Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

The Securities and Exchange Commission has charged prominent Miami businessman Gaston E. Cantens and his wife, Teresita Cantens, with allegedly running a $135 million Ponzi scheme targeting elderly Cuban-Americans, according to the Miami New Times.

Specifically, the Cantens allegedly used their development company, Royal West Properties, to sell promissory notes to finance the purchase of properties, representing that the investments were safe and would yield annual returns of 9 to 16 percent. When property owners began to default on their mortgages, however, the Cantens purportedly used monies from new investors to pay returns to previous investors. The Cantens are alleged to have persuaded investors by using their prominent standing in the community and claiming that Jesuit priests and other religious leaders had entrusted their money to them, targeting investors at social and religious gatherings and through national television ads on Spanish language channels. The Cantens were allegedly never authorized to sell the securities by the SEC. They furthermore are alleged to have diverted $20 million of the funds to themselves, their children and their grandchildren, and to finance their other businesses. 

Gaston Cantens was an advisory board member for Belen Jesuit Preparatory School. The Cantens are the parents of former Florida State Representative Gaston I. Cantens, who served from 1998 to 2006 as a Republican representing District 114, and is currently is a Vice President at Florida Crystals Corporation.

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According to Lyle Denniston at SCOTUSblog,  Ashby Jones at the Wall Street Journal Law Blog, and Professor Ellen S. Podgor of Stetson University College of Law and the White Collar Crime Prof Blog, the U.S. Supreme Court seemed more interested in the jury selection/fair trial issues in yesterday's oral arguments in the case of former Enron CEO Jeffrey Skilling, Skilling v. U.S., Case No. 08-1394 then it did in the constitutionality of 18 U.S.C. 1346, the federal honest services fraud statute. The transcript of the oral argument may be read here. After lengthy questioning regarding the jury selection at Skilling's trial by Justice Stephen G. Breyer and others, Chief Justice John G. Roberts, Jr., raised the question of honest services. Skilling's counsel, Sri Srinivasan, appeared to have adopted the strategy of arguing for a new trial based upon juror bias relating to the Enron scandal rather than a reversal of Skilling's convictions for honest services fraud. Srinivasan argued that the Department of Justice was interpreting the law broadly enough to reach virtually any falsehood told by an employee.

Deputy Solicitor General Michael R. Dreeben argued for the government. Dreeben argued ways in which the Court could interpret the honest services fraud statute in order to avoid holding it unconstitutionally vague. Justice Anthony Kennedy stated to Dreeben that it was Congress' job to rewrite the statute and Justice Antonin Scalia remarked on the excessive scope of the statute.

The Court's decision in the case is expected this spring or summer. The parties' arguments regarding honest services fraud largely mirrored the arguments in the two other challenges to 1346 which the Court had heard this term. Commentators have opined that 1346 may not survive without being sent to Congress for reshaping.

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As noted by Ashby Jones at the Wall Street Journal Law Blog, the U.S. Supreme Court will hear oral arguments in the case of U.S. v. Skilling on Monday at 1 p.m., Eastern Time. The central issue to be argued to the Court is whether the federal honest services fraud statute, 18 United States Code 1346, is "unconstitutionally vague." Mr. Jones rounds up commentary from around the blogosphere on the case.

As noted by Mr. Jones, the honest services fraud statute, Section 846, criminalizes the deprivation of another of the "intangible right to honest services." Congress enacted Section 846 22 years ago following the Supreme Court's decision in McNally v. U.S, which had ended prosecution for honest services as a part of mail or wire fraud. The problem is that Section 846 does not define "honest services." The honest services provision is a favorite of prosecutors, especially in cases where deprivation of money or property, as required in traditional mail or wire fraud cases, may be difficult to establish.

Jeff Skilling is the former Chief Executive Officer of Enron Corporation, which crashed into sudden bankruptcy in 2001. Skilling, former CEO Kenneth Lay and others were charged with conspiracy, wire fraud, making false statements to auditors and insider trading. In May of 2006, Skilling was tried in the U.S. District Court for the Southern District of Texas and the jury found him guilty on 19 counts. The District Court sentenced him to 292 months imprisonment and ordered him to pay $45 million in restitution.

Skilling appealed to the U.S. Court of Appeals for the Fifth Circuit, arguing that the government used an invalid theory of "honest services" fraud to convict him. The indictment alleged that Skilling conspired with others to, among other things, deprive Enron and its shareholders of the right to the honest services owed by its employees. The Fifth Circuit affirmed Skilling's honest services fraud conviction, noting that it had created an exception to the honest services fraud statute in the related Enron case of U.S. v. Brown, 459 F.3d 509 (5th Cir.2006) where an employer creates a goal, aligns employees' interests to achieve the goal and higher-level management sanction improper conduct to reach the goal. However, the Fifth Circuit held that Skilling's conduct had not been sanctioned by the corporation.

Skilling has appealed to the Supreme Court, arguing that lower rulings on the honest services fraud statute have been “a hodgepodge of oft-conflicting holdings, statements, and dicta” that “only the most discriminating lawyer or judge” could understand. Attorney Sri Srinivasan of O’Melveny & Myers will argue on Skilling's behalf before the Court.

Another case calling into question the constitutionality of Section 1346 is the case of newspaper magnate Conrad Black. The Court heard oral arguments in Black's case last December.

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In another sign that nothing is sacred and no area safe from crime, even the adult undergarment industry has now been marred by fraud. Benjamin Essien, 34, owner and operator of Logic World Medical, a Houston-based durable medical equipment (DME) company, pled guilty to conspiracy to commit healthcare fraud, five counts of healthcare fraud and two counts of aggravated identity theft in the U.S. District Court for the Southern District of Texas, according to a press release by the FBI. Essein was charged with a scheme which began in 2004 of using names, addresses and account numbers of Medicaid beneficiaries to file false claims for adult urinary incontinence supplies many of which were never delivered to the beneficiaries, some of which were never purchased from suppliers, and which were not needed or were never prescribed by a physician. Essein continued to bill Medicaid for the supplies--which included adult diapers, underpads, wipes, and pull-up briefs--even after his delivery contractors were informed by the beneficiaries that they did not need or want the supplies. Essien billed Medicaid for the maximum amount allowable for supplies each month per beneficiary including extra large size diaper briefs, which apparently have the highest Medicaid reimbursement rate, regardless of the actual size needed by the beneficiary. it is alleged that Essein received payments from Medicaid for claims totaling approximately $1,101,865.37. he will be sentenced in May.

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As reported in the South Florida Business Journal, Lewis B. Freeman, one of the best-known forensic accountants in South Florida was indicted yesterday in the U.S. District Court for the Southern District of Florida on charges of conspiracy to commit mail fraud. Freeman is alleged to have misappropriated funds from fiduciary accounts from 2000 through 2009 by writing checks to himself and his firm, Lewis B. Freeman & Partners, and depositing the funds into the firm's operating account. Freeman is alleged to have misappropriated some $6 million in funds by writing approximately 162 unauthorized checks and using the proceeds to support a lavish lifestyle.

Freeman put his firm into receivership last fall during the federal criminal investigation. The firm previously did millions of dollars in business. The government alleges that out of the $6 million misappropriated, some $2.6 million of clients' monies were lost. Freeman, oddly, worked routinely as an expert for the court in liquidating the assets of companies. According to Freeman's counsel, he turned himself in and is cooperating with authorities. His counsel have stated that he made "serious mistakes," and will "accept the consequences for his actions.” 

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Frederick Scott Salyer, 54, former owner of  California-based SK Foods, which grows, processes and distributes tomatoes, was indicted on Friday on charges of racketeering, wire fraud, mail fraud, money laundering and obstruction of justice. Tomatoes from SK Foods are widely used in tomato-based products including sauces, ketchups and juices.

Salyer is alleged to have manipulated the industry through price fixing, bribery and mislabeling. Specifically, he is alleged to have bribed purchasing managers at food companies to guarantee that the companies purchased SK Foods' products over its competitors and for its competitors' pricing information. Salyer is also alleged to have ordered the mislabeling of products  As a result, consumers received dated and moldy products, and products mislabeled as organic at higher prices. In some cases, products as much as three years old with a shelf life of one year, or containing mold levels beyond limits set by the Food and Drug Administration, were alleged to have been placed on the market.

Salyer was arrested earlier this month at John F. Kennedy Airport in New York upon arriving on a flight from Switzerland. He had allegedly fled the U.S. last fall to relocate to a country where he could not be extradited after some of his subordinates pled guilty to charges in relation to the investigation, a joint effort by the FBI, IRS, FDA and Department of Justice Anti-trust Divison, nicknamed Operation Rotten Tomatoes. Salyer is alleged to have arranged for the transfer of millions of dollars to overseas accounts, and to have placed a $7 million home in Pebble Beach on the market. Salyer was denied bail.

SK Foods declared bankruptcy last May and has been acquired by another company.

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As reported here and here in the Atlanta Journal-Constitution, the Southern Christian Leadership Conference has had its own leadership under scrutiny by investigators. This week, three SCLC officials met in Atlanta with Federal and local authorities investigating allegations that its National Chairman and its former Treasurer allegedly mishandled hundreds of thousands of dollars. Last week, FBI agents in Dayton, Ohio, raided the home of its Chairman, Reverend Raleigh Trammell, the home of Trammell's daughter, Angela Goodwine, as well as the SCLC's Dayton office. Rev. Trammell and former national Treasurer Spiver Gordon are alleged to have diverted at least $569,000 in SCLC funds to bank accounts which they controlled and made out checks to themselves and their relatives. The SCLC's Atlanta General Counsel, Dexter Wimbush, has voluntarily and temporarily stepped down.

Law enforcement agencies in Georgia, Ohio and Alabama were provided information on possible mismanagement of SCLC funds.

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Edward T. Stein, a former hedge fund manager, was sentenced to nine years in prison in the U.S. District Court for the Eastern District of New York for a Ponzi scheme which defrauded investors of $46 million, according to BusinessWeek. Stein was arrested last April and pled guilty last June to counts of securities fraud and wire fraud.

Stein was alleged to have operated a Ponzi scheme from 1988 to 2009, targeting friends, acquaintances and vulnerable investors. The government alleged that Stein promised to invest clients' money in annuities but instead converted the monies to his own use. Stein managed Gemini Fund I hedge fund, Prima Capital Management Corp., and DISP LLC, a firm which invested in life insurance policies. Stein, through Gemini, invested in fashion magazine publisher Detour Media Group, Inc., and used money from new investors with Gemini to repay selected clients. In all, some 83 investors were affected by the scheme. Stein used his gains to, among other things, purchase a $1 million apartment in Manhattan.

Stein, who is 60, faced up to 19 years in prison, however U.S. District Judge Jack B. Weinstein found that the circumstances of the scheme placed it outside the "heartland" of fraud cases. Judge Weinstein stated that Stein's age made it unlikely that he would commit any further crimes. Stein's counsel had argued for a reduced sentence based on Stein's assistance to authorities in locating assets.

Several of Stein's victims testified at the hearing. One called Stein “a money-hungry, evil, sly fox who preyed on seniors.” Stein offered an apology for his actions in his address to the court.

