Cryptocurrency Fraudster Sentenced

Even in the world of virtual currency, where value and possession exist largely in the digital realm, laws still apply and the repercussion of breaking them are very real.

The victims of Homero Joshua Garza’s virtual currency scam lost more than $9 million, and Garza will spend 21 months in prison followed by three years of supervised release after pleading guilty to one count of wire fraud. He has also been ordered to pay restitution to his victims.

In charging documents, prosecutors contend Garza founded and operated several Connecticut-based businesses (GAW Miners, ZenMiner, and ZenCloud) between 2014 and 2015 that sold bitcoin-mining hardware, offered shares in a virtual currency mining operation, and created and sold a virtual currency called PayCoin. None of these businesses would have been illegal if conducted properly, but through a series of misleading and false statements about his companies’ capabilities, partnerships, and financial backing, Garza fraudulently drew investors to his enterprises and eventually resorted to Ponzi-scheme tactics to delay detection of his fraud.

“Garza got into this market at the right time,” said Special Agent Mark Munster, who investigated this case from the FBI’s New Haven Field Office. “The interest and enthusiasm for these currencies was high, and he was able to market himself and the business very effectively. The problem was that much of what Garza was marketing was a lie.”

The first iteration of Garza’s companies sold the computer equipment virtual currency enthusiasts use to mine, or solve the complex equations required to attain a bitcoin or other virtual currency. Munster said Garza’s business started as a legitimate operation with a clever hook—he wanted to make it easier for people who didn’t have a technical background to access cryptocurrencies.

The initial currency-mining equipment business turned into one that offered to purchase a currency miner on the customer’s behalf and set it up at the GAW Miners data center. The customer could then direct the miner’s activities and reap its profits. Garza then moved into selling shares, or “hashlets,” that represented a percentage of the profits being made by his company’s purportedly robust bitcoin mining efforts. These hashlets, Garza assured investors, would always be profitable.

Mining bitcoins at the volume needed to generate the type of value Garza was promising requires a staggering amount of computing power. These powerful computers are expensive, as is the electricity required to run them. “There were data centers,” said Munster, “but not nearly the capacity that they were representing.” Without the actual infrastructure to support the shares he was selling, returns fell far short of what was promised to investors, and Garza began using new investments in the company to pay returns to others.

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Prominent Gallery Owner Sentenced for Defrauding Clients

The fine art world trades largely on names—names like da Vinci, Picasso, and Cézanne that can make the value of a canvas soar, and the names of dealers and gallery owners who operate in this rarified air by virtue of their own reputation and renown. Ezra Chowaiki was one of those dealers, and his gallery on New York’s Park Avenue catered to art collectors, buyers, and sellers from around the globe.

But in September 2018, Chowaiki was sentenced to 18 months in federal prison for carrying out what the United States Attorney for the Southern District of New York called “an elaborate scheme to defraud art dealers and collectors of millions of dollars.” Chowaiki’s name and his word, as it turned out, were not worth much.

According to an online biography, the company Chowaiki founded with partners in 2004 “established itself as a prominent gallery managing the acquisition and sale of art by Impressionist, Modern, Post-War, and Contemporary masters.” The gallery was also known for hosting exhibitions of major works.

“Chowaiki had been in the art world for a while and had completed plenty of legitimate deals,” said Special Agent Christopher McKeogh with the FBI’s Art Crime Team in the New York Field Office. “Most of the illegal activity was relatively recent.” But McKeogh stressed that once it began, “the schemes and thefts were coming at a fast and furious clip.”

When the investigation reached the FBI in November 2017, Chowaiki’s gallery had just filed for bankruptcy, and the New York Police Department was already identifying and interviewing victims of bad deals. The FBI became involved because of the expertise of its Art Crime Team as well as the interstate and international nature of the crimes. The biggest concern: 25 stolen masterworks by Marc Chagall, Piet Mondrian, Alexander Calder, Fernand Léger, and others.

“The case came with a true sense of urgency,” said McKeogh. “We needed to get the scheme under control and get the artwork back before it changed hands again and disappeared.”

According to court documents and the case agent, Chowaiki was actively carrying out both frauds and thefts. McKeogh said the frauds usually involved Chowaiki overselling the value of a painting. For example, he would reach out to an individual with whom he had a relationship and offer that person the opportunity to buy a share of a work, claiming it could be resold for a quick profit. He would then offer the same deal to a second person and then to a third. Sometimes they were paintings in which Chowaiki had no actual control or ownership stake, but he would collect more than 100 percent of their value. “It was like me selling you a piece of the Brooklyn Bridge,” said McKeogh.

