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The Office’s Criminal and Civil Divisions bring significant cases against the perpetrators of a wide range of fraudulent conduct. The Criminal Division investigates and prosecutes complex frauds and white collar crimes as well as securities and commodities fraud. The Civil Division’s Civil Frauds Unit uses civil enforcement statutes to investigate and bring cases attacking numerous types of misconduct, including financial fraud, healthcare fraud, and program and grant fraud, and in recent years has obtained admissions of wrongdoing from dozens of defendants and over $5 billion in recoveries on behalf of the federal government. The Civil Frauds Unit and the Criminal Division’s “white collar” units all work to maximize the recovery of fraud proceeds and to return that money to victims.
Complex Fraud Prosecutions
In recent years, the Complex Frauds & Cybercrime Unit has pursued a wide range of significant fraud cases. For example:
- Lawyer Convicted for Laundering $400 Million of Proceeds from Cryptocurrency Fraud Scheme: In November 2019, Mark Scott, a former equity partner at international law firm Locke Lord LLP, was convicted following trial for his role in laundering hundreds of millions of dollars of fraud proceeds on behalf of the leadership of OneCoin, a fake cryptocurrency. Through a fraudulent multi-level marketing scheme, the OneCoin fraud scheme stole over 3.5 billion Euros from victims, which Scott laundered through shell investment vehicles he created for that purpose. Scott is awaiting sentencing, and charges remain pending against Ruja Igantova and Sebastian Greenwood, the co-founders of OneCoin, as well as other co-conspirators.
- Five Manhattan Doctors Prosecuted for Accepting Bribes and Kickbacks from Pharmaceutical Company: In March 2018, the unit charged five doctors for their role in accepting bribes from Insys Therapeutics in exchange for prescribing Subsys, a powerful fentanyl-based spray. Insys secured millions of dollars’ worth of prescriptions by providing kickbacks in the form of fees for sham educational programs. Many of the programs led by the speakers and paid for by Insys were predominantly social affairs where no educational presentation about Subsys occurred. Attendance sign-in sheets for the programs were frequently forged by adding the names and signatures of health care practitioners who had not actually been present. All five doctors have been convicted and are awaiting sentencing, including Gordon Freedman, who was convicted in December 2019, following trial.
- Medical Professionals Convicted for Massive Health Care Fraud Scheme: In May 2019, Paul Mathieu, a medical doctor, and Hatem Behiry, a physical therapist, were convicted following trial for participating in a $30 million scheme. As part of the scheme, six Brooklyn-based Medical clinics fraudulently billed Medicare and the New York State Medicaid Program for services and supplies that were medically unnecessary and/or not provided. The defendants are awaiting sentencing.
- Prosecution of “Fyre Festival” Fraudster: As an example of a significant investment fraud case, in October 2018, William “Billy” McFarland was sentenced to six years’ imprisonment for, most notably, fraud in connection with promoting the notorious “Fyre Festival” that left hundreds of ticket purchasers virtually stranded without food and shelter—not to mention entertainment—on the beaches of Exuma, in the Bahamas. Through the course of his various schemes, McFarland caused losses to over 80 victim-investors, totaling more than $24 million dollars.
- Dismantling of Billion Dollar Illegal Pay Day Lending Scheme: In October 2017, Scott Tucker and Timothy Muir were convicted for their role sin operating a $3.5 billion payday lending enterprise, which exploited over 4.5 million financially struggling Americans. Tucker and Muir systematically evaded states laws in order to charge illegal interest rates as high as 1000 percent on loans, and attempted to conceal their operations behind various Native American tribes. Tucker, the CEO of the enterprise, was sentenced to more than 16 years in prison, and Muir, an attorney, was sentenced to 84 months in prison, for their respective roles in the scheme.