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Of course we knew it was coming, but disbarred Fort Lauderdale attorney Scott Rothstein, architect of a $1.2 billion Ponzi scheme selling phony interests in settlements in employment and civil cases, pled guilty today in the U.S. District Court for the Southern District of Florida to charges of racketeering, fraud and money laundering,

and various other sources. Rothstein was also charged with taking monies from client trust accounts and making unlawful campaign contributions to politicians. Former attorneys and employees of Rothstein's former law firm, Rothstein Rosenfeldt Adler, are currently being investigated for illegal campaign contributions.

Following his surrender to authorities last fall, Rothstein assisted authorities in locating assets. His sentencing hearing has been set for May 6.

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Trevor Cook was 37 year-old Minneapolis, Minnesota-based investment advisor. He is alleged to have defrauded investors of at least $130 million. U.S. District Judge Michael Davis found Cook in contempt of an order by the Court requiring Cook and his associates to turn in investor assets to a receiver, according to an article in the Minneapolis Star-Tribune. Cook invoked his Fifth Amendment privilege against self-incrimination in response to questions regarding money, assets and offshore accounts. U.S. Marshals took Cook into custody yesterday. The Court ordered Cook to remain incarcerated until he cooperates with the receiver and surrenders monies and assets, including a houseboat and a submarine. Cook is also ordered to assist in the recovery of a computer and other records.

Cook pitched currency investments to investors. The alleged scheme was promoted by Cook and Pat Kiley in a widely broadcast radio program called "Follow the Money." Cook used a vast array of business entities and bank accounts to funnel monies from investors, including eight accounts in the U.S. and 19 foreign accounts in a dozen countries. The structuring of the transactions and the fact that some of the foreign accounts are in countries noted for being bank secrecy havens has made the monies difficult to locate. Cook has not yet been indicted.

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On Monday, the SEC filed a Complaint for Injunctive and Other Relief, in Federal court in Tampa, Florida, which may be viewed here, against Neil V. Moody and Christopher D. Moody, managers of the hedge funds Valhalla Investment Partners, L.P., Viking IRA Fund, LLC, and Viking Fund, LLC. Neil Moody, 71, and his son Christopher D. Moody, 35, are co-owners of the funds, based in Sarasota, Florida.

The Complaint charges that the Moodys allegedly recklessly violated anti-fraud provisions of Federal securities laws. Specifically, the SEC alleges that, from 2003 to 2009, the Moodys allegedly overstated investment returns and the value of the funds' assets by as much as $160 million in account statements provided to investors and offering materials provided to prospective investors. The Complaint also charges that the Moodys allegedly recklessly misrepresented to investors that they actively managed the funds, when in fact the investment and trading activities of the funds were managed by a third-party, namely Arthur Nadel of Scoop Management. Nadel, however, was the operator of a large Ponzi scheme involving hundreds of investors, including investors in the Moodys' hedge funds. Nadel allegedly fabricated false performance and account information which overstated the value of the Moodys' funds, and shared management and performance fees with the Moodys. The SEC filed an emergency action against Nadel in the Middle District of Florida last January, and was indicted in the Southern District of New York in April on six counts of securities fraud, eight counts of wire fraud, and one count of mail fraud.

Counsel for Christopher Moody has responded to the Complaint. “The SEC's complaint does not allege that Chris Moody knowingly intended to harm investors. The complaint alleges recklessness which Mr. Moody neither admits nor denies. Mr. Moody has cooperated from the outset with the receiver in the recovery of assets and will continue to do so,” said Mr. Moody’s attorney, Jeffrey L. Cox, of Sallah & Cox, LLP.

The Complaint alleges violations of Sections 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a); Section 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6(4); Exchange Act Rule 10b-5, 17 C.F.R. § 240.10b-5; and Advisers Act Rule 206(4)-8, 17 C.F.R. § 275.206(4)-8. It seeks declaratory relief, a permanent injunction against the Moodys, disgorgement of all profits and civil penalties. A Receiver has been appointed for the funds.

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As reported by Law.com, Bruce Karatz, Chief Executive Officers of KB Home, a home construction corporation based in Los Angeles, California, was indicted in the action of U.S. v. Nicholas, 2:09-cr-00203-ODW (C.D.Ca. 2009), on 20 counts of fraud for defrauding the company and its shareholders of millions of dollars in undisclosed backdated stock option over a period of seven years, and concealing the fraud from KB Home's  directors, compensation committee and shareholders. Karatz's trial in the U.S. District Court for the Central District of California is scheduled to begin on February 23.

Karatz's attorneys have requested a hearing regarding whether prosecutorial misconduct has tainted the government's case against Karatz. Karatz contends that two witnesses for the government--James Johnson, former Chairman of the Board of Directors' Compensation Committee for KB Home, and Gary Ray, former Vice President of Human Resources--initially believed that the stock options grant practice was lawful, but changed their position following contacts with the prosecution. Karatz's lawyers want to examine Johnson regarding why he denied allegedly defending KB Home's option granting process during an internal investigation by the company's outside counsel in his statements to prosecutors. 

The defense also wants to question Ray, who has pled guilty to obstruction of justice and is cooperating with the government, regarding why he had allegedly previously maintained that the process was "lawful and proper." Following is a link to

.

Karatz's motion is based on an order in December by U.S. District Judge Cormac Carney in the action of U.S. v. Nicholas, SACR 08-00139 CJC (C.D.Ca. 2008), another backdating case, in which the Court dismissed the government's indictment against co-founder of Broadcom Corp., Henry Nicholas, and former Broadcom Chief Financial Officer William Ruehle, blasting the prosecution for "distorting the truth-finding process" by intimidating and improperly influencing key witnesses. Karatz also relies on the Ninth Circuit Court of Appeals' overturning last August of the conviction of former Chief Executive Officer for Brocade Communication Systems, Inc., Gregory Reyes, for backdating based on false statements by the prosecution in closing arguments that Brocade's finance department didn't know about backdating. A hearing on Karatz's motion has been scheduled for February 8.

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As reported by Law.com, New York-based Comverse Technology, Inc., the worlds largest manufacturer of voice mail software, has entered into a $225 million settlement in a class action brought against it stemming from a backdating scandal. William Sorin, Comverse's former general counsel, and Comverse's former CEO, Jacob "Kobi" Alexander, were charged by the SEC and Federal prosecutors in 2006 with fraudulenty changing the grant dates of stock option awards from 1998 to 2000. In all, Sorin realized $14 million in profits from stock options, approximately $1 million of which was due to backdating. Sorin pled guilty in the U.S. District Court for the Eastern District of New York to conspiracy to commit securities fraud, mail fraud and wire fraud in 2006, and has already served his sentence of a year and a day in prison. Alexander an Israeli citizen, fled to Namibia to avoid prosecution.

Plaintiffs brought a derivative actions against Comverse in New York Federal and State courts based on the backdating. Alexander has agreed to pay $60 million and Sorin has agreed to pay $1 million to fund the settlement. In exchange, Comverse will drop its lawsuit against the former executives, who will also drop their counterclaims against the company.  The company earlier settled claims relating to the improper backdating and other accounting problems with federal regulators.

Sorin had previously entered into a settlement with the SEC, agreeing to pay $3 million in fines. However, his attorneys have asked the Court to vacate the SEC settlement and judgment, claiming that Federal prosecutors violated promises they made as part of his plea deal. Sorin claims that prosectors agreed not to object to his request to avoid jail time when he agreed to plead guilty to criminal charges and pay the SEC $3 million to settle civil charges, however he alleges that the government reneged on its promise and opposed his request at sentencing.

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Once again demonstrating the massive potential for crime created by our digital age, 28 year-old Albert Gonzalez pled guilty to two counts of conspiracy to gain unauthorized access to payment card networks last week in the U.S. District Court for the District of New Jersey according to a DOJ press release. Gonzalez was charged with hacking into the computer networks of major financial and retail organizations and stealing data on tens of millions of credit cards and debit cards, in one of the largest data breaches in U.S. history. He gained unauthorized access to the payment card networks of New Jersey-based, Heartland Payment Systems; Texas-based convenience store chain 7-Eleven; and Hannaford Brothers Co. Inc., a Maine-based supermarket chain. He was indicted in New Jersey in August 2009. In September 2009, Gonzalez also pled guilty in the U.S. Distric Court for the District of Massachusetts to 19 counts of conspiracy, computer fraud, wire fraud, access device fraud and aggravated identity theft for hacking into retailers including TJX Companies, BJ’s Wholesale Club, OfficeMax, Boston Market, Barnes & Noble and Sports Authority. In the same month, he pled guilty to a count of conspiracy to commit wire fraud for hacking into the system of Dave and Buster's, a restaurant chain, in the U.S. District Court for the Eastern District of New York.

Gonzalez had several servers, or "hacking platforms," and would give access to the servers to other hackers. Gonzalez and others would use the platforms to store malicious software, or "malware," in launching attacks on their victims. Gonzalez's plea agreement states that it was forseeable that Gonzalez and his co-conspirators would have used the malware to steal tens of millions of credit and debit card numbers, affecting more than 250 financial institutions.

Gonzalez tested malware by running multiple anti-virus programs in an attempt to ascertain if the programs detected the malware. According to information in the plea agreement, it was foreseeable to Gonzalez that his co-conspirators would use malware to Gonzalez was indicted in New Jersey in August 2009 for this criminal conduct. His plea agreement provides for a sentence of imprisonment between 17 and 25 years. He is scheduled to be sentenced in the Massachusetts, New York and New Jersey cases in March.

The charges against Gonzalez are staggering in their scope. They also demonstrate that would-be cybercriminals should consider their online aliases carefully, as they may resurface in a Federal indictment, as in the case of Albert Gonzalez a/k/a "j4guar17" a/k/a "soupnazi," etc.

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As the final hours of 2009 were running out on New Years' Eve, U.S. Supreme Court Chief Justice John Roberts issued the Chief Justice's Year-End Report on the Federal Judiciary, available here, a tradition begun by Chief Justice Warren Burger in 1970 to address the most critical needs of the federal judiciary. The Chief Justice has used the Year-End Report in the past to call for salary increases for federal judges. However, this year, the Report merely states that the federal courts are operating soundly, citing the hardships experienced by the nation in 2009.

The Appendix to the Report surveys the workload of the federal courts in 2009. It notes that the total number of cases filed in the Supreme Court decreased by about 6.1% from 2007 to 2008, however the Court hear more cases argued and issued more signed opinions in 2008 than 2007. Filings in the Federal Circuit Courts of Appeals also declined 6% to 57,740, mostly due to a drop in appeals from the Board of Immigration Appeals.

The Year-End Report notes, however, that criminal case filings in federal district courts rose 8% to 76,655, and the number of defendants climbed 6% to 97,982, surpassing the previous record for the number of defendants, 92,714, set in 2003, and reached its highest level since 1932. Filings relating to immigration, fraud, marijuana trafficking, and sex offenses increased. The number of mmigration cases and defendants reached record levels, as a result of illegal re-entries and visa or entry permit fraud. Most of the increase was in five federal districts near the southwestern border. The Report also observes that, as of September 30, 2009, the number of persons under post-conviction supervision was 124,183, an increase of 3% from the previous year. Supervised release cases and pretrial services cases also rose by several percent.

