In other Federal law enforcement news, the Houston Chronicle reports that the FBI has assembled a new team to investigate corruption among judges and legislators in Georgia. Brian Lamkin, Special Agent in Charge of the FBI's Atlanta Office, told reporters that the team was formed in response to a string of recent corruption charges in Georgia, and will utilize approximately 40 percent of the Office's white-collar crimes unit staff. The article also notes that State agencies, including the Georgia Judicial Qualifications Commission and the Georgia Ethics Commission have run into funding difficulties.
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Al Lewis of the Wall Street Journal's MarketWatch reports that mortgage fraud is surprisingly on the rise despite the current weakness in the housing market. Mr. Lewis cites the FBI's report on mortgage fraud for 2010, which reports that mortgage brokers, appraisers, underwriters, accountants, real-estate agents, settlement attorneys, land developers, investors, builders, lenders, and bank and trust account representatives continue to utilize fraudulent schemes to defraud lenders, from inflating appraisals and fabricating income statements to recruiting straw buyers. As a result of the depressed housing market, inventive would-be felons have also apparently developed scams involving short sales, loan modifications, and firms offering relief from foreclosures.
The report states that mortgage fraud cases increased 12% in 2010 and that the majority of cases arose in California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Maryland, New Jersey and, of course, Georgia. The Bureau claims that at least $10 billion in loans were advanced on fraudulent mortgage applications in 2010.
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As reported by Reuters, last week, the U.S. District Court for the District of Columbia declared a mistrial in the trial of four arms salesmen for alleged bribes under the Foreign Corrupt Practices Act (FCPA). The defendants, Andrew Bigelow, Pankesh Patel, Lee Tolleson and John Wier, were accused of attempting to bribe two individuals who were posing as representatives of the defense ministry of the African nation of Gabon in order to win a $15 million deal to provide guns, body armor and other equipment. The defendants were alleged to have told the informants that they would add a 20 percent commission to any prices quoted as bribes. The mistrial was declared following a six week trial in which the jury failed to reach a unanimous verdict after six different votes.
The sting operation, which involved a staggering 250 FBI agents, resulted in 22 individuals being charged, including a former U.S. Secret Service agent and an executive for U.S. firearm manufacturer Smith & Wesson Holding Co. Department of Justice officials have informed the media that the Department intends to retry the case. Three of the 22 individuals charged as a result of the sting have pled guilty. Trials have been scheduled for the remaining defendants.
A doctor and four employees of Atlanta Medical Group, a pain management clinic, in Cartersville, Bartow County, were arrested last week by FBI agents, according to Examiner.com. Dr. James Chapman, Jason Cole Votrobek, Jesse Violante, Roland Rafael Castellanos and Tara Atkins have been indicted in the U.S. District Court for the Northern District of Georgia for allegedly distributing hundreds of thousands of oxycodone pills.
The government charges that the defendants sought to see as many patients as possible and issue as many prescriptions for the drug as possible, while failing to conduct sufficient medical examinations. The defendants are also charged with using non-physician staff to issue prescriptions for oxycodone. The clinic is alleged to have made millions of dollars despite having been in operation for approximately one year. The defendants are alleged to have concealed the profits in numerous bank accounts with third-party names.
Luis Posada Carriles was 30 years old at the time of the 1959 Cuban Revolution. He was sent to prison by the regime of Fidel Castro and subsequently sought asylum in Mexico. Posada then emigrated to the United States where he helped to organize President John F. Kennedy's and the CIA's failed 1961 Bay of Pigs invasion. He then returned to the U.S. where he became a 2nd Lieutenant in the U.S. Army and was active in the CIA's Operation 40--a guerilla force which operated covertly to overthrow the Castro regime. Posada also developed close ties to anti-Castro groups in the U.S., including the Cuban American National Foundation.
Eventually suspected by the CIA of alleged involvement in several bombing plots, Posada relocated to Venezuela in 1968. Carriles became a chief of operations for Venezuela's intelligence agencies. The CIA severed all ties with Posada in 1976, on suspicion that he was allegedly involved in cocaine trafficking. That same year, he was arrested in Venezuela for alleged involvement in the bombing of Cubana airlines flight 455, which killed all 73 people on board. He was acquitted in a trial in military court, however the verdict was overturned and Posada was retried in a civil court. He escaped from prison in Venezuela and sought asylum in Chile.
Posada was imprisoned in Chile until 1985, when he escaped from prison again, dressing as a priest. He fled to El Salvador, where he again became involved in U.S. activities in the region, helping to provide supplies to the Contra forces opposed to the Sandinista regime of Nicaragua for the administration of President Ronald Reagan. Following the Reagan administration, Posada became a security advisor to the Guatemalan government. He was shot in Guatemala City in 1990, upon information and belief by Cuban agents.
