Costa Rican Company and Executives Charged with Alleged $670 Million Fraud Scheme

January 24, 2011

The president and the auditor of a Costa Rican company selling reinsurance bonds to life settlement companies were arrested and charged, along with the company itself, in a seven-count indictment unsealed today for their alleged role in a $670 million fraud scheme involving victims throughout the United States and abroad.

An indictment unsealed in U.S. District Court for the Eastern District of Virginia charges Costa Rica-based Provident Capital Indemnity Ltd. (PCI), Minor Vargas Calvo, 59, and Jorge Castillo, 55, each with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, and three counts of wire fraud. The indictment also seeks forfeiture of more than $40 million from Vargas, Castillo and PCI. Vargas was arrested on January 18, 2011, at the John F. Kennedy International Airport, and Castillo was arrested January 19, 2011, in New Jersey.

According to the indictment, Vargas, a citizen and resident of Costa Rica, is the president and majority owner of PCI, an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. Castillo, a resident of New Jersey, is the purported independent auditor for PCI. If convicted, Vargas and Castillo face up to 20 years in prison on each count.

Vargas and Castillo allegedly engaged in a scheme to defraud clients and investors by making misrepresentations about PCI’s reinsurers, PCI’s financial statements and PCI’s Dun and Bradstreet rating, in connection with PCI’s marketing and sale of “financial guarantee bonds” to companies that sold life settlements or securities backed by life settlements to investors. PCI’s bonds were allegedly marketed as a way to eliminate one of the primary risks of investing in life settlements, namely the possibility that the individual insured by the underlying life insurance policy will live beyond his or her life expectancy.

The indictment alleges that from 2004 through 2010, PCI sold approximately $670 million of bonds to life settlement investment companies located in various countries, including the United States, the Netherlands, Germany, Canada, and elsewhere. PCI’s clients, in turn, sold investment offerings backed by PCI’s bonds to thousands of investors around the world. Purchasers of PCI’s bonds were allegedly required to pay up-front payments of 6 to 11 percent of the underlying settlement as “premium” payments to PCI before the company would issue the bonds.

Although a corporation is not a physical person, in the legal sense a corporation can be held criminally and civilly accountable for the actions of its employees, given the employees were acting in the scope of their employment and for the benefit of the corporation. This is possible through the legal doctrine of “respondeat superior.”

In a parallel investigation, the U.S. Securities and Exchange Commission announced its filing of a parallel emergency enforcement action against PCI, Vargas, and Castillo. The press release issued by the SEC is available here.

In cases dealing with financial securities and business transactions, the U.S. federal government has the power to charge individuals and corporations with criminal and civil liability. The Department of Justice handles the criminal aspect of such charges, and other governmental agencies such as the SEC or the FTC will impose civil liability. Criminal charges result in possible imprisonment, fines and forfeiture, whereas civil charges typically result in financial damages.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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Largest Alleged Medicare Fraud Scheme in DOJ History

October 14, 2010

Seventy-three individuals, including a number of alleged members and associates of an Armenian-American organized crime enterprise, were charged in indictments unsealed today in five judicial districts with various health care fraud-related crimes involving more than $163 million in fraudulent billing, announced Acting Deputy Attorney General Gary G. Grindler, FBI Assistant Director of the Criminal Investigative Division Kevin Perkins, and Health and Human Services Inspector General Daniel R. Levinson.

In this national, multi-agency investigation, more than 50 were arrested yesterday by FBI agents in the largest alleged Medicare fraud scheme ever perpetrated by a single criminal enterprise and charged by the Department of Justice.

The individuals are charged with allegedly engaging in numerous fraud activities, including highly-organized, multi-million dollar schemes to defraud Medicare and insurance companies by submitting fraudulent bills for medically unnecessary treatments or treatments that were never performed. According to the indictments, the individuals allegedly stole the identities of doctors and thousands of Medicare beneficiaries and operated at least 118 different phony clinics in 25 states for the purposes of submitting Medicare reimbursements. The government believes the enterprise behind the alleged fraud is the international group known as the Mirzoyan-Terdjanian.