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Leading the Georgia news today is the nomination of Assistant United States Attorney Sally Quillian Yates by President Barack Obama to be the United States Attorney for the Northern District of Georgia. The President announced Mrs. Yates' nomination in a Christmas Eve press release.

Mrs. Yates has served as the interim head of the U.S. Attorney's Office for the Northern District of Georgia since August, when the former U.S. Attorney, David E. Nahmias, stepped down to become Chief Justice of the Georgia Supreme Court. She has had a distinguished career as a federal prosecutor since joining the U.S. Attorney's Office in 1989. Mrs. Yates became the Chief of the U.S. Attorney's Office's fraud and public corruption unit in 1994, and became a top aide to the U.S. Attorney in 2002. Prior to joining the U.S. Attorney's Office, Mrs. Yates, a double graduate of the University of Georgia, was in private practice with King & Spalding. Notably, Mrs. Yates successfully prosecuted former Atlanta Mayor Bill Campbell and former Georgia State Schools Superintendant Linda Schrenko for corruption, and was an integral part of the investigation into the 1996 Olympic Park bombing in Atlanta. Mrs. Yates is married to J. Comer Yates, an attorney and Executive Director for the Atlanta Speech School, which has served children with speech, hearing, language or learning disabilities since 1938.

Mrs. Yates' nomination has been widely praised, including by the criminal defense bar. The nomination must be approved by the United States Senate. If confirmed, Mrs. Yates will be the first female U.S. Attorney for the Northern District of Georgia. Georgia was one of the 13 original federal districts created by the Judiciary Act of 1789, and was subdivided into the Northern and Southern Districts in 1848, and further subdivided again to include the Middle District in 1926. The Act provided that "there shall be appointed in each district a meet person learned in the law to act as attorney for the United States in such district, who shall be sworn or affirmed to the faithful execution of his office, whose duty it shall be to prosecute in such district all delinquents for crimes and offences, cognizable under the authority of the United States, and all civil actions in which the United States shall be concerned, except before the supreme court in the district in which that court shall be holden." Judiciary Act of 1789, Sec. 35. There are currently 93 U.S. Attorneys in a corresponding number of districts across the nation. The Federal Criminal Defense Blog congratulates Mrs. Yates on her nomination and expected confirmation.

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Georgia leads the nation in bank failures this decade, with 32 failed banks since 2002, 25 of those in 2009 alone, according to the Federal Deposit Insurance Corporation (FDIC). Fraud has undoubtedly played a substantial role in the failure of many of these banks, and the FDIC and other agencies are especially vigilant in detecting and prosecuting fraud in the wake of bank failures.

Brent Merriel of Atlanta, Georgia, was indicted last week in the U.S. District Court for the Northern District of Georgia on four counts of aggravated identity theft and two counts of making false statements to the FDIC as announced by the U.S. Attorney's Office for the Northern District of Georgia. Merriel is alleged to have obtained several million worth of loans on properties in his name and the names of family and friends from Omni National Bank (Omni). Omni failed on March 27, 2009, and was taken over by the FDIC. Merriel then asked the FDIC to forgive $2.2 million in loans and to allow him to make a "short sale" of two properties to purchasers. A short sale is a sale of a property for less than the full amount due or owed, which serves to reduce a lender's losses or assist the property owner. However, in Merriel's case, the alleged purchasers were allegedly persons whose identities had been stolen. Merriel is also alleged to have forged sales contracts and loan commitment letters which he submitted to the FDIC.

The release notes that other individuals have been prosecuted relating to Omni, including Mark Anthony McBride, who fraudulently obtained millions in mortgage loans from Omni and other lenders and who pled guilty last April, and Delroy Oliver Davy, who similarly obtained millions in fraudulent loans from Omni and others. It quotes FDIC Office of Inspector General, Southeast Region Special Agent In Charge C. Ed Slagle as stating that FDIC will aggressively investigate and prosecute fraudulent acts uncovered in the FDIC's process of liquidating assets of failed banks in order maximize recoveries. The release also quotes Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Neil Barofski, Department of Housing and Urban Development Inspector General Kenneth M. Donohue and U.S. Postal Inspector in Charge, Atlanta Division Martin D. Phanco on fraud and enforcement.

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The fallout from Fort Lauderdale attorney Scott Rothstein's alleged fraudulent scheme to bilk investors out of hundreds of millions continues to fall.

Florida Governor Charlie Crist has told the media that he will return campaign contributions received from Rothstein and employees of his law firm, a total of $76,250. The announcement by Crist follows a pledge by Florida Republican Senate President Jeff Atwater to return donations by Rothstein. On the same day, Florida Chief Financial Officer Alex Sink, a Democrat, announced that she would return at least $7,025 in contributions from Rothstein and members of his firm. Crist is running for U.S. Senate, Sink is running for Governor and Atwater is running for Chief Financial Officer. Rothstein is alleged to have made contributions to numerous politicians using ill-gotten gains, and to have illegally reimbursed members of his firm for making contributions. Rothstein and his wife, Kimberly, also held fundraisers for Senator McCain and Governor Crist in one of their waterfront homes.

The campaign contributions have also created potential criminal exposure for lawyers at Rothstein's firm Rothstein Rosenfeldt Adler. Approximately 30 lawyers in the firm, along with 15 employees, spouses and relatives, made approximately $2.2 million in Federal and State campaign contributions, with the largest recipient being the 2008 Presidential campaign of Arizona Senator John McCain. One attorney, Steven Lippman, and his wife contributed approximately $247,000 to Governor Crist,  Senator McCain and other politicians over a span of four years. Federal investigators are looking into the contributions. Several partners in the firm have retained counsel in response to the investigation. Experts have stated that the attorneys should have been aware that they were violating campaign finance laws when Rothstein required the attorneys to make campaign donations as a condition to receiving bonuses.

The fallout has extended further to Fort Lauderdale Police Chief Frank Adderly. Two Fort Lauderdale City Commissioners have asked the Florida Department of Law Enforcement to investigate Adderly regarding his relationship with Rothstein. Rothstein is alleged to have flown Adderly to New York in December 2008 for a football game, and Adderly personally intervened in an automobile collision involving a friend of Rothstein.

Fisher Auction will auction property of Rothstein's law firm on January 23, at the direction of the firm's trustee, including fountain pens used by Rothstein and the massage chair in the firm's lounge. Rothstein's attorney has opposed the auctioning of photographs of Rothstein withvarious politicians.

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Raj Rajaratnam and Danielle Chiesi were indicted in indictment alleging 17 counts of securities and wire fraud on Tuesday in the U.S. District Court for the Southern District of New York, U.S. v. Raj Rajaratnam et al, Case No. 09-2306, as reported by the New York Daily News here, here and here, and the New York Times here, here and here. Rajaratnam is a former Bear Stearns hedge fund manager and is the founder of Galleon Management LP, which managed some $3.7 billion in funds. Rajaratnam, a U.S. citizen born in Sri Lanka, was arrested on October 16 at his Manhattan home. U.S. Magistrate Judge Douglas Eaton set Rajaratnam's bail at $100 million which Rajaratnam posted. The indictment alleges a multi-million dollar insider trading scheme that spanned from coast to coast, in which Rajaratnam and Chiesi shared tips on companies like Google, Advanced Micro Devices, Hilton Hotels and others, and reaped more than $20 million in illicit profits by trading on the confidential information. Rajaratnam and Chiesi have both pled not guilty and are fighting the charges. The government claims to have numerous recorded telephone conversations from cooperating witnesses in support of the charges.

Rajaratnam's attorneys also requested a second time that his bail amount be reduced to $20 million. His lawyers disputed the government's reliance on Roomy Khan, an Intel Corp employee and former trader who was convicted of wire fraud in California in 2002 for passing confidential information to Galleon and Rajaratnam when she was an employee of Intel, and who is cooperating with the government. Half a dozen persons, including Ms. Khan, are cooperating in the case.

The U.S. Securities and Exchange Commission has also filed civil charges against Rajaratnam. Following Rajaratnam's arrest, investors withdrew more than $4 billion from various Galleon hedge funds, and the firm ceased operations.

The investigation has implicated 21 individuals, including 14 hedge fund managers, lawyers and other investors who were arrested in November. Robert Moffat, a senior official at I.B.M., Rajiv Goel, an executive of Intel; and Anil Kumar, an executive at the consulting firm McKinsey & Company, were arrested at the same time as Rajaratnam, but have not yet been indicted. The Court has granted the prosecution an extension of 30 more days to indict these individuals. The prosecution has described the case as the largest insider trading case in history.

Attorney Brien Santarlas, of the New York law firm of Ropes & Gray, pled guilty to conspiracy to commit securities fraud and wire fraud this week. Santarlas admitted that, from June 2007 to May 2008, he and another attorney, Arthur Cutillo, also with Ropes & Gray, used confidential information regarding acquisitions by 3Com, Inc., and Axcan Pharma, Inc. Bain Capital Partners LLC, a Ropes & Gray client, had announced it planned to acquire 3Com on September 27, 2007, in a deal which would have also involved China's Huawei Technologies Co Ltd. A U.S. government security panel rejected the deal, however. 3Com is now in the process of being purchased by Hewlett-Packard Co. Another Ropes & Gray client, TPG Capital LP, announced on November 29, 2007 that it was acquiring Axcan Pharma.Prosecutors charged Santarlas, Cutillo, Jason Goldfarb and Zvi Goffer with causing trades of 3Com and Axcan stock before the public announcements, making approximately $20 million in profits.Santarlas also faces civil charges by the SEC. His sentencing is tentatively scheduled for June 1. Cutillo was indicted in November.

Rajaratnam has also been linked to Steven Cohen, manager of SAC Capital Advisors, a hedge fund, major art collector, and with a $6 billion net worth, the 36th richest person in America. Cohen's ex-wife, Patricia Cohen, filed a lawsuit in Federal court on Wednesday alleging that Cohen had hid money during their divorce 20 years ago and asserting civil RICO claims. The former Mrs. Cohen alleges that Cohen had made millions from insider trading in the 1980s and had hid the money with the help of one of his real estate partners. Specifically, she claims that Cohen received an insider tip prior to General Electric's purchase of RCA in 1985. She is seeking $300 million from Cohen. SAC issued a statement criticizing the former Mrs. Cohen and her attorney, calling the allegations in the lawsuit "ludicrous" and "without merit."

Federal prosecutors on Wednesday asked for 30 more days to indict four defendants tied to the Galleon Group insider trading scheme, one day after two of the main players were formally indicted on conspiracy and fraud charges.

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Brad Heath points out a disturbing trend in today's USA Today--federal prosecutions of serious corporate, financial and other white-collar crimes have fallen to new lows. In this age of Enron, Madoff and massive failures of financial institutions, this is a serious breach of the public trust. The article contains a chart which shows that, in fiscal year 2009, the Department of Justice opened only 63 new corporate fraud prosecutions. That is barely one case per year per district and represents a 55% decrease since 2003. Securities fraud charges have decreased 17% and bankruptcy fraud cases have decreased 44% over the same period. The article cites Professor Ellen Podgor of Stetson University College of Law and creator of White Collar Crime Prof Blog who attributes the decline was the result of the Bush administration's push of federal prosecutors and the FBI to focus on terrorism and national security.

