Lawyer Arrested In Multi-Million Dollar World Trade Center Reconstruction Insurance Fraud Scam
Defendant Allegedly Stole And Laundered Money Selling False Insurance Bonds
Darius X. Johnson has been arrested on a criminal complaint alleging wire fraud and money laundering in connection with his sale of phony insurance bonds for construction of the World Trade Center PATH transportation hub (“WTC Hub”). His initial appearance is scheduled later today at the federal courthouse in Atlanta, Georgia. The government will seek his removal to the Eastern District of New York for prosecution.
The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; Anthony Scandiffio, Deputy Special Agent-in-Charge, U.S. Immigration and Customs Enforcement, Homeland Security Investigations (HSI); and Michael Nestor, Inspector General, Port Authority of New York and New Jersey.
According to the complaint, between September 2010 and June 2013, the defendant took part in a scheme to steal money by selling fake insurance bonds to contractors working on large construction projects in New York and elsewhere. Specifically, Johnson, an attorney, sold fraudulent bonds provided by a company called Diamond Indemnity Trust, to a construction subcontractor which had a $6.2 million subcontract to supply and install glasswork at the WTC Hub. To prove that the bonds were backed by assets that could be used if the subcontractor defaulted on the project, Johnson provided, among other things, a phony letter of credit falsely indicating more than $6 million was held in Johnson’s attorney/client trust account in Brooklyn, New York. In 2011, after the subcontractor paid its premium for the fraudulent bonds, Johnson used multiple transactions and bank accounts to wire a substantial portion of the premium payment to himself and a co-conspirator. In 2012, when the subcontractor filed for bankruptcy and defaulted on the WTC Hub project, Johnson and Diamond Indemnity Trust failed to honor the bonds. As a result, the WTC Hub general contractor was forced to pay an additional amount of approximately $2 million to complete the job.
“As alleged, Johnson used deception to personally benefit from the reconstruction of the World Trade Center site while adding significant cost to the project and jeopardizing its timely completion,” stated United States Attorney Lynch. “This Office will investigate and prosecute to the fullest extent those who use important infrastructure projects as vehicles for fraud, deceit, and personal gain.”
“Surety bonds on capital construction projects serve the critical purpose of insuring that the project gets completed in a timely manner, within projected costs, and that the subcontractors and suppliers are paid properly. Fraudulent surety bonds create a dual problem for the construction project and the owner. The premiums are paid out for the surety bonds, and no resulting benefit or protection is obtained. The defendant allegedly victimized a World Trade Center project that was being rebuilt after the terrorist attacks to line his pockets. The Port Authority of NY & NJ, Office of Inspector General will continue to work with our law enforcement partners to prevent and detect all types of construction fraud,” stated Port Authority Inspector General Nestor.
“The World Trade Center reconstruction site is sacred ground, so using its rebuilding to steal money by selling false insurance bonds as alleged in the complaint is a particularly disturbing crime,” said HSI Deputy Special Agent-in-Charge Scandiffio. “HSI is committed to leveraging its unique statutory authorities and investigative expertise to bring down individuals involved in these types of criminal activities.”
The charges contained in the complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty. If convicted, the defendant faces a maximum sentence of 30 years’ imprisonment on the wire fraud count and 10 years on the money laundering count. Additionally, if convicted, Johnson may be fined up to $1 million for the wire fraud count and $250,000, or up to twice the amount of criminally derived property involved in the transaction, for the money laundering count.
The government’s case is being prosecuted by Assistant United States Attorneys Whitman G.S. Knapp and Brian D. Morris, and Special Assistant United States Attorney Jonathan P. Lax.
This prosecution was the result of efforts by President Obama's Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit http://www.StopFraud.gov.
DARIUS X. JOHNSON
E.D.N.Y. Docket No. 15-M-120