Forty-four individuals were charged in two indictments unsealed today in the Southern District of New York with racketeering conspiracy and conspiracy to commit the following acts: health care fraud, bank fraud, money laundering, fraud in connection with identity theft, credit card fraud, and immigration fraud. In addition, seven individuals were charged in the District of New Mexico with health care fraud, mail fraud, wire fraud, money laundering conspiracy, money laundering, forfeiture, and aggravated identity theft. Six individuals were charged in the Southern District of Georgia with health care fraud, conspiracy to commit health care fraud, money laundering conspiracy, and aggravated identity theft. Six individuals were charged in the Northern District of Ohio with health care fraud, mail fraud, conspiracy to commit mail fraud, wire fraud, conspiracy to commit money laundering, and aggravated identity theft. Lastly, ten individuals were charged in two indictments in the Central District of California with conspiracy to commit bank fraud, bank fraud, money laundering, conspiracy to launder monetary instruments, criminal forfeiture, aggravated identity theft, aiding and abetting, and causing an act to be done.

According to the charges filed in U.S. District Court in the Southern District of New York, the Mirzoyan-Terdjanian Organization is named for its alleged principal leaders, Davit Mirzoyan and Robert Terdjanian. Allegedly, the leadership of the organization is based in Los Angeles and New York, and its operations extend throughout the United States and internationally. Among the individuals charged with racketeering is Armen Kazarian, who is alleged to be a “Vor,” a term translated as “Thief-in-Law” and refers to a member of a select group of high-level criminals from Russia and the countries that has been part of the former Soviet Union, including Armenia. This is the first time an alleged Vor has ever been charged for a racketeering offense, and the first time since 1996 that a Vor has been arrested on any federal charge.

The racketeering charges carry a maximum penalty of life in prison and a $250,000 fine. The health care fraud and conspiracy to commit health care fraud charges each carry a maximum penalty of 10 years in prison and a $250,000 fine. The conspiracy to commit bank fraud charges each carry a maximum penalty of 30 years in prison and a fine of $1 million. The conspiracy to commit money laundering charges each carry a maximum penalty of 25 years in prison and a $500,000 fine. The conspiracy to commit money laundering charges each carry maximum penalties of 20 years in prison and a $500,000 fine. The conspiracy to commit fraud in connection with identity theft charges carry a maximum penalty of five years in prison and a $250,000 fine. The aggravated identity theft charges each carry a required two-year consecutive prison sentence to any other sentence imposed, the conspiracy to commit credit card fraud charges carry a maximum penalty of 10 years in prison and a $250,000 fine. The conspiracy to commit immigration fraud charges carry a maximum penalty of five years in prison and a $250,000 fine.

The charges announced today are merely allegations, and individuals are presumed innocent unless proven guilty in a court of law.

The individuals charged in each district will be prosecuted by Assistant U.S. Attorneys from each of the respective districts in which the cases were charged. The cases were investigated by special agents from the FBI’s Los Angeles and New York field offices.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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Three Executives Indicted for Alleged Role in $100 Million Fraud Scheme

September 13, 2010

Three principals of a group of businesses that acquired and marketed life settlements to investors were arrested and charged in an 18-count indictment for their alleged roles in a $100 million fraud scheme with more than 800 alleged victims across the United States and Canada.

The charges were announced today by U.S. Attorney for the Eastern District of Virginia Neil H. MacBride and Assistant Attorney General Lanny A. Breuer of the Criminal Division.

An indictment unsealed today in U.S. District Court for the Eastern District of Virginia charges Christian M. Allmendinger, 39; Adley H. Abdulwahab, 35; and David C. White, 40, with one count of conspiracy to commit mail fraud, six counts of mail fraud, one count of conspiracy to commit money laundering, six counts of money laundering, and four counts of securities fraud. The indictment also seeks forfeiture of approximately $103 million from all three individuals.

According to the indictment, Allmendinger, Abdulwahab, White and their co-conspirators were principals with A&O Resource Management Ltd., and various related entities, which sold life settlement investments. The individuals allegedly engaged in a scheme to defraud investors by making misrepresentations about such things as A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds. The indictment further alleges that when state regulators began to scrutinize A&O’s investment products, Abdulwahab and his co-conspirators allegedly manufactured a pair of sham transactions in which A&O was “sold” to a shell corporate entity named Blue Dymond and later to another shell corporate entity named Physician’s Trust. It is alleged that following these sham transactions, White became the figurehead president of A&O and Physician’s Trust, but that A&O was still secretly controlled by Abdulwahab and other co-conspirators. The indictment also alleges that Allmendinger, Abdulwahab and their co-conspirators routinely used investor funds for personal enrichment.

If convicted of all the charges in the indictment, Allmendinger, Abdulwahab and White face up to 20 years in prison on each count except the four securities fraud counts, on which they face up to five years in prison per count.