However, relief appears to be on the way. The article states that lawmakers have put new pressure on DOJ officials, who have launched thousands of new criminal probes into financial crimes. Congress has approved extra money to target financial crime, and Attorney General Eric Holder announced a new task force to target financial fraud last month. As if to herald a change of direction, prosecutors in New York also announced indictments yesterday against Raj Rajaratnam, founder of Galleon, claiming that the case is the largest hedge fund insider trading case ever. The article also states that the FBI currently has more than 2,800 open mortgage fraud cases..

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Although it may be considered small change when compared with the fraud of fellow Floridian Scott Rothstein, according to an FBI press release, Gary Ernest Williams, former Chief Financial Officer for Marian Gardens Tree Farm (MGTF) in Groveland, Florida, was sentenced to eight years imprisonment on Monday in the U.S. District Corut for the Middle District of Florida. Williams was charged with embezzling approximately 10.5 million from MGTF since 2000 through falsified checks, use of a credit card in the company's name and making large cash withdrawals which he told bank officials were to be used to pay “employee bonuses.” Willams spent the money on lavish homes, luxury cars, jewelry, drugs, and vacations by private jet. He also failed to failed to pay federal income taxes in the amount of $3,675,000 on the illegally obtained funds.

Williams entered a guilty plea in July. The District Court ordered Williams to pay more than 14 million in restitution to MGFT and to forfeit homes in North Carolina, Pennsylvania and the Bahamas.

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In response to allegations uncomfortably similar to those against former New York celebrity lawyer and arch Ponzi-schemer Marc Dreier, Fort Lauderdale attorney Scott Rothstein, head of Rothstein, Rosenfeldt and Adler, P.A., appeared in response to a criminal information in the U.S. District Court for the Southern District of Florida on Tuesday. The information charges Rothstein with one count of Racketeering Conspiracy, in violation of 18 U.S.C. § 1962(d); one count of Money Laundering Conspiracy, in violation of 18 U.S.C. § 1956(h); one count of Mail and Wire Fraud Conspiracy, in violation of 18 U.S.C. § 1349; and two counts of Wire Fraud, in violation of 18 U.S.C. § 1343, as well as criminal forfeiture, U.S. v. Rothstein, 0:09-cr-60331-JIC.

According to the criminal information, available here, from about 2005 through November 2009, Rothstein, and other “known and unknown” unnamed co-conspirators, allegedly unlawfully obtained approximately $1.2 billion from investors through a Ponzi scheme (outdoing even Dreier’s scheme). The Government alleges that Rothstein used false statements, documents and computer records to induce investors to loan money to alleged borrowers based upon fraudulent and fictitious promissory notes and bridge loans. Rothstein allegedly falsely informed investors that his law firm, Rothstein, Rosenfeldt and Adler, P.A.’s, clients requested short-term financing for undisclosed business deals and that the clients were willing to pay high rates of return for loans negotiated by Rothstein.

Rothstein also allegedly told investors that they could purchase at a discount confidential settlement agreements in sexual harassment and whistleblower cases in amounts ranging from hundreds of thousands of dollars to millions of dollars. Rothstein allegedly falsely represented that the settlement agreements would be repaid to the investors at face value over time. Rothstein allegedly represented to investors that the settlements were highly confidential in order to protect the reputations of the companies and executives involved; that the plaintiffs preferred to settle the claims rather than purse them in a public forum; that Rothstein, Rosenfeldt and Adler, P.A., would disburse the investors’ funds to the plaintiffs; that the firm would make payments to the investors pursuant to the payment schedules in the alleged settlement agreements; that the funds were maintained in designated trust accounts for the investors in accordance with the rules and regulations of the Florida Bar and were verified by independent sources, as well as numerous other alleged false statements regarding the settlement agreements, investment funds and the firm.

To effect the fraud, Rothstein allegedly established numerous trust accounts in Rothstein, Rosenfeldt and Adler, P.A.’s name; falsified statements from financial institutions and manufactured online banking information allegedly showing investors’ monies; created false and fictitious settlement agreements and other documents. Among the alleged false and fictitious documents was a court order in a case, purportedly signed by a Federal District Judge, which falsely alleged that Rothstein, Rosenfeldt and Adler, P.A.’s clients had prevailed in a lawsuit and were owed $23 million, when in fact the firm had settled the case without the clients’ knowledge and had obligated them to pay $500,000 to the defendant.

The information also alleges that Rothstein allegedly falsely told clients that, in order to recover funds, they had to post bonds to be held in Rothstein, Rosenfeldt and Adler, P.A.’s trust account. Over several years, clients wired approximately $57 million to a trust account controlled by Rothstein. Rothstein allegedly created another false Federal court order to conceal the scheme, providing that the funds were to be returned to the clients by a later date.

Rothstein used the funds acquired through the alleged scheme to fund the operations of Rothstein, Rosenfeldt and Adler, P.A., and to expand the firm. The firm grew to employ approximately 70 attorneys. Rothstein is alleged to have laundered the funds from the scheme through corporations, contributions and large bonuses and gifts to employees. The information alleges that Rothstein used the funds to make contributions to Federal, State and local political candidates in a manner designed to conceal the source of the funds and to circumvent Federal and State limits on campaign contributions; for charitable donations; to purchase controlling interests in restaurants in South Florida; and to hire members of local law enforcement to provide security for Rothstein, Rosenfeldt and Adler, P.A., and for Rothstein personally.

The enormous wealth amassed by Rothstein through the alleged scheme is apparent in the Governement’s forfeiture allegations, which seek forfeiture not only of a sum of $1.2 billion, but also of 24 properties in Fort Lauderdale, Lauderdale by the Sea, Boca Raton, Hollywood and Plantation, Florida; New York City and Narragansett, Rhode Island, including Rothstein’s 10% ownership in the Miami Beach mansion of late fashion mogul Gianni Versace, “Casa Casuarina.” Forfeiture is also sought of numerous business interests, bank accounts and jewelry, as well as 24 vessels and vehicles purchased by Rothstein, including a 55 foot yacht.

The Government also lists millions in political and charitable contributions by Rothstein which it seeks forfeiture of, including contributions to the Republican Party of Florida; Florida Governor Charlie Crist; Democratic Chief Financial Officer Alex Sink, who is running for governor; and two hospitals.

As reported in the Miami Herald here, and here, Rothstein started Rothstein, Rosenfeldt and Adler, P.A., in 2002 as an obscure attorney practicing employment law. Over the next six years, his net worth grew from about $160,000 to tens of millions. Rothstein used flashy wealth and connections in the Broward County social and business communities to lure wealthy persons to invest in his schemes. He befriended the rich and famous, including NFL Hall of Famer Dan Marino

George G. Levin, a wealthy Fort Lauderdale resident and hedge fund manager, gave $656 million to Rothstein to invest in settlements purportedly worth $1.1 billion. Levin helped Rothstein market investments in employment and sexual harassment lawsuits to investors, although he is not alleged to have been complicit in Rothstein’s crimes. Another of Rothstein’s clients, car-dealership mogul Ed Morse, claims that Rothstein defrauded him of $57 million, arising from the settlement of a contract dispute with an interior decorator.

Rothstein would allegedly give large bonuses to employees of Rothstein, Rosenfeldt and Adler, P.A. on the condition that they make campaign contributions to political candidates who Rothstein would specify. The Government has stated that the recipients of the political contributions have returned the contributions. The Florida Democratic Party has returned $200,000 and the Florida Republican Party has given back $150,000. After Crist won the Governor’s race in 2006, he appointed Rothstein to a panel which nominates Broward County judicial candidates. The Florida Democratic Party has called for an investigation of Crist. Rothstein also allegedly paid gratuities to local law enforcement officers to avoid scrutiny.

Rothstein’s scheme began to unravel over Halloween weekend, when investors began calling the firm for overdue payments and discovered the fraud. Rothstein fled to Morocco in October, taking $400,000 to $500,000 in cash with him and wiring $16 million to Casablanca. Rothstein reportedly sent e-mails to members of his firm that he was contemplating suicide, but he returned to the U.S. on a private jet in early November. He met with Federal authorities and provided details regarding his Ponzi scheme. FBI and IRS agents raided Rothstein, Rosenfeldt and Adler, P.A.’s law offices, and seized Rothstein’s real and personal property. Rothstein agreed to waive indictment, an indication that he is cooperating with the Government, although Rothstein’s counsel has denied that he has any deal with the Government.

The Government’s information does not name Rothstein’s alleged co-conspirators, however news reports suggest members of Rothstein's inner circle at the law firm, and officers at Toronto Dominion Bank, where the investor trust accounts were held.

Rothstein’s alleged Ponzi scheme has been called the largest in the history of South Florida by Federal officials. The Florida Bar has disbarred Rothstein for stealing from the firm’s trust account. Rothstein, Levin and TD Bank are also being sued by a group of investors for more than $100 million.

Rothstein appeared in court on Tuesday in casual attire with a confident demeanor and pled not guilty to the information. U.S. Magistrate Judge Robin Rosenbaum ordered Rothstein jailed pending trial based on Rothstein’s flight to Morocco. Rothstein is represented by attorney Marc Nurik, oddly of Rothstein, Rosenfeldt and Adler, P.A. He faces up to 100 imprisonment if convicted.

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Bear Stearns' woes from the financial crisis continue to grow. We have noted the prosecution of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin for alleged fraud. Now, as reported by Law.com, Bruce Sherman, CEO and Chief Investment Officer for Private Capital Management, L.P., which held approximately 5.9% of Bear Stearns' shares, has filed suit in the U.S. District Court for the Southern District of New York against Bear Stearns, former CEO James Cayne, co-president Warren Spector and accounting firm Deloitte & Touche LLP, the complaint for which can be viewed here.

The complaint alleges that Mr. Cayne and Mr. Spector allegedly repeatedly and directly assured Mr. Sherman that Bear Stearns' valuations and "book value "of its assets were accurate when they allegedly knew that the valuations and book value were materially inflated. Plaintiff alleges that, in July 2007, Mr. Cayne and Mr. Spector allegedly assured Mr. Sherman that the substantial overvaluation of mortgages and mortgage-backed securities owned by two failed hedge funds managed by Bear Stearns (the ones managed by Mr. Cioffi and Mr. Tannin ) did not reflect overvaluation of other Bear Stearns assets, which the Defendants allegedly knew to be false. The complaint alleges that Mr. Cayne and Mr. Spector repeatedly assured Mr. Sherman that Bear Stearns' risk-management policies protected his investments, which they allegedly knew to be false. The suit also alleges that Bear Stearns allegedly materially and falsely misrepresented the value of its assets in its financial statements, and that Deloitte & Touche allegedly certified the false  financial statements.

The complaint alleges claims for violations of Sections 10(b), 18 and 20 of the Securities and Exchange Act of 1394, as well as common law fraud. Mr. Sherman is represented by Boies Schiller & Flexner.

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The indictment against Bearn Stearns executives Ralph Cioffi and Matthew Tannin is available here. Cioffi and Tannin are charged in the only major prosecution to date arising out of the collapse of numerous Wall Street firms beginning in 2007.

