Thank you, Bruce, for that kind introduction. I am truly delighted to be here today, and to join you on the occasion of the 22nd Annual ACFE Fraud Conference. It’s not often that I get the chance to speak to over 2,000 fraud fighters – a veritable anti-fraud army – at one time, so it’s a real privilege for me to be here. At the outset, I want to thank Bruce, and Kevin Taparauskas, Jim Ratley and the entire ACFE team for their work in organizing this event. I also want to recognize my niece, Laura Breuer, who lives in Laguna Beach, and is in the audience today.
As members of the Association of Certified Fraud Examiners, and participants in this conference – whether you come from the private sector; a university; federal, state, or local government; or elsewhere – I know at least one thing about you: You care about rooting out, and preventing, financial fraud. That gives us something in common.
As the Assistant Attorney General of the Criminal Division at the U.S. Department of Justice, I am privileged to lead nearly 600 lawyers who enforce the nation’s federal criminal laws and help to develop and implement our criminal law policy. Prosecutors in the Criminal Division face a tremendously broad array of threats – from violence along the Southwest Border, to cybercrime and money laundering, to international narcotics trafficking, gang violence, and child exploitation. And the American people count on us to help keep them safe by investigating and prosecuting those who commit these and other crimes. We work hand-in-hand with the 94 U.S. Attorneys’ Offices across the country, including here in San Diego. My friend, Laura Duffy, the U.S. Attorney for the Southern District of California, is a great public servant and career prosecutor, with tremendous talent and courage. The Assistant U.S. Attorneys in her office work tirelessly to combat crime along the border, and the many other violent threats that the people of San Diego and the surrounding area face.
As fraud examiners, you, fortunately, do not face the problem of the Mexican drug cartels or violent street gangs in your daily work. At least I hope you don’t. But you do face a range of pernicious, financial crimes that we in the Criminal Division have devoted substantial resources to fighting. These crimes are extremely serious – they can wreak havoc on investors, threaten the integrity of our markets and financial institutions, and even undermine trust in our political leaders.
Since I became Assistant Attorney General, over two years ago, I have spoken often to audiences about the work of the Justice Department in fighting white collar crime. And one of the things I have found is that it is often the promise of personal financial gain that leads public officials, corporate executives, doctors, lawyers, and others in positions of privilege to engage in acts of corruption and financial fraud. Over and over again, the corrupting influence of money leads people with financial and educational advantages to commit white collar crime.
As fraud examiners working in the private, public, and non-profit sectors, you are often in a place to detect fraudulent behavior, investigate it, and report it. And, given your positions, you often have the ability to root out conduct of this kind committed by people in positions of privilege. Today, I want to speak with you about some of the work that the Criminal Division and U.S. Attorneys’ Offices are doing to hold accountable individuals who abuse positions of trust for the purpose of enriching themselves; and to offer you some suggestions as you go forward in your work.
I want to focus on a few areas of criminal prosecution in particular: health care fraud; insider trading; investment fraud; and public corruption.
Let me begin with health care fraud. The Fraud Section of the Criminal Division has a unit dedicated to the investigation and prosecution of Medicare fraud crimes; and over the past year, this unit has participated, along with U.S. Attorneys’ Offices across the country and multiple federal and state law enforcement partners – in the two largest health care fraud operations in history. In July 2010, Attorney General Eric Holder and Secretary of Health and Human Services Kathleen Sebelius announced criminal charges against 94 defendants, in five cities, in which we have joint law enforcement teams that make up the Medicare Fraud Strike Force. These defendants were charged with submitting more than $251 million in false claims to the Medicare program. In February of this year, Attorney General Holder and Secretary Sebelius announced charges against more than 110 defendants in all nine Strike Force cities. These defendants were charged with defrauding Medicare of over $240 million. And as we saw in these operations, and our Strike Force prosecutors see every day, Medicare fraud is a crime sometimes committed by doctors, nurses, and other health care professionals – in short, by people who are entrusted to care for patients, not exploit them.