Securities Fraud Prosecutions
The Securities and Commodities Fraud Task Force continues its long tradition of prosecuting important securities cases and other cases affecting the financial markets. For example:
- U.S. Representative Pleads Guilty to Insider Trading and False Statements: In October 2019, Representative Christopher Collins pleaded guilty to participating in a scheme to commit insider trading and to making false statements to federal law enforcement agents. Prior to his guilty plea, Collins had represented the 27th District of New York as a member of the U.S. House of Representatives. His son, Cameron Collins, and Stephen Zarsky also pleaded guilty to participating in the insider-trading scheme. In June 2017, Collins was one of the largest shareholders of Innate Immunotherapeutics, a biopharmaceutical company, located in Australia, and was also a member of Innate’s board of directors. In June 2017, Collins learned that a multiple sclerosis drug that Innate was developing had failed a critical drug trial that was meant to determine the drug’s clinical efficacy (the “Drug Trial”). The negative Drug Trial results were highly confidential, and, as an insider who owed duties of trust and confidence to Innate, Christopher Collins was obligated to keep the Drug Trial results secret until Innate publicly released them. Instead, in breach of those duties, Christopher Collins tipped Cameron Collins, who was also a substantial Innate shareholder, so that Cameron Collins could make timely trades and tip others before Innate publicly released the Drug Trial results. Cameron Collins traded on the inside information and passed it to Stephen Zarsky and three other individuals. Zarsky, in turn, traded on the information and used it to tip three more individuals so that they too could engage in timely trades in Innate stock. All of the trades preceded the public release of the negative Drug Trial results. Those who traded on the inside information avoided a total of approximately $768,000 in losses that occurred following public release of the negative Drug Trial Results. All three defendants are awaiting sentencing.
- Former Investment Banker Convicted of Insider Trading at Retrial: In September 2019, a jury convicted Sean Stewart, a former senior investment banker at two different New York-based investment banks, of insider trading for illegally tipping his father with material non-public information concerning five corporate acquisitions before they were publicly announced. Stewart’s trial was a retrial that occurred after the United States Court of Appeals for the Second Circuit reversed his original conviction. The evidence at trial showed that starting in early 2011, Stewart, who at the time held the position of Vice President in the Healthcare Investment Banking Group of a global bank headquartered in Manhattan began tipping his father, Robert Stewart, with nonpublic information about upcoming mergers and acquisitions. Stewart continued tipping his father even after moving to an investment banking advisory firm, also with headquarters in Manhattan. Robert Stewart, in turn, passed information on to other individuals, one of whom was Richard Cunniffe, to trade on his behalf. In total, with respect to all five deals, Robert Stewart and Richard Cunniffe, earned profits of more than $1.1 million. Robert Stewart and Richard Cunniffe pleaded guilty to conspiracy to commit securities fraud and tender offer fraud. Richard Cunniffe also pled to other securities and fraud offenses. Sean Stewart is awaiting sentencing.
- Prosecution of KPMG Executives and PCAOB Insiders: In 2018, the Securities and Commodities Fraud Task Force charged three former employees of the Public Company Accounting Oversight Board (PCAOB) and three executives at KPMG for their alleged roles in a scheme to illegally obtain confidential PCAOB information and use it to improve KPMG audit performance. Four defendants pleaded guilty and two defendants –David Middendorf, former national manager partner for audit quality and professional practice at KPMG and Jeffrey Wada, a former employee of the PCAOB -- were found guilty after trial. The proof trial showed that PCAOB is a nonprofit corporation overseen by the SEC that inspects the audit work performed by registered accounting firms with respect to the financial statements of publicly traded companies. The PCAOB inspects the largest U.S. accounting firms on an annual basis. KPMG, one of the largest accounting firms in the world, had fared poorly in PCAOB inspections in 2013 and 2014. Therefore, KPMG undertook a variety of means -- some of which were illegitimate -- to improve its performance on PCAOB inspections. In particular, in 2015, 2016 and 2017, individual KPMG executives, including Middendorf, improperly sought to improve KPMG’s performance by obtaining, disseminating, and using confidential lists of which KPMG audits the PCAOB would be reviewing during its annual inspection of KPMG. The defendants were all sentenced to terms of incarceration.