As related in the indictment, the Bear Stearns High Grade Structured Credit Strategies Fund Ltd. ("High Grade Fund") and the Bear Stearns High Grade Credit Strategies Enhanced Master Fund Ltd. ("Enhanced Fund") were hedge funds registered as a Cayman Island corporation. The High Grade Fund and the Enhanced Fund were brokered by Bear Stearns Securities Corporation (BSSC). Cioffi was the founder and Senior Portfolio Manager of the funds. Tannin was a Portfolio Manager who reported to Cioffi.

The indictment alleges that the High Grade Fund opened in 2003 and was invested in low-risk, high grade debt securities and collateralized debt obligations (CDOs). The fund purchased income earning assets through repurchase agreements. The indictment alleges that Cioffi and Tannin allegedly told investors that they could expect annual returns of 10 to 12 percent and that the fund was only slightly riskier than a money market fund.

By 2006, the performance of the High Grade Fund began to decline due to investors' threats to withdraw their investments. In response to this decline, Cioffi and Tannin allegedly created the Enhanced Fund, which was also invested in CDOs, but had greater leverage than the High Grade Fund and could allegedly provide greater returns than the High Grade Fund with only slightly more risk. Cioffi and Tannin had their own monies invested in the funds. In July, 2006, Cioffi and Tannin allegedly told investors that they were moving their funds from the High Grade Fund to the Enhanced Fund. Many investors allegedly moved their investments to the Enhanced Fund.

The Government acknowledges that the funds had positive monthly returns until January 2007. It alleges that in about March 2007, The indictment also alleges that Cioffi and Tannin owed duties to BSAM, the funds and the funds' investors. Cioffi and Tannin, despite allegedly knowing that the funds had serious problems, allegedly began to make misrepresentations to investors in hopes that the funds' incomes would recover. Cioffi and Tannin allegedly misrepresented material facts in communicationswith investors and lenders including the funds' financial prospects, liquidity and exposure to the subprime mortgage market, as well as Cioffi's and Tannin's personal investments in the funds. Cioffi allegedly had a meeting with the funds' portfolio management team in March of  2007 after which he instructed those attending the meeting not to discusse the funds' difficulties with others. The indictment cites communications between Cioffi, Tannin and others on the portfolio management team, in which they allegedly expressed concern over the condition of the funds.

Despite the condition of the funds, Cioffi and Tannin allegedly continued to make misrepresentations regarding the condition of the funds in hopes of enticing more investors and improving the financial condition of the funds. Furthermore, the indictment alleges that, beginning in March 2007, Cioffi allegedly began to transfer the more than $6 milion which he had invested in the funds to other Bear Stearns hedge funds without disclosing this fact to the funds investors.

 On April 17, 2007, the management team produced a CDO report which stated that the CDOs held by the funds were worth significantly less than had previously been determined. The indictment alleges that Cioffi and Tannin communicated regarding hiding the funds' troubles from other fund employees and allegedly made false statements regarding the financial condition of the funds during a conference call with investors on April 25, 2007. In the meantime, major investors in the funds were redeeming tens of millions from the funds. In June, 2007, investors in the funds were told that the funds had lost 100% of their value, or approximately $1.4 billion.

Cioffi and Tannin are charged in the Eastern District of New York with one count of conspiracy to commit securities fraud and wire fraud, three counts of securities fraud, and four counts of wire fraud, as well as a criminal forfeiture count against their real and personal property. Cioffi's and Tannin's trial is scheduled to begin on September 28.

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As is well known, Bear Stearns, one of the largest investment banks in the world, was sold to JP Morgan Chase and effectively ceased to exist in March of 2008, after two Bear Stearns hedge funds invested in collateralized debt obligations—mainly subprime home loans—and once worth approximately $1.6 billion, lost nearly all of their value. The collapse of Bear Stearns was the harbinger for a succession of massive failures of financial institutions, including Lehman Brothers, Merrill Lynch and AIG, triggering the current global recession.

As reported by New York Magazine, Reuters and the Daily Telegraph, two managers of the hedge funds, Ralph Cioffi and Matthew Tannin were charged in June in the Eastern District of New York with several counts of wire and securities fraud for allegedly misleading investors regarding the status of the funds in the Spring of 2007. Cioffi, a hedge fund manager, and Tannin, the Chief Operating Officer of Bear Stearns Asset Management (BSAM), have pled not guilty. The collapse in value of the funds cost investors approximately $1.4 billion. When traders wanted to sell some of the funds’ subprime mortgages, no one wanted to buy them.

The trial of Cioffi and Tannin is set to begin in October. The evidence against Cioffi and Tannin consists largely of e-mails between them and investors describing the funds as “an awesome opportunity,” despite allegedly knowing that the funds had problems. Bear Stearns investors are expected to testify at the trial. Both men have consistently maintained their innocence. They face a potential 20 years in prison if convicted.

Cioffi is also charged with alleged insider trading for withdrawing $2 million of his own money from the funds. The government alleges that he engaged in hundreds of transactions involving the funds without the necessary approval by the fund’s directors and despite being warned about conflicts of interest. All trades between Bear Stearns, a securities firm, and BSAM, an asset management firm, were supposed to be vetted by an independent committee. In the Fall of 2006, Bear Stearns ordered a moratorium on such internal trades by Cioffi. Prosecutors sought to introduce evidence of Cioffi’s alleged insider trading in order to demonstrate how Cioffi allegedly operated.

British bank Barclays, a shareholder of one of the funds, also filed suit against Cioffi and Tannin for alleged fraud, however, the suit has been withdrawn.

The prosecution of Cioffi and Tannin makes conspicuously noticeable the fact that no senior executives from Bear, Lehman Brothers, AIG, etc., have been charged with any wrongdoing in the fallout from the financial crisis.

 

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Pharmaceutical giant Pfizer, inc., will pay $2.3 billion to the Federal government and 49 States to settle allegations that it violated federal regulations in promoting several drugs, as reported by the Atlanta Journal-Constitution. The settlement is the largest in U.S. history to date in a healthcare fraud case. 

Georgia will receive $21.7 million as part of the settlement. A spokesperson for the Georgia Attorney General's office told the media that Georgia's portion of the settlement funds would be earmarked for Georgia's Medicaid program.

The U.S. Department of Justice had accused the New York-based pharmaceutical company and its subsidiaries of conducting marketing campaigns to promote drugs including Geodon, Lyrica, Zyvox, and no longer marketed Bextra, for uses not approved by the U.S. Food and Drug Administration. The government also alleged that Pfizer gave kickbacks such as cash, travel and entertainment to members of the healthcare industry in order to persuade them to prescribe these drugs and others, including Lipitor, Zyrtec and Viagra. The only State which did not join in the suit was South Carolina.

Pharmacia & Upjohn Co., a subsidiary of Pfizer, has pled guilty to a felony charge of violating the Food, Drug and Cosmetic Act, and will pay a fine of $1.3 billion.

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The Federal government is building criminal cases against more than 150 U.S. citizens holding overseas bank accounts with Union Bank of Switzerland (UBS), as reported by Reuters and the Banking Times. The criminal investigations are part of a Federal crackdown on tax evasion by means of overseas accounts and were facilitated by a settlement between U.S. and Swiss authorities earlier this month in which Switzerland agreed to disclose the identities of some 5,000 U.S. citizen account holders, contrary to Switzerland's longstanding tradition of banking secrecy. UBS has already settled charges that it assisted U.S. customers in evading taxes for $780 million.

As the IRS states on its website, under the agreement, the IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts. UBS will give account holders notice if information relating to the acocunt holders is included in the IRS treaty request. "Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations." "The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action."

Four U.S. clients of UBS, three in Florida and one in California, are already being prosecuted based on the information provided by UBS. And the number of investigations and prosecutions are expected to grow. In a press release,Tax Commissioner Doug Shulman claimed that the U.S./Swiss agreement "puts in place an apparatus for the IRS to obtain information on thousands of offshore accounts. Further the Swiss government is prepared to work with us regarding similar U.S. requests, if any, involving other financial institutions." U.S. and Swiss authorities are reportedly negotiating for the disclosure of thousands of additional names of U.S. account holders. Commissioner Shulman stated that international tax evasion is a "top priority."

Commissioner Shulman stated that the IRS has set a "voluntary disclosure" deadline of September 23, 2009, for UBS customers with unreported, offshore income, and advised persons to contact a tax professional. Customers receiving notification from the bank may come forward under the voluntary disclosure program--however "once the Swiss government sends [the IRS] the name, all bets are off." UBS customers with any reason for concern should strongly consider promptly contacting tax and legal professionals.

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As reported by the New Orleans Times-Picayune, Judge T.S. Ellis, III, of the U.S. District Court for the Eastern District of Virginia read instructions to the jury yesterday which lasted over 2 & 1/2 hours, and the jury retired for its deliberations in the case against former U.S. Representative William Jefferson. The jury deliberated for about four hours and will re-convene to continue deliberations this morning.

The jury weighing the evidence in the six week long trial of Jefferson on 16 criminal counts, including racketeering, honest services fraud and violations of the Foreign Corrupt Practices Act, consists of two white males, six white females, two black males and two black females. Jefferson's case is the first time the Foreign Corrupt Practices Act has been applied to a public official. The Court sent three alternate jurors home yesterday, instructing them to remain "pristine" with regard to their exposure to information regarding the case.Jefferson's lead attorney, Robert Trout, told reporters that Jefferson intends to be present at Court each morning when the jury arrives.

Closing arguments were heard earlier in the week, with numerous media outlets and journalists from Louisiana in attendance.

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The trial of former Representative William Jefferson, which has gone on for six weeks in the U.S. District Court for the Eastern District of Virginia, will come to an end today. As reported by Ashby Jones at the Wall Street Journal Law Blog and UPI, both sides gave their closing arguments yesterday. Judge T.S. Ellis will give jury instructions and likely send the case to the jury this morning.

The case is best known for the infamous discovery of $90,000 in cash stuffed in boxes for burgers and pie crusts in the freezer at Jefferson's home by federal agents. Jefferson was indicted in 2007 on 16 counts of bribery, racketeering, and violations of the Foreign Corrupt Practices Act. The government charged Jefferson with using his position to promote business ventures in West Africa in exchange for cash payments for his family.

Assistant U.S. Attorney Rebecca Bellows argued during the govenrment's closing that Jefferson allegedly schemed to give at least $100,000 in cash (the "freezer money") to the Vice President of Nigeria, Atiku Abubakar, as a bribe in exchange for granting rights to a telecommunications company with ties to Jefferson's family. The government also played video and audio tapes of meetings between Jefferson and Virginia businesswoman Lori Mody, who was working for the government as an informant. In one video, Jefferson supposedly informed Mody that the cash would be "doled out" to "make sure the hook is in there," and on another tape Jefferson allegedly referred to the bribe as "a goodwill present."

The defense maintained during trial that Jefferson's conduct was stupid or unethical, but not criminal. Defense attorney Robert Trout told the jury during his closing arguments that the government wanted to make Jefferson's actions a crime when it was really a "gray area." He told the jury that Jefferson only agreed to give the money to Abubaker in order to please Ms. Mody.

Prior to closing arguments, Judge Ellis refused to dismiss an obstruction of justice count against Jefferson. Jefferson faces a lengthy prison sentence if convicted.