To give you one of many examples, earlier this year we secured a trial conviction against a doctor in Miami for participating in a $23 million HIV injection and infusion Medicare fraud scheme. This physician ordered unnecessary tests, signed medical analysis and diagnosis forms, and authorized treatments to make it appear that patients were receiving services reimbursable by Medicare when, in fact, they were not. He signed patient charts indicating that infusion treatments were medically necessary, when, in fact, they were not. In many cases, he had not even seen the patient whose chart he was signing. For his efforts to cheat Medicare out of millions of dollars in this way, he received $3,000 per week from one of his co-conspirators. It’s galling to see someone use his talents and his privilege as a doctor to steal money from the Medicare program the way Dr. Rios did, and our criminal prosecutors are working hard to ensure that people like him are appropriately punished.
Another area in which we often see defendants exploiting positions of trust is insider trading. As the Justice Department has sharpened its focus on criminal insider trading recently, it has become increasingly clear that those who trade on material, non-public information are often in positions of trust, which provide them with access to that very information. Last month, for example, we secured a conviction against Donald Johnson, a former managing director of the NASDAQ Stock Market. Mr. Johnson’s job involved receiving material, non-public information from NASDAQ-listed companies and then providing those companies with analyses about their stock, based on that information. Instead of using this information for the benefit of the companies listed on his stock exchange, though, he repeatedly used it to cash in. For example, in 2006 Mr. Johnson was informed that a top executive at the company Digene was about to announce his resignation. Knowing that the announcement would likely cause Digene’s stock to drop, he made short sales of the company’s stock shortly beforehand. And soon after the announcement, and the resulting decline in stock price, he covered his short positions and made a handsome profit. In all, Mr. Johnson generated nearly $650,000 in illegal gains. For good reason, we dubbed him a “fox in a hen-house.”
In March, we brought charges against Cheng Yi Liang, a chemist at the Food and Drug Administration, who had been employed since 1996 in the FDA’s Office of New Drug Quality Assessment. Mr. Liang is alleged to have had access to confidential non-public information relating to whether and when certain drug applications would be approved.
And in the successful prosecution by the U.S. Attorney’s Office in Manhattan of hedge fund billionaire Raj Rajaratnam, you saw again the abuse of special trust on display. Mr. Rajaratnam was convicted by a jury last month on 14 felony insider trading counts. The evidence at trial included, among other things, recordings of wiretapped calls between him and others with special access to inside information, including a senior partner and director at McKinsey & Company and an employee at Intel.
Investment fraud cases also frequently involve defendants who are taking advantage of the responsibilities they’ve been given. These fraud schemes often cause extreme hardship to investor-victims, and the Justice Department has been aggressively investigating and prosecuting perpetrators of these schemes over the last two years. You can see the harm these fraudsters cause by listening to their victims. Nicholas Cosmo, the former president and owner of Agape World, Inc., prosecuted by the U.S. Attorney’s Office in the Eastern District of New York, devised a scheme to defraud his investors by telling them that their money would be used to fund short-term bridge loans to commercial and other borrowers, and then using most of it for other purposes. He caused approximately $195 million in losses. One of Mr. Cosmos’s victims testified in court that: “[A]s a 59-year-old man, I never had a pension plan or a retirement. I worked very, very hard since I was in my teens. And in a period of like 25, 30 years, I had two rental houses and I dealt with tenants and maintenance and repairs and all those kind of things, and paid the mortgages off over all these years. And when things got really bad in the economy, I foolishly took that money out and invested it with Cosmo. Needless to say, it’s all gone.”
I could give you dozens, if not hundreds, of additional examples of investment fraud schemes we’ve prosecuted. But let me focus on just two – both of which involved schemes perpetrated by lawyers. Marc Dreier, the founder and former managing partner of Dreier LLP, a nearly 300-person law firm in New York City, engaged in a massive scheme to defraud clients and investors. The scheme led to the collapse of his firm and to losses of approximately $400 million. In July 2009, Mr. Dreier was sentenced to 20 years in prison. Similarly, Scott Rothstein, the name partner in a 70-plus person law firm in Ft. Lauderdale, engaged in a $1.2 billion investment fraud scheme. He is currently serving a 50-year prison sentence. Like doctors, who owe a special duty to their patients, lawyers are ethically bound to support their clients, not to defraud them. And, as these cases show, we will not hesitate to prosecute individuals who exploit their professional obligations for personal gain.
