting here that Katrina fraud investigations hit the 1,000 mark. It seems like there has been a continuing list of press releases from US Attorneys offices throughout the country have been related to Katrina frauds. Just this week we see releases from the FBI here and DOJ here (see Fraud Update). The DOJ has also made it a top priority, and one has to give credit to the quick establishment of a Hurricane Katrina Fraud Task Force. (see here). The following is a list of all of our prior posts related to Katrina Frauds:
Hurricane Katrina Fraud Task Force Update
Katrina Will Also Spawn Fraudulent Schemes
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Fraud Update here alerts us to a Press Release of the USA for the Western District of Missouri (has anyone else noticed that there are no press releases under December in the main DOJ website, although there are some if one looks at the specific agencies). The jury convicted "a real estate entrepreneur" "for orchestrating a property flipping scheme and mortgage fraud conspiracy." The defendant was said to have "prepared and provided material false, fraudulent and misleading loan applications and other documents regarding the loans," and "created a phony trust to conceal the fact that he was flipping property." Id.
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U.S. District Judge Inge Johnson dismissed the two securities fraud counts from the SEC’s civil complaint (here) against former HealthSouth CEO Richard Scrushy, although she gave the Commission 15 days to refile the charges. The SEC filed its complaint against Scrushy and HealthSouth in March 2003, and alleged violations of Section 17(a) of the 1933 Act for fraud in the issuance of HealthSouth securities, and of Section 10(b) and Rule 10b-5 for fraud in connection with the purchase or sale of the company’s securities. Judge Johnson found that the two fraud counts were impermissibly vague, and the complaint does not specify the fraud but only quotes from the two statutory provisions. While the complaint has the broad outlines of the accounting fraud at the company, the Judge apparently wants a more detailed listing of the specific fraud conducted by Scrushy. The company settled the SEC case in June 2005 (Litigation Release here) and agreed to pay a $100 million civil penalty.
Judge Johnson did not dismiss the other counts of the SEC complaint alleging that Scrushy aided and abetted HealthSouth’s violations of the reporting, internal controls, and books-and-records provisions of the federal securities laws. These counts do not have the same stigma as a fraud charge, and involve more technical issues that may be amenable to Scrushy’s "honest-but-ignorant-CEO" defense. A Reuters story (here) notes that discovery in the civil case will not be complete until November 2006, and the case will not go to trial until February 2007, at the earliest.
Of course, Scrushy will have to face corruption charges filed against him and former Alabama Governor Don Siegelman in the Middle District of Alabama before the SEC case is ready. Scrushy’s legal bills are going to continue to pile up, although HealthSouth may be on the hook for at least the securities case under the indemnification provisions of its by-laws and articles of incorporation. (ph)
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Army reserve Lt. Colonel Michael Wheeler was arrested and charged with bribery, fraud, and money laundering that included smuggling at least $100,000 in cash from Iraq. Wheeler was responsible for contracting for the Coalition Provisional Authority, South Central Region, and is accused of taking money intended for the reconstruction of Iraq and using it to purchase, among other things, firearms and other high-tech military gear in North Carolina. This is the third CPA South Central Region official to be charged with misconduct. An AP story (here) discusses the charges. (ph)
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Lord Conrad Black entered a not guilty plea, as expected, at his arraignment in U.S. District Court in Chicago on charges for defrauding Hollinger, Inc., when he was CEO and its controlling shareholder. Black posted a $20 million bond secured by his Florida home, and will be permitted to travel to his home in Toronto. Two of the other individual defendants, Mark Kipnis and Peter Atkinson, also entered not guilty pleas, while Jack Boultbee, former CFO of Hollinger, did not appear. Boultbee is a Canadian citizen, and his failure to appear may result in extradition proceedings unless he makes arrangements with federal authorities to appear at a later date. An AP story (here) discusses the arraignment. (ph)
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Michael Segal was convicted in 2004 of fraud, embezzlement, and racketeering for using his insurance firm, Near North Insurance Brokerage, to bilk clients to support a lavish lifestyle. At his sentencing in the U.S. District Court for the Northern District of Illinois, Segal protested to the he had never stolen a dime in his life, and that if he had kept better records and had a better attorney he would have been acquitted of the charges. In response, U.S. District Judge Ruben Castillo stated, ""Even if Abe Lincoln and Clarence Darrow came back from the dead to represent you, they wouldn’t have saved you." The judge then found that while Segal was involved in a $30 million fraud, the actual loss to customers was only $1.5 million, after which he sentenced Segal to a 121-month term of imprisonment. A Chicago Tribune story (here) discusses the sentencing.
MattBray.net 