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As reported by the Atlanta Journal-Constitution and WSB Radio, Anthony Ray, a DeKalb County resident, solicited money from investors by promising them large returns from real estate investments by his company, Key Funding Group. He would frequent local churches to locate victims, making presentations to the congregations. Ray lulled his victims by giving them back portions of their investment and falsely referring to them as returns. Ray hosted his victims at several locations around the Atlanta area, including his condominium in Buckhead as well as a $680,000 home in Decatur, Georgia, which belonged to one of his victims and in which he ran his office. In all, Ray stole at least $5 million from over 30 investors.

Ray stole $160,000 from his own parents. He started Key Funding Group with his father, Calvin Ray, 70, and took out large loans using his father’s identity and his parents’ home as collateral. His parents subsequently turned him in. Ray’s twin brother, Antonio, told reporters that Ray took everything his parents had, and that their father, decided that they had to prosecute.

Ray previously served five years in prison for stealing his brother's identity.

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Sir Robert Stanford has filed a Motion for Relief from Oppressive Jail Conditions. Stanford is currently being held at the Joe Corley Detention Facility in Conroe, Texas. The Motion alleges that temperatures have reached 100 degrees and that the cell in which Stanford is being housed in a cell with 8 to 10 other men and with no windows or air conditioning. Stanford requests transfer to the Federal Detention Center in downtown Houston. The Motion also asserts, as a ground for transfer, the fact that the government has provided discovery in electronic form and the Joe Corley Facility does not permit the use of electronic devices. Stanford's counsel, Dick DeGuerin, claims that he has tried to work these issues out with the U.S. Marshals Service and the staff of the Joe Corley Detention Facility, but to no avail.

A status conference has been set in Stanford's case for September 10, which the defendants moved to continue from August 17. Meanwhile, Stanford's appeal of the District Court's denial of pretrial release is listed in the U.S. Court of Appeals for the Fifth Circuit, U.S. v. Stanford, Case No. 09-20444.

While in no way meaning to detract from the charges against Stanford and his codenfendants, which are extremely serious in magnitude, this Blog notes that arch-Ponzi schemer Bernard Madoff and celebrity attorney-turned-crook Marc Dreier were both granted pretrial release and were confined to their residences with electronic monitoring devices. Given that the government has frozen all of Stanford's assets effectively starving his defense of funding, and that the defense has alleged deliberate misrepresentations by the prosecution in arguing for pretrial detention, pretrial release appears to be appropriate in Stanford's case. We will await the hopefully speedy resolution of the bail issue by the Fifth Circuit.

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The 44 public officials and other persons arrested in the massive sweep on Thursday by the FBI, the result of efforts by the convicted son of a rabbi, include:

Daniel Van Pelt, State Assemblyman;

Peter Cammarano III, Mayor of Hoboken, New Jersey;

Dennis Elwell, Mayor of Secaucus, New Jersey;

Anthony Suarez, Mayor of Ridgefield, New Jersey;

Leona Beldini, Deputy Mayor of Jersey City;

Mariano Vega, President of the Jersey City Council, Commissioner with the Jersey City Housing Authority and Director of Parks, Engineering and Planning for Hudson County, New Jersey;

L. Harvey Smith, President of the Jersey City Council and former State Assemblyman;

Lou Manzo former State Assemblyman;

Edward Cheatam, Jersey City Housing Authority Commissioner and Hudson County Affirmative Action officer;

Michael Schaffer an employee of the North Hudson Sewerage Authority and former Hoboken Councilman;

John Guarini, city taxi inspector and former 13th District Congressional candidate

Denis Jaslow, former 32nd District State Senate candidate;

Guy Catrillo, Michael J. Manzo and LaVern Webb Washington, former Jersey City City Council candidates;

Richard Greene, former aide to L. Harvey Smith;

Joseph Cardwell, Jack Shaw, political operatives;

Also Moshe Altman, Charles Amon, Joseph Castagna, Schmulik Cohen, Levi Deutsch, Yeshayahu Ehrental, Mordchai Fish, Yolie Gertner, David S. Goldhirsh, Shimon Haber, Eliahu Ben Haim, Itzak Friedlander, Saul Kassin, Maher A. Khalil, Ron Manzo, Edmond Nahum, Abraham Pollack, Levi Izhak Rosenbaum, Lori Serrano, Jack Shaw, Vincent Tabbachino, Jeffrey Williamson, Lavel Schwartz, Binyomin Spira, Naftoly Weber and Arye Weiss.

As reported by various sources here, here and here, the arrests were part of a 10-year, two-track investigation by the FBI, code named “Bid Rig” which uncovered three criminal schemes: bribery of public officials; an international money laundering ring operating between Deal, New Jersey, and Israel; and trafficking in illegal kidneys and Gucci bags. The schemes were uncovered by a confidential informant had been charged with bank fraud in 2006 and agreed to work with the FBI. Five rabbis from New Jersey and New York were among those arrested. Hundreds of federal agents raided the suspects’ homes in New Jersey and New York. There were so many arrestees that they had to be brought to FBI headquarters in Newark, New Jersey, by bus. One religious leader arrived in a Mercedes-Benz. Bail was set as high as $3 million for some of the suspects.

FBI Special Agent Ed Kahrer stated to reporters that New Jersey has one of the worst, if not the worst, public corruption problems in the nation, and that corruption has become “engrained” in New Jersey’s “political cult.” Acting U.S. Attorney Ralph J. Marra, Jr., announced that the conspiracy, which was headed by rabbis cloaked their criminal activity in a “facade of rectitute.”

Investigators stated that they have hundreds of hundreds of hours of video and audio recordings containing evidence of money laundering and bribery.

The Public Corruption and Bribery Cases

A criminal complaint filed against Hoboken Mayor Peter Cammarano, 32, alleges that Cammarano accepted a bribe in exchange for giving priority to an FBI informant posing as a real estate developer wanting to develop property in Hoboken. Hoboken’s waterfront contains prime real estate across from Manhattan. The informant is believed to have been Solomon Dwek, who was arrested in 2007 and charged with bank fraud for bouncing a $25 million check. Dwek is the son of Rabbi Isaac Dwek of the Deal Synagogue in Deal, New Jersey, which was raided by the FBI on Thursday. Dwek told the conspirators that he was in bankruptcy and was interested in hiding his assets.

The informant met Cammarano while he was running for Mayor and told Cammarano that he would give him $10,000. The complaint alleges that Cammarano promised the informant that he would sponsor the plans and treat the informant like a “friend.” Michael Schaffer, a North Hudson Utilities Authority commissioner and former Hoboken Councilman, allegedly acted as a middle man for the bribe.

Cammarano has only been in office for three weeks. He allegedly told the informant that those who oppose him get “ground into powder.” When the discussion turned to a possible runoff election with Cammarano’s challenger Dawn Zimmer, who lost the election by only 161 votes, Cammarano allegedly told the informant “I could be indicted and still get 85 to 95 percent of the vote.” Cammarano’s attorney, Joseph Hayden, has made a statement that Cammarano intends to fight the charges.

Cammarano is charged with allegedly accepting a total of $25,000 in cash bribes. Dennis Elwell, 64, Mayor of Secaucus is charged with allegedly accepting a $10,000 cash bribe and Anthony Suarez, 42, Mayor of Ridgefield, is also charged with allegedly accepting a $10,000 cash payment—for his legal defense fund.

L. Harvey Smith, Jersey City Council President, and several other current and former Jersey City public officials also are accused of allegedly accepting money to help the fake developer gain permits and approvals. Deputy Mayor of Jersey City Leona Beldini is charged with conspiracy to commit extortion for allegedly accepting $20,000 in illegal campaign contributions.

FBI agents raided the home and office of New Jersey Department of Community Affairs Commissioner and former State Senator Joe Doria as part of the investigation. Doria resigned on Thursday afternoon. Officials have not stated whether he will face charges.

The Money Laundering and Black Market Organ and Designer Goods Cases

Five rabbis from Deal and Brooklyn were charged with alleged money laundering and sale of fake designer bags. The rabbis were approached by Dwek and dealt with him, despite the fact that it was well known that he had been charged by the government. Dwek’s dealings with the rabbis eventually uncovered the public corruption case when a Jersey City building inspector accepted a $20,000 bribe. Rabbi Saul Kassin of Deal is charged with allegedly laundering more than $200,000. Mordchai Fish, a rabbi at Congregation Sheves Achim, and his brother, Lavel Schwartz, laundered nearly $600,000 for Dwek, giving him cash and taking a 15% cut.

Agents raided “cash houses” run by associates of the rabbis, including a charity called Bnoth Jerusalem and a beeper store.

Levy Rosenbaum, a Brooklyn resident, was charged in a criminal complaint with allegedly conspiring to broker a sale of a human kidney for transplant for $160,000. The complaint further alleged that Rosenbaum had been selling kidneys from vulnerable persons in Israel for 10 years, which he would purchase for $10,000 and sell in the U.S. for $160,000.

The public corruption scandals will undoubtedly figure into the current U.S. Senate contest between Senator Jon Corzine and former U.S. Attorney Chris Christie, who claims to have obtained 130 convictions of elected and appointed officials on corruption charges.

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On Wednesday, U.S. Attorney General Eric Holder addressed the Organized Crime Drug Enforcement Task Forces and Asset Forfeiture Program's National Leadership Conference. Mr. Holder spoke regarding the Organized Crime Drug Enforcement Task Forces (OCDETF) Program, an inter-agency program established in 1982 to conduct comprehensive, multi-level attacks on major drug trafficking and money laundering organizations. OCDETF combines the resources and expertise of the Drug Enforcement Administration, the Federal Bureau of Investigation, the Bureau of Immigration and Customs Enforcement, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Marshals Service, the Internal Revenue Service, and the U.S. Coast Guard in cooperation with the Department of Justice Criminal Division, Tax Division and its U.S. Attorney’s Offices, as well as state and local law enforcement. Its mission is to identify, disrupt, and dismantle drug trafficking and money laundering organizations.

Mr. Holder praised the track record of OCDETF and the Asset Forfeiture Program. He mentioned that, since the inception of the Attorney General's Consolidated Priority Organization Target (CPOT) List in 2002, OCDETF has dismantled or disrupted over 1,2000 CPOT and CPOT-linked organizations.

The Attorney General discussed the innovation of OCDETF in establishing the OCDETF Fusion Center to gather intelligence on drug trafficking and money laundering organizations from human and electronic sources in its "Compass" database. Mr. Holder also stated that the International Organized Crime Intelligence and Operations Center -- or "IOC-2"--has recently entered into a partnership with the OCDETF Fusion Center to add data to the Compass database in order to "broaden our capability to attack organized crime in all its forms."

Mr. Holder also remarked on the success of permanent OCDETF Strike Forces in Boston, New York, Atlanta, Tampa, San Juan, Houston, Phoenix, San Diego, with an additional Strike Force planned for El Paso. He mentioned that OCDETF has begun placing Document and Media Exploitation (DOMEX) Teams in the Atlanta and Houston Strike Forces, which permit agents to rapidly capture and exploit evidence and permit prosecutors to quickly develop trial exhibits.