Public corruption cases also often involve crimes committed by individuals who abuse the authority entrusted to them in order to benefit themselves.
Let me give you two recent examples. On May 11, a federal jury in Richmond, Virginia, convicted Phillip Hamilton, a former member of the Virginia House of Delegates of extortion and bribery for securing a salaried position at Old Dominion University in exchange for introducing legislation to fund the position. In attempting to solicit the position, Hamilton wrote an email to an Old Dominion official in which he advised that the current budget did not include funding for the university center; he also notified the official that his retirement payments from another source were soon to be reduced, and that he would need to supplement his income. In response, he was assured that if the Virginia General Assembly funded the center, he would have a paid position waiting for him. The Criminal Division’s Public Integrity Section – whose sole task is to prosecute corruption cases involving federal, state, and local officials – prosecuted this case with the U.S. Attorney’s Office in the Eastern District of Virginia. And on May 17, we secured a five-year prison sentence for a former Senate Majority Leader in Puerto Rico who solicited over $500,000 in cash payments and other benefits in exchange for proposing legislation, preventing legislative projects from being voted on, and other official acts. The Public Integrity Section prosecuted this case with the U.S. Attorney’s Office in San Juan.
These two cases are not typical financial fraud cases. But they nevertheless fall within the category of white collar crime. At their core, they involve individuals with access to special power – here, legislative power – that they exploited for private, financial gain. Among other things, crimes like those committed by Phillip Hamilton and former Senator De Castro Font undermine our faith in democratic institutions, and we cannot tolerate them.
Why are the cases I’ve highlighted today significant for you? As fraud examiners in companies large and small, in municipalities and state governments, in federal agencies and public institutions, you are often tasked with auditing the work of others, including, sometimes, your superiors. In that role, you have a special responsibility, and one that I know you take seriously. Indeed, in many organizations, you are all that stands between a successful fraud, and disciplinary, or, ultimately, criminal action. And I want to impress upon you how important your responsibility is.
What should you bear in mind as you carry out your duties? Let me offer you three suggestions. First, trust your instincts. With the proper training, which you have, and a strong commitment to stopping fraud, which you also have, if you think you see a red flag, that’s probably because you do. Trust yourself to follow up.
Second, do not be intimidated. As I have seen first-hand over the past two-plus years, white collar criminals and financial fraudsters can be extraordinarily innovative; and so sometimes they succeed in their schemes because they are able to outsmart everyone else. But I also think that certain schemes could have been discovered earlier if an employee who saw something wrong had spoken up. We want and need you to come forward when you uncover fraudulent conduct.
Third, know that the Justice Department is committed to prosecuting financial fraud. We do not hesitate to bring charges or go to trial when circumstances warrant, and you should not hesitate to let us – or our partners at the Securities and Exchange Commission or the Commodity Futures Trading Commission – know about misconduct that you find.
I have said before – but perhaps never to as receptive an audience as this one – that fraud enforcement matters. And, as you know, financial fraud takes many forms. When people in positions of privilege, who are entrusted with sensitive information, or have a duty to act in a particular way, commit fraud – whether by trading on insider information, accepting bribes, or otherwise – you and I are charged, in different ways, with holding them to account. Given your positions – in the audit departments of corporations and municipalities; as accountants at non-profit organizations; as fraud investigators across a range of organizations – you have a special responsibility to speak up when you see something wrong. Because, if you don’t, there may be no one else to do it.
And I know you will. That’s why you’re here; and that’s why you do what you do each day. I want to thank you again for the invitation to speak with you this morning. It is an honor. I know you have an action-packed conference ahead of you, and I wish you a very productive week. Thank you.