- Prosecution of Talk Radio Host for Ponzi Scheme Participation: In 2018, the Securities and Commodities Fraud Task Force successfully prosecuted Craig Carton, a nationally syndicated sports talk radio host, for participating in a Ponzi scheme based on the supposed purchase and resale of tickets to Hamilton and other major productions. The evidence at trial showed that Carton and his co-conspirators worked together to induce investors to provide them with millions of dollars, based on representations that the investor funds would be used to purchase blocks of tickets to concerts, which would then be re-sold on the secondary market. Carton and his co-conspirators purportedly had access to those blocks of tickets based on agreements that one of his co-conspirators had with a company that promotes live music and entertainment events (the “Concert Promotion Company”) and that Carton had with a company that operates two arenas in the New York metropolitan area (the “Sports and Entertainment Company”). In fact, neither the Concert Promotion Company nor the Sports and Entertainment Company had any such agreement with Carton, his co-conspirators, or any entity associated with them. After receiving the investor funds, Carton and his co-conspirators misappropriated those funds, using them to, among other things, pay personal debts and repay prior investors as part of a Ponzi-like scheme. Carton received a sentence of 42 months’ imprisonment.
Civil Fraud Cases
- Healthcare Fraud Settlements with Walgreens: In 2019, Unit filed and settled two healthcare fraud lawsuits against national pharmacy chain Walgreens Boots Alliance, Inc. the Civil Frauds Unit filed and settled two healthcare fraud lawsuits against national pharmacy chain Walgreens Boots Alliance, Inc. for a total of $269.2 million, relating to Walgreens’s improper billings to government healthcare programs. The Office alleged that Walgreens improperly billed the government for insulin pens that patients did not need and made false representations to Medicare, Medicaid, and other programs in connection with that practice, and also that Walgreens sought and obtained reimbursement from Medicaid for prescription drugs at improperly inflated prices.
- Fraud Judgment Against Mortgage Companies and CEO: In 2017, the Civil Frauds Unit obtained a judgment of over $296 million against the entities formerly known as Allied Home Mortgage Capital Corporation and Allied Home Mortgage Corporation (collectively “Allied”), in connection with their fraudulent misconduct while participating in the Federal Housing Administration (“FHA”) mortgage insurance program. After a five-week trial, a jury found that Allied falsely certified that thousands of high risk, low quality loans were eligible for FHA insurance and submitted insurance claims to the U.S. Department of Housing and Urban Development (“HUD”) when any of those loans defaulted. In the same trial, the Office also obtained a jury verdict, and $25 million judgment, against Allied’s President and Chief Executive Officer Jim C. Hodge for his participation in this fraudulent conduct.
- Historic Wells Fargo Fraud Settlement: In 2016, the Civil Frauds Unit obtained a $1.2 billion settlement of a False Claims Act and FIRREA lawsuit against Wells Fargo Bank, N.A., and a Wells Fargo executive—the largest recovery ever in a Federal Housing Administration mortgage fraud case. The Office alleged that, as a participant in the FHA Direct Endorsement Lender program, Wells Fargo engaged in reckless underwriting practices and intentionally failed to report seriously defective loans to HUD.
- Foreign Exchange Settlement. In 2015, the Civil Frauds Unit announced a coordinated $714 million settlement of civil lawsuits brought by the United States and others against the Bank of New York Mellon, in connection with allegations that the Bank engaged in fraud and other misconduct when providing foreign exchange services to its customers. The Office’s lawsuit alleged that, contrary to representations made by Bank of New York Mellon to its clients that the Bank provided “best rates” and “best execution,” the Bank actually gave clients the worst reported interbank rates of the trading day.