The Attorney General cited the national security threat of the Mexican drug cartels. Mr. Holder furthermore discussed the success of the Asset Forfeiture Program and noted that, since 1984, more than $13 billion in net federal forfeiture proceeds have been deposited into the Justice Assets Forfeiture Fund and more than $4.5 billion has been equitably shared with more than 8,000 state and local law enforcement agencies nationwide, thereby supplementing their constrained resources without further taxing the public. The Attorney General stated that, in fiscal year 2008 alone, approximately $500 million was paid to more 39,000 victims.

Mr. Holder also praised Operation Honor Student, which involved a task force led by the Rhode Island U.S. Attorney’s Office, the Asset Forfeiture and Money Laundering Section of the Criminal Division, and the Food and Drug Administration’s Office of Criminal Investigations, and resulted in the forfeiture of $2.7 million from the accounts of GeneScience, one of the largest biopharmaceutical companies in China which had been involved in the illegal distribution of Human Growth Hormone into the United States. He noted that the task force employed a new statutory vehicle-- 18 U.S.C. § 981(k) --enacted as part of the Patriot Act and used for the first time, which permitted the Government to seize the funds, physically located in China, from the corresponding accounts of Chinese banks in New York. Task force agents estimate that at the time of the investigation, GeneScience manufactured approximately 90% of the hGH being illegally sold and distributed in the United States.

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New legislation typically means new criminal laws, and the White House's and Congress' recent ‘‘American Clean Energy and Security Act of 2009,’’ H.R. 2454, better known as the "Waxman-Markey Bill" or "Cap and Trade Bill," is certainly no exception. The bill is over 1,000 pages long and, for those with copious amounts of time, may be viewed in its entirety here. H.R. 2454 was introduced on May 15, 2009, and narrowly passed in the House of Representatives on June 26, 2009, by a vote of 219 to 212. The Senate is expected to vote on the bill sometime this Fall.

FCDB seeks to keep readers and practitioners alike abreast of changes in criminal law posed by such new legislation. Somewhat surprisingly, a search of H.R. 2454 reveals just one criminal provision, Section 1041, page 1045, in Part IV of the bill entitled "Carbon Market Assurance," which provides:

§ 1041. Fraud and false statements in connection with regulated allowances
        Whoever in connection with a transaction involving a regulated allowance (as defined in section 401(a) of the Federal Power Act, as added by section 341 of the American Clean Energy and Security Act of 2009), knowingly—
        (1) makes or uses a materially false or misleading statement, writing, representation, scheme,
or device; or
        (2) falsifies, conceals, or covers up by any trick, scheme, or device any material fact, shall be fined not more than $5,000,000 (or $25,000,000 in the case of an organization) or imprisoned not more than 20 years, or both.
        (2) The table of sections at the beginning of chapter 47 of title 18, United States Code, is amended by adding at the end the following new item:
‘‘1041. Fraud and false statements in connection with regulated allowances.’’

A "regulated allowance" is defined in Section 401 of H.R. 2454 as "any emission allowance, compensatory allowance, offset credit, or Federal renewable electricity credit established or issued under the American Clean Energy and Security Act of 2009." The proposed changes would be to 18 U.S.C. § 1041, which currently prohibits fraud in connection with a major disaster or emergency benefits.

The Waxman-Markey/Cap and Trade legislation amends the Federal Power Act to require corporations which emit pollutants such as carbon to hold the allowances, which represent the right to emit a certain amount of pollutant. It also would create “regulated allowance derivatives,” which are financial instruments derived from the allowances. The derivative instruments would be purchased and traded by corporations, financial institutions and funds. The proposed change to 18 U.S.C. § 1041 represents a typical fraud/false statement criminal provision for new legislation, albeit with stiff penalties.

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As we have noted, the prosecution of wealthy, international financier Sir Robert Allen Stanford has been characterized from the outset by vigorous disputes over bond for Stanford. The prosecution has argued that Stanford poses a risk of flight given his international connections and the potential that he possesses resources hidden overseas. The defense, led by attorney Dick DeGuerin, has hit back, arguing that Stanford possesses considerable ties to the U.S. and voluntarily surrendered himself, and further charging that the prosecution has made numerous knowing misrepresentations in arguing against bond for Stanford.

The U.S. magistrate judge had ordered Stanford to be released on $500,000 bond, however the District Court Judge reversed the order and ordered Stanford to remain in custody. Last Friday, Stanford's attorneys appealed the Court's bond determination to the U.S. Court of Appeals for the Fifth Circuit.

The government is certainly pulling out all the stops in putting pressure on Stanford, who is charged in an alleged Ponzi scheme which allegedly lost investors $7 billion. Not only has it managed to deny him bond, but it has frozen his assets and those of his companies. Yesterday, the defense was granted permission by the Court to file a motion regarding attorney's fees ex parte and under seal.

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As reported in the Macon Telegraph, Dwight "Malachi" York, former leader of the United Nuwaubian Nation of Moors who was indicted and convicted on over 100 counts of child molestation in April 2004 and setenced to 135 years, has filed a motion in the U.S. District Court for the Southern District of Georgia to vacate his sentence. York, who has been a minister and a musician, is best know as the founder of "Nuwaubianism," an unorthodox religious sect established in the 1970s. In 1993, York moved the Nuwaubians from upstate New York to a compound in Putnam County, Georgia, near Eatonton. York was arrested for sexually molesting dozens of children in 2002. The charges against York were truly astounding and hideous in their magnitude--author Bill Osinsky, in the fact sheet for his book Ungodly, reveals that state prosecutors literally had to cut back the number of counts listed in the indictment from well over 1,000 to slightly more than 200 because "they feared that a jury simply would not believe the magnitude of York's evil."

York has now filed a motion alleging that Federal Bureau of Investigation agents threatened witnesses to give perjured testimony against him, as well as alleging that the prosecution used unauthenticated tapes of York having sex with minors to taint the jury. The motion attached affidavits from witnesses in York's trial, including one by a witness who alleges that FBI agents took him from his family and transported him to a home in Milledgeville and pointed guns at him until he agreed to give information against York. York is currently incarcerated at the supermax prison in Florence, Colorado.

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As reported by Law.com, the sentencing of celebrity attorney and Ponzi schemer Marc Dreier is scheduled for next Monday, July 13. Dreier was arrested last December for defrauding investors and clients of more than $740 million through a series of schemes. A full history of the Dreier saga is set forth here. He pled guilty on May 11 to one count of conspiracy to commit securities fraud and wire fraud, one count of money laundering, one count of securities fraud and five counts of wire fraud and has remained under house arrest in his luxury apartment in Manhattan.

Dreier's attorney, Gerald L. Shargel, filed a sentencing memorandum on Tuesday requesting a sentence for Dreier of between 10 years and 12 years and 7 months. Shargal asserted that Dreier has already started to be punished through his public disgrace, the loss of his law firm and possession, and "the shame and suffering that his actions have brought upon his family."

However, the prosecution, headed by Assistant U.S. Attorney Jonathan R. Streeter, has filed a sentencing memorandum aiming for a higher sentence for Dreier--145 years in prison, or, in the alternative, "a term of years that would both assure that Dreier will remain in prison for life and emphatically promote general deterrence."

The government's recommended sentence for Dreier is a mere 5 years less than the 150 year sentence imposed two weeks ago on the largest Ponzi scheme fraudster in history, Bernard Madoff (as massive as Dreier's crimes were, Madoff defrauded investors of exponentially more money). Dreier is currently 59. The proposed 145 years aside (and 145 years before his sentencing date--June 13, 1864--Ulysses S. Grant and Robert E. Lee had just concluded one of the bloodiest battles in American history at Cold Harbor, Virginia) any sentence imposed by the Court is all but guaranteed to ensure that Dreier spends the rest of his life behind bars. Although Drier's fraud, as massive as it is, is only a small fraction of the damage caused by Madoff, the record for a white collar criminal sentence is actually 845 years, imposed on Shalom Weiss in 2000 for a $450 million mortgage and insurance scheme against Florida pensioners (to be eligible for release today, even counting "good time," Weiss would have had to have started his sentence in 1290--the year Edward I of England passed the statute of Quia Emptores, which reformed the feudal land system). You can enjoy Money Central's list of the ten longest white-collar criminal sentences here.

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Sir Robert Allen Stanford is scheduled to be arraigned today on conspiracy, mail and wire fraud, money laundering and obstruction charges in Houston in the U.S. District Court for the Southern District of Texas. Stanford is represented by attorneys Dick DeGuerin and Sean Ryan Buckley, of the Houston firm of DeGuerin and Dickson.

According to the docket for the case, the Government obtained its 21-count indictment, which can be viewed here, last Thursday and promptly moved to seal (i.e. prevent public access to) it, and then unsealed it on Friday shortly before Stanford’s arrest.

The Court will likely revisit the issue of whether Stanford is entitled to release before trial. On Friday, the Court ordered co-defendants Mark Kuhrt and Gilberto Lopez released on a $100,000 unsecured bond. However, given Stanford’s considerable wealth and ties abroad, any amount of bond imposed in his case will undoubtedly be far higher, if Stanford is granted pre-trial release at all, that is. The U.S. District Court for the Eastern District of Virginia determined that Stanford posed a high risk of flight, and denied bond.

The case will be tried before U.S. District Judge David Hitter, a brief description of whom can be found here.

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The writers of Federal Criminal Defense Blog have been busy writing on other matter and apologize for the brief hiatus. Much has happened in the sphere of white collar crime even during our short absence, most notably developments in the two largest Ponzi schemes in U.S. history, and we have some catching up to do.

We’ll start with the second largest—an indictment indictment against billionaire Texas financier Sir Robert Allen Stanford, 59, was unsealed in the U.S. District Court for the Eastern District of Virginia on Friday according to the Associated Press  and the BBC. The 50-page indictment alleges that Stanford and six other defendants with allegedly perpetrated a $7 billion Ponzi-style fraud. It charges Stanford and the other defendants with 21 counts, including 7 counts of wire fraud, 10 counts of mail fraud, conspiracy to obstruct an investigation for the Securities and Exchange Commission, obstruction of an investigation by the SEC and conspiracy to commit money laundering. Defendants Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt are executives of Stanford Financial Group. Defendant Leroy King, a former bank regulator for the Caribbean island nation of Antigua and Barbuda, allegedly accepted more than $100,000 in bribes from the other defendants in order to allow the alleged scheme to continue.

The indictment alleges that the defendants sold certificates of deposit issued by Stanford International Bank, based in Antigua, to investors, promising large returns. The defendants allegedly made false claims to investors regarding the growth of Stanford Financial Group’s assets.

The scheme had approximately 30,000 investors. Stanford is alleged to have diverted more than $1.6 billion in investment funds in personal loans to himself. More than $1 billion in investment money is allegedly unaccounted for. Stanford is also charged in the indictment with allegedly conspiring to obstruct an SEC proceeding. Stanford Financial Group’s finance chief, James M. Davis, is cooperating with investigators. Davis has been charged with fraud and obstruction in a separate indictment.

Stanford was the owner of a newspaper, two restaurants, and a development company in Antigua, and was a cricket enthusiast and owner of the Stanford cricket grounds in Antigua. In 2008, Stanford staged a $20 million, winner-takes-all, match between a West Indian XI and England at the grounds. In 2006, Stanford became the first American to be knighted by Antigua and Barbuda.