Posada was implicated in a series of bombings in Cuba in 1997 which killed a Canadian citizen and wounded 11 other people. He was arrested in Panama City in 2000 with 200 pounds of explosives which were allegedly to be used to assassinate Castro, who was to visit Panama for the first time since 1959. In 2004, Panamanian President Mireya Moscoso pardoned Posada and his alleged co-conspirators. Posada requested asylum in the United States in 2005, and he was detained by the Department of Homeland Security, which sought to deport him. He was released on bond in 2007, and was indicted on seven counts of alleged immigration fraud. In 2009, a grand jury in El Paso, Texas, issued a superseding indictment against Posada, charging him with 11 counts, including immigration fraud, obstruction of a terrorism investigation and terrorism charges relating to the 1997 Cuban bombings. As reported by the Miami Herald, Posada was tried in a 13 week trial in the Western District of Texas in 2010. The jury took 3 hours to find him not guilty on all charges.
Last week, the 83 year-old Posada received a gala dinner in Miami by Cuban exile organizations including Alpha 66, intended to help defray his legal expenses. Posada's counsel stated that they believed that the jury was favorably disposed to Posada as a result of his military history. However, as a result of his 2004 Panamanian conviction, Posada is barred from seeking residency in the U.S. No other countries will accept Posada, however, besides Cuba and Venezuela, and the U.S. has refused to deport him to Cuba or Venezuela, citing concerns that he might be tortured. Venezuela has announced that it will re-file its petition to extradite Posada. Venezuelan President Hugo Chavez has called Posada the "biggest terrorist" on the continent, and Castro has denounced Posada as a "coward."
It is college football season, and appropriately the most notable news in an otherwise slow Federal criminal news day appears to be that the Federal Bureau of Investigation has interviewed John Bond, a former quarterback for the Mississippi State Bulldogs, regarding Auburn quarterback Cam Newton, according to the Atlanta Journal and Constitution.
Bond told Mississippi State officials in January that a former teammate had asked him for $180,000 in order to secure Newton's commitment to the Bulldogs. The teammate was subsequently revealed to be Kenny Rogers, another former player for the Bulldogs and owner of a company called Elite Football Preparation, which holds camps in Alabama, Chicago and Mississippi, and matches football prospects with colleges. Rogers, in turn, has publicly stated that he met with Newton's father, Cecil Newton, as well as assistant coaches for MSU, on November 27, 2009, in Starkville, Mississippi, and that Newton demanded between $100,000 and $180,000 in order to ensure that his son signed with the Bulldogs.
Newton originally signed a letter of intent with the University of Florida, where he spent the 2007-2008 season as a back-up quarterback to Heisman Trophy winner Tim Tebow. He subsequently transferred to Blinn College in Texas, where he led the Blinn Buccaneers to the NJCAA National Championship before signing with Auburn. According to ESPN, Cecil Newton told Rogers at the meeting that his son's transfer to Auburn was not going to be "free." Rogers was referred to Mississippi State booster and former Bulldogs offensive lineman Bill Bell. Bell confirmed to ESPN that Rogers did contact him to ask for money in exchange for Newton signing with Mississippi State. Rogers has stated that he doesn't know if Cam Newton knew about his father's demand for money. However, ESPN reported that recruiting sources for Mississippi State had disclosed that they had had telephone conversations with Cam Newton, as well as his father, that Newton's college choice would be based on a pay-for-play plan.
The allegations are further not limited to Newton's dealings with Mississippi State. One recruiter has reported that Cam Newton telephoned him after committing to Auburn and informed him that he had chosen Auburn over Mississippi State because "the money was too much."
Mississippi State compliance officials reported the allegations to Southeastern Conference compliance officials in January. The NCAA and the FBI are both conducting investigations into these allegations. The news has cast a shadow over Auburn's so-far undefeated season, and Newton himself, the current leading contender for the Heisman Trophy. Newton's reputation was already previously marred by charges of burglary, larceny and obstruction relating to an alleged stolen laptop while he was at the University of Florida.
The Federal investigation could result in criminal proceedings for conspiracy, fraud, bribery and other offenses. In a case which college football fans will have some familiarity with, U.S. v. Young, NO. 03-20400 BV, (W.D.Tenn. 2004), Tennessee businessman and University of Alabama booster Logan Young was indicted for structuring, in violation of 31 U.S.C. § 5324; Travel Act violations under 18 U.S.C. § 1952; and conspiracy, in violation of 18 U.S.C. § 371, for paying $150,000 to Lynn Lang, coach of Trezvant High School in Memphis, to ensure that high school defensive player Albert Means signed a letter of intent with Alabama. Young, Lang and Trezvant Assistant Coach Milton Kirk were subsequently convicted. Alabama was placed on probation for five years by the NCAA as a result of the conduct, and given a two year bowl ban. The University of Kentucky was given a one year bowl ban for a $6,000 payment by a booster to Lang in order to have Means visit the school. Similar misconduct was alleged against the University of Georgia, the University of Arkansas and the University of Memphis, however those schools were not sanctioned. An old Sports Illustrated article has more on the Means scandal.