In addition to Allmendinger, Abdulwahab, and White, four other individuals have been charged with criminal offenses in connection with the A&O fraud scheme. Brent Oncale, 36, of Houston, was charged in a two-count criminal information with conspiracy to commit mail fraud and conspiracy to commit money laundering for his role as vice president of A&O. Russell E. Mackert, 51, of Spring, Texas, was charged in a two-count criminal information with conspiracy to commit mail fraud and bulk cash smuggling for his role as an attorney in the A&O scheme. Eric M. Kurz, 46, of The Woodlands, Texas, was charged in a one-count criminal information with conspiracy to commit mail fraud and money laundering for his actions as a wholesaler of A&O investment products. Tomme Bromseth, 68, of Blackstone, Va., was charged in a two-count criminal information with mail fraud and structuring financial transactions to evade reporting requirements for his role as an A&O sales agent in the Richmond area. In addition to the charging documents, signed plea agreements for Mackert, Oncale, Kurz and Bromseth were filed in U.S. District Court for the Eastern District of Virginia. Related court hearings have yet to be scheduled.

The correlation between the filing of plea documents and these three indictments is no mistake. Typically, when the government is able to bring charges against additional individuals that are allegedly involved in the same scheme, it is because one or all of those already indicted have decided to enter into plea agreements in which they name others that were allegedly involved. The fact that four plea agreements were filed the same day that Allmendinger, Abdulwahab and White were charged with their alleged participation demonstrates that the only evidence the government has against these individuals is most likely derived from the information of those that have signed a plea agreement. Otherwise, the government would have indicted them originally, but clearly did not for a lack of evidence.

Once an individual makes a plea arrangement, they typically receive a reduced sentence for their cooperation against other individuals. The motivation of a reduced sentence is very enticing to someone that has been indicted, especially when they have the opportunity to blame others.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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Ohio Man Indicted for Marijuana, Obstruction of Justice and Money Laundering Charges

June 22, 2010

A federal grand jury has returned a 13-count indictment charging Kevin L. Burton, 49, of Lucasville with conspiracy, manufacturing marijuana, obstruction of justice, and money laundering.

Burton was arrested on June 15 based on the allegations in the indictment. U.S. Magistrate Judge Elizabeth Preston Deavers ordered Burton held without bond after a detention hearing in federal court in Columbus on June 17. Burton is scheduled for trial on August 23, 2010 before Senior U.S. District Judge James L. Graham.

The indictment alleges that Burton and Anna L. Montgomery, 46, of Lucasville conspired since 1995 to manufacture 1,000 or more marijuana plants. Burton and Montgomery allegedly obtained properties in his name or in the names of others and set up rooms in residences and outbuildings to use as locations to grow the marijuana. If convicted of this crime, Burton and Montgomery face a minimum sentence of 10 years in federal prison and the possibility of life imprisonment.

Montgomery was placed on home confinement pending trial.

The indictment also charges Burton and Montgomery with one count of conspiracy to obstruct justice and one count of obstruction of justice for knowingly attempting to intimidate, threaten, influence, delay and corruptly persuade witnesses before a federal grand jury investigating the case. Each crime is punishable by up to 20 years imprisonment.

Burton is also charged with one count of maintaining a place to manufacture marijuana and nine counts of money laundering. Each count is punishable by up to 20 years imprisonment. The indictment also seeks forfeiture of three pieces of real estate and more than $413,000 in cash.

The indictment alleges that Burton laundered $293,221.16 in proceeds from the sale of marijuana through the sale of the Rubber Duck Car Wash in Jackson, Ohio.

An indictment is only an allegation. The accused are innocent until proven guilty beyond a reasonable doubt.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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Louisiana Businessman Indicted for Fraud; Faces up to 236 Years in Prison

June 11, 2010

United States Attorney James Stanley Lemelle announced today that a federal grand jury has returned an indictment charging Gary Seale, age 56, of Zachary, Louisiana, with wire fraud, money laundering, making false statements to a financial institution, filing false tax returns, and forfeiture.

The indictment alleges that, from 2001 until 2009, Seale, who owned and operated BIS Business Brokers, solicited and obtained through false and fraudulent representations approximately $500,000 in deposit and investment money from clients which he subsequently diverted to his own personal use, the use of others, and to pay debts he owed to others. Seale allegedly laundered some of the proceeds of the fraud. The indictment also alleges that Seale made false statements to a financial institution in connection with a $900,000 loan obtained through a loan program sponsored by the U.S. Small Business Administration. Seale is also alleged to have filed false income tax returns for the years 2004 and 2005.

Seale faces a maximum sentence of 236 years in prison and a fine of $3,950,000.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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