Stanford is represented by attorney Dick DeGuerin, who has issued a statement to the press that Stanford is innocent of the charges. Stanford has made repeated statements as to his innocence and has alleged that no money was lost.

Stanford surrendered to the FBI on Thursday and had his initial appearance on Friday. U.S. Magistrate Judge Hannah Lauck determined that Stanford posed a flight risk and ordered him to remain in custody pending a future detention hearing in Houston. Several governments have frozen his assets. Stanford faces as much as 250 years in prison if convicted.

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By way of background, the Government originally charged Syed Haris Ahmed in a sealed indictment filed on March 23, 2006. The Government obtained a Superseding Indictment on July 19, 2006. It has charged Ahmed and his co-defendant, Ehsanul Islam Sadequee, with one count of conspiracy to provide material support to terrorists, in violation of Title 18 United States Code Sections 956 and 2332b; one count of providing and attempting to provide material support to terrorists, in violation of Title 18, Sections 956, 2332b and 2339A; one count of conspiracy to provide material support to a Designated Foreign Terrorist Organization, in violation of Title 18, Section 2339B; and one count of attempting to provide material support to a Designated Foreign Terrorist Organization, in violation of Title 18, Section 2339B.

The Government’s Superseding Indictment contains the following facts and allegations:

Ahmed was born in Pakistan in 1984 and became a naturalized U.S. citizen. Sadequee, who is allegedly nicknamed “Shifa,” was born in Virginia in 1986, and is of Bangladeshi descent.

In or around late 2004, Ahmed and Sadequee and another person engaged in alleged paramilitary training, including with paintball guns, in Northwest Georgia.

On or about February 26, 2005, Ahmed and Sadequee traveled to Toronto, Canada, by bus. While in Toronto, Ahmed and Sadequee allegedly met in person with “supporters of violent jihad” and “discussed strategic locations in the United States that were suitable for terrorist attack, including military bases and oil storage facilities and refineries.” Ahmed, Sadequee and the others allegedly also “explored how they might disrupt the world-wide Global Positioning System (GPS)” and “a plan for members of the group to travel to Pakistan to seek and receive paramilitary training that they would then use to engage in violent jihad.”

After returning to Atlanta, in or about March or April 2005, Ahmed and Sadequee further discussed these plans, and also the possibility of attacking Dobbins Air Reserve Base in Marietta, Georgia.

At or around this time, Sadequee was allegedly in communication with Younis Tsouli, an unindicted co-conspirator in the United Kingdom.

On or about April 10 and 11, 2005, Ahmed and Sadequee traveled to Washington, D.C., in Ahmed’s pickup truck. On April 11, Ahmed and Sadequee allegedly “made short digital video recordings… of symbolic and infrastructure targets of potential terrorist attacks in the Washington, D.C., area, including the United States Capitol; the headquarters building of the World Bank…; the Masonic Temple in Alexandria, Virginia; and a group of large fuel storage tanks near I-95 in northern Virginia.”

On returning to Atlanta, Ahmed allegedly gave the video clips to Sadequee so that he could send the clips to supporters of violent jihad abroad. Sadequee allegedly sent the video clips to Tsouli in the United Kingdom and Tsouli stored the clips on his computer along with other materials relating to violent jihad.

Between March and July 2005, Sadequee allegedly provided Ahmed with the contact information for Abu Umar, an unindicted co-conspirator, and told Ahmed that Abu Umar could assist Ahmed with obtaining paramilitary training in Pakistan. On or about July 17, 2005, Ahmed traveled from Atlanta to Pakistan for the alleged purpose of studying in a madrassa and then obtaining paramilitary training to engage in violent jihad in Kashmir or other locations, including the U.S. Ahmed is alleged to have intended to join Lashkar-e-Tayyiba (“Army of the Righteous”). Ahmed was allegedly unsuccessful in his attempts to enter a madrassa or to obtain paramilitary training, and returned to Atlanta.

On or about August 18, 2005, Sadequee traveled from Atlanta to Bangladesh to allegedly get married and to pursue violent jihad. Sadequee was stopped as he traveled through John F. Kennedy Airport in New York and was discovered to allegedly have two compact discs concealed in the lining of his suitcase which contained a Fairfax County, Virginia, Visitor’s Center map of the Washington area, including the sites of four potential terrorist targets which Sadequee and Ahmed had videotaped in April 2005. Sadequee was interviewed by federal agents and allegedly falsely stated that he had traveled to Toronto alone.

On or about August 19, 2005, Ahmed returned to Atlanta from Pakistan and was interviewed by federal agents at Hartsfield International Airport in Atlanta. Ahmed allegedly made false and misleading statements about his travel to Canada and Pakistan, allegedly stating that he had made the trips to visit friends and family and to attend a religious school.

In the Fall of 2005, Ahmed allegedly researched shaped explosive charges and methods to defeat surveillance by government authorities. He also allegedly cautioned an individual to avoid discussing certain topics over the telephone.

On or about November 27, 2005, Ahmed allegedly told a supporter of violent jihad of his intent to go abroad again to train for, and engage in, violent jihad, and told the individual to read the indictment against Jose Padilla. At or around this time, Ahmed allegedly reviewed a periodical for gun enthusiasts.

In early 2006, Ahmed allegedly engaged in efforts to detect and evade suspected government surveillance. In March of 2006, agents from the FBI Joint Terrorism Task Force engaged in a series of interviews with Ahmed, in which Ahmed allegedly attempted to conceal the true nature of his, Sadequee’s and their alleged co-conspirators’ discussions, activities and plans. After the interviews began, Ahmed communicated with Sadequee in Bangladesh and warned him about the FBI’s interest in their activities.

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The trial of Syed Haris Ahmed is Georgia’s most significant terrorism case and we will collect for readers daily information on the trial and additional information. Today’s information on the Ahmed/Sadequee Trial comes from the Atlanta Journal-Constitution, WSBTV and CNN.

Ahmed is 24, an Atlanta area native and a former student at Georgia Tech. Ahmed waived his right to jury trial, and his case is being tried before District Court Judge William S. Duffey in the U.S. District Court for the Northern District of Georgia without a jury. Jack Martin, of Martin Brothers, P.C., is representing Ahmed. Assistant U.S. Attorney Robert McBurney is representing the United States. Ahmed’s co-defendant, Ehsanul Islam Sadequee, will be tried in August. Stephanie Kearns of the Federal Defender Program is representing Sadequee.

On Monday, Mr. Martin gave his opening statements to the Court, describing Ahmed as a confused, frustrated and immature young man who “fell prey” to websites espousing extremist views. Mr. Martin characterized the alleged plans for terrorist acts as “passing random thoughts, momentary ideas, childish fantasies, unformed, inchoate notions.” Mr. Martin argued that Ahmed had the ability to commit the alleged acts but said “No.” He stated that Ahmed’s idea of paramilitary training was shooting paintball guns with a friend in the North Georgia woods.

Mr. McBurney argued that Ahmed “one step removed from the bomb throwers” and intended to wage violent jihad. Mr. McBurney argued that Ahmed was a would-be terrorist who went to Pakistan to join the Taliban. He said that the videos made by Ahmed while allegedly “casing” locations in Washington, D.C., including the Capitol and the Pentagon, were intended to prove to terrorists overseas that Ahmed had access to Washington’s “backyard” and could get in close to targets. McBurney said the government’s case is about supporting terrorism and not actually “pulling the trigger or dropping the bomb.”

FBI Special Agent Mark Richards testified for the government. During Agent Richard’s testimony, the government showed some of the videos. In one video of the World Bank Building, Ahmed bobbed up and down so much that Mr. Martin asked Special Agent Richards “If a terrorist was attacking on a pogo stick, this might be useful, right?” However, another video shows Ahmed and Sadequee driving past the Pentagon with Sadequee stating “This is where our brothers attacked.”

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In an opinion issued on Tuesday, Montejo v. Louisiana, --- S.Ct. ----, 2009 WL 1443049 (2009), the Supreme Court removed a layer of protection of criminal defendants against coercive and badgering police interrogations by overruling, Michigan v. Jackson, 475 U.S. 625, 106 S.Ct. 1404 (1986), in which the Court had held that “if police initiate interrogation after a defendant's assertion, at an arraignment or similar proceeding, of his right to counsel, any waiver of the defendant's right to counsel for that police-initiated interrogation is invalid.”

The petitioner in Montejo was arrested in connection with a robbery and murder and waived his rights pursuant to Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602 (1966), while being interrogated by police detectives. A preliminary hearing was then held in which the court ordered an indigent defender to represent the petitioner. After the hearing, two detectives visited the petitioner and requested that the petitioner lead them to the murder weapon. The detectives read the petitioner his Miranda rights, and the petitioner proceeded to go along with the detectives, writing an inculpatory letter of apology to the widow of the victim in the process. Only following this excursion did the petitioner meet his court-appointed attorney and consult with him. The State admitted the petitioner's letter of apology against him at trial, and the petitioner was convicted of first degree murder and sentenced to death.

The petitioner appealed, arguing that the State's admission of the letter was error pursuant to Jackson. The Louisiana Supreme Court held that Jackson is not triggered unless and until a defendant has actually requested a lawyer or has otherwise asserted his Sixth Amendment right to counsel. It held that because the court had appointed the petitioner counsel while the petitioner stood mute, the petitioner had not sufficiently asserted his right to counsel. The Courtaffirmed his conviction and the Supreme Court granted certiorari.

Justice Scalia, writing for the majority, observed that some States require an indigent defendant to affirmatively request counsel before an appointment is made, while other States automatically appoint counsel upon a finding of indigency. Justice Scalia recognized the problem that "Defendants in States that automatically appoint counsel would have no opportunity to invoke their rights and trigger Jackson, while those in other States, effectively instructed by the court to request counsel, would be lucky winners." The majority rejected the petitioner's position that, once a defendant is represented by counsel, police may not initiate any further interrogation.

The majority proceeded to overrule Jackson and its holding that waivers of a defendant's right to counsel after the right to counsel is asserted are presumed invalid. The Court noted that it had created the presumption in Jackson by making an analogy to a similar prophylactic rule which the Court had established in Edwards v. Arizona, 451 U.S. 477, 101 S.Ct. 1880 (1981), for the Fifth Amendment right to have counsel present at any custodial interrogation under Miranda. The majority held that where a defendant does not invoke his right to counsel, such as where a court appoints counsel in the absence of any request by the defendant,there is no initial election "that must be preserved through a prophylactic rule against later waivers." It noted that the benefits of the prophylactic rule of Jackson were outweighed by its costs in "hindering “society's compelling interest in finding, convicting, and punishing those who violate the law." The majority observed that, even without the rule of Jackson, defendants are still entitled to the protections of Miranda, Edwards and Minnick v. Mississippi, 498 U.S. 146, 151, 111 S.Ct. 486 (1990). It held that "Jackson not only 'operates to invalidate a confession given by the free choice of suspects who have received proper advice of their Miranda rights but waived them nonetheless,' ... but also deters law enforcement officers from even trying to obtain voluntary confessions."

Justices Stevens, Souter, Ginsburg and Breyer all dissented.

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