Federal criminal activity has been brisk in the Southern District of Georgia. First, six defendants were charged with conspiracy to defraud Medicare and money laundering, according to a press release from the U.S. Attorney's Office. The charges were the result of a nationwide investigation which included the Federal Bureau of Investigation (FBI), the Department of Health and Human Services, Office of the Inspector General (HHS-OIG), and Immigration and Customs Enforcement (ICE) which has resulted in the arrests of more than 35 defendants across the country.
The government has alleged that, beginning in 2006, the defendants allegedly opened five sham medical clinics in Savannah, Macon and Brunswick, and allegedly stole the identities of physicians and Medicare beneficiaries. The defendants are alleged to have submitted over $4 million in false claims to Medicare for services which were allegedly never provided. Nationwide, the scheme is alleged to have cost Medicare $163 million. The Georgia defendants are also charged with allegedly laundering the proceeds through various shell corporations.
Later in the week, an Augusta man was indicted for allegedly defrauding a program which provided meals to low income children in the Savannah River area under the Federal Head Start program of tens of thousands of dollars.
Allegations of misconduct are flying in the case of former Illinois Governor Rod Blagojevich. According to the Chicago Tribune, Blagojevich's attorneys have accused the prosecution of misconduct during their investigation of the former Governor. Now the prosecution has struck back and charged that Blagojevich and his counsel lied.
The jury deadlocked on 23 of 24 counts against Blagojevich during his trial this summer. Blagojevich has moved to throw out his conviction on the remaining count of lying to the FBI. His counsel alleged that a "plethora of errors" caused his conviction on the count.
The government has called the claims of prosecutorial misconduct "baseless," especially claims that the government lied about the contents of secret recordings of Blagojevich. It also contends that the defense falsely suggested that the government put improper pressure on the witnesses against Blagojevich, including Antoin "Tony" Rezko. The prosecution has also objected to Blagojevich's alleged estimate that a retrial would cost $25 to $30 million.
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.
The Federal Government is spending billions on bailouts and stimulus in order to resuscitate the economy. This money, however, does not come without strings, both in the non-criminal and the criminal sphere. Following is a survey of the potential criminal consequences of misuse of monies issued by the Government under the Troubled Asset Relief Program (TARP) , 12 U.S.C. § 5201 et seq., part of the Emergency Economic Stabilization Act (EESA) of 2008.
President Georgia W. Bush signed the EESA and TARP into law on October 3, 2008. As of the end of March, the Treasury Department has disbursed $303.4 billion out of $700 billion in TARP funds, according to a Government Accountability Office (GAO) status report. Most of the monies—$198 billion—have gone to TARP’s Capital Purchase Program (CPP), the preferred stock and warrant purchase program. About $40 billion has been given to failing institutions, and approximately the same amount has been used for targeted investment programs. $24.5 billion has been given to the auto industry.
The central TARP provision, 12 U.S.C. § 5211, governing purchases of troubled assets, authorizes the Secretary of the of Treasury “to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary…” 12 U.S.C. § 5211(a)(1). Section 5211 further directs the Secretary to prevent unjust enrichment of financial institutions in making purchases. 12 U.S.C. § 5211(e).
The Comptroller General is responsible for oversight of TARP. 12 U.S.C. § 5226(a). The Comptroller General, through the GAO, is also charged with auditing programs, activities, receipts, expenditures and financial transactions under TARP. 12 U.S.C. § 5226(b).
12 U.S.C. § 5234 provides that “Any Federal financial regulatory agency shall cooperate with the Federal Bureau of Investigation and other law enforcement agencies investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.” 12 U.S.C. § 5234.
As related by an article at NewGeography.com, TARP creates three monitoring entities, one of which has the authority to prosecute crimes relating to TARP, the Special Inspector General (SIGTARP). SIGTARP is headed by Special Inspector General in charge, Neil Barofsky, dubbed the "TARP Cop." SIGTARP has set up a hotline for citizens to report fraud or “evidence of violations of criminal and civil laws in connection with TARP” and had received 200 tips and launched 20 criminal investigations by the end of April. SIGTARP has released a 250-page report on TARP to educate the public http://sigtarp.gov/reports/congress/2009/April2009_Quarterly_Report_to_Congress.pdf.
In February, SIGTARP began issuing all financial insititutions receiving TARP funds audit letters requesting, within 30 days:
A narrative of (a) the recipient's anticipated use of TARPfunds; (b) whether the TARP funds were segregated from other institutionalfunds; (c) the recipient's actual use of TARP funds to date; and (d) the recipient's expected use of unspent TARP funds.
The recipient’s specific plans for addressing executive compensation, and the status of implementation of any plans.
The audit letters further request supporting documentation and requires that the response be:
[B]e signed by a duly authorized senior executive officer of your company, including a statement certifying the accuracy of all statements, representations, and supporting information provided, subject to the requirements and penalties set forth in Title 18, United States Code, Section 1001 [the Federal false statement criminal provision].
SIGTARP subsequently issued a Frequently Asked Questions (FAQ) sheet to TARP fund recipients. Earlier this year Barofsky testified before the Senate Finance Committee that the massive amounts of TARP money "will inevitably attract those seeking to profit criminally" and that SIGTARP was "looking at the potential exposure of hundreds of billions of dollars in taxpayer money lost to fraud." Among SIGTARP's current investigations is insurance giant AIG.
On March 11, 2009, FBI Director Robert Muller stated before the the Senate Committee on Appropriations, Subcommittee on Commerce, Justice, Science, and Related Agencies:
With the passage of recent legislation that includes billions of dollars being infused into the U.S. economy, including the Housing and Economic Recovery Act (HERA), the Emergency Economic Stabilization Act of 2008, the Troubled Asset Relief Program (TARP), and other asset relief programs, we anticipate an increase in fraud. In addition to the agents that are currently on board, the FBI’s 2010 budget includes 143 new positions (50 special agents and 93 professional staff) and $25.5 million to assist the FBI in combating mortgage and corporate fraud.
Only one investigation has resulted in charges relating to abuse of TARP funds so far. In April, a felony information was filed in the U.S. District Court for the Middle District of Tennessee, charging Gordon B. Grigg, a financial advisor in Franklin, Tennessee, with four counts of mail fraud and four counts of wire fraud. Grigg is charged with having allegedly embezzled more than $10,922,000 in client investment funds in a Ponzi-type scheme. He is alleged to have conducted a scheme since 1996 to defraud investors by inducing them to invest in pooled-client purchases of fixed-term certificates of deposit, private placements, corporate notes and debentures in the name of Grigg’s company, ProTrust. Grigg allegedly falsely told investors that he personally managed the accounts, that he had negotiated partnerships and special business relationships with several of the nation’s most successful investment firms, and that the investments were safe and would generate and sustain high rates of annualized returns. He is also charged with allegedly falsely representing that he had already committed more than $5,000,000 in Pro Trust pooled client funds towards purchase of TARP guaranteed debt as part of private placement partnership. The Government alleges that Grigg never invested the investors’ monies, but instead used the monies to disburse false “earnings” and “returns of deposit” to clients who cashed out their ProTrust investment accounts, and for his own personal benefit and expenses.
In order to conceal the scheme, Grigg fabricated documents, including correspondence, invoices and account statements, and used counterfeit corporate letterhead and the forged signatures of national investment firm executives. From 1990 to 2009, Grigg solicited approximately sixty investors to invest approximately $10,922,661, of which, approximately $6.6 million was returned to investors who either cashed out or closed their Pro Trust investment accounts.
Special Inspector General Barofsky announced in the press release by the U.S. Attorney’s Office for the Middle District of Tennessee on the charges against Grigg:
“The filing of charges today against Gordon Grigg, the first criminal charges brought in connection with a SIGTARP investigation, marks a significant milestone in the evolution of SIGTARP and of TARP oversight generally.”
“Today, SIGTARP, the U.S. Attorney’s Office for the Middle District of Tennessee, the SEC, and the FBI, along with our state and local partners, serve notice on all who might try to profit criminally from the current national crisis that the United States Government stands ready to detect, investigate and punish any and all who use the TARP program to commit fraud. This is true irrespective of whether the victim is the United States Government itself, unsuspecting investors, or struggling home owners.”
With hundreds of billions in TARP funds already disbursed and hundreds of billions remaining to be disbursed, and great public concern over how such staggering amounts of money are being spent and used, TARP-related criminal investigations and prosecutions can only increase. Recipients of TARP funds must be especially careful in using the funds for their intended purposes and in scrupulously accounting for all uses of the funds. It is furthermore of utmost importance that recipients exercise extreme caution and thoroughness in responding to audit inquiries from SIGTARP, including through the retention of competent and proactive legal counsel.
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