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A Tennessee clinic swindled the military out of $65M. This is how it got caught

CATHEDRAL CITY, Calif. — Bill Schneid stood in his home office, holding a package of skin cream worth more than gold. He didn’t know exactly what he had stumbled on, but he was pretty sure it was illegal.

It was March 2015. A few weeks before, Schneid, 72, a curmudgeonly private investigator, had been snooping around Southern California military bases when a Marine he knew mentioned he had a strange source of side income.

The Marine was being paid to get medicine he didn’t need. A Tennessee doctor he had never met wrote him a medicinal cream prescription, which was being filled by a pharmacy in Utah. The military covered the bill and the Marine got a cash kickback from somebody. When the creams arrived in the mail, the Marine didn’t actually use them.

He was in it for the money, not the medicine, after all.

Suspicious, Schneid launched a ruse to investigate, persuading the Marine to reroute the shipments to his house. Soon, Schneid received a shoebox-sized parcel that held several tubes of cream about the same size and consistency as sunscreen that was supposedly used to treat pain and scars.

This medicine had been prescribed, supplied and delivered seemingly for no reason at all. Nobody needed it. Nobody wanted it. So what was the point?

“After the second delivery, I realized this was some kind of fraud,” Schneid said in an interview. “I believed there were about a dozen Marines involved, and they were being actively recruited to be prescribed this cream.

“It was a conspiracy, and it was growing, but I just didn’t know how huge.”

Today, court records make clear the enormity of the conspiracy. The scheme that Schneid stumbled upon in 2015 stretched from California to Tennessee, involving people and companies from at least four states. In Tennessee, two doctors and a nurse practitioner have pleaded guilty to defrauding a military insurance program, called Tricare, out of $65 million. At least two more suspects are still facing charges. Federal prosecutors also are attempting to seize swaths of East Tennessee farmland, a strip mall, and a large estate they argue was purchased with health care fraud profits.

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Evaluating the Use of Automated Facial Recognition Technology

Academics at Cardiff University have conducted the first independent academic evaluation of Automated Facial Recognition (AFR) technology across a variety of major policing operations.

The project by the Universities’ Police Science Institute evaluated South Wales Police’s deployment of Automated Facial Recognition across several major sporting and entertainment events in Cardiff city over more than a year, including the UEFA Champion’s League Final and the Autumn Rugby Internationals.

The study found that while AFR can enable police to identify persons of interest and suspects where they would probably not otherwise have been able to do so, considerable investment and changes to police operating procedures are required to generate consistent results.

Researchers employed a number of research methods to develop a rich picture and systematically evaluate the use of AFR by police across multiple operational settings. This is important as previous research on the use of AFR technologies has tended to be conducted in controlled conditions. Using it on the streets and to support ongoing criminal investigations introduces a range of factors impacting the effectiveness of AFR in supporting police work.

The technology works in two modes: Locate is the live, real-time application that scans faces within CCTV feeds in an area. It searches for possible matches against a pre-selected database of facial images of individuals deemed to be persons of interest by the police.

Identify, on the other hand, takes still images of unidentified persons (usually captured via CCTV or mobile phone camera) and compares these against the police custody database in an effort to generate investigative leads. Evidence from the research found that in 68 percent of submissions made by police officers in the Identify mode, the image was not of sufficient quality for the system to work.

Over the period of the evaluation, however, the accuracy of the technology improved significantly and police got better at using it. The Locate system was able to correctly identify a person of interest around 76 percent of the time. A total of 18 arrests were made in ‘live Locate deployments during the evaluation, and in excess of 100 people were charged following investigative searches during the first 8-9 months of the AFR Identify operation (end of July 2017-March 2018).

The report suggests that it is more helpful to think of AFR in policing as ‘Assisted Facial Recognition’ rather than a fully ‘Automated Facial Recognition’ system. ‘Automated’ implies that the identification process is conducted solely by an algorithm, when in fact, the system serves as a decision-support tool to assist human operators in making identifications. Ultimately, decisions about whether a person of interest and an image match are made by police operators. It is also deployed in uncontrolled environments, and so is impacted by external factors including lighting, weather and crowd flows.

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FBI Takes Victim-Centered Approach to Combating Trafficking

Late one night in April 2016, Antonio Hawkins noticed a crying teenage girl walking down the street in Houston, Texas. She was a runaway from out of state with nowhere to go, and he told her he would help her.

Instead, Hawkins brought the girl to Tennessee, where he spent two weeks trafficking the 15-year-old for sex in the Memphis area. He brutally beat her to keep her in line and stole all of her earnings. Hawkins was also trafficking three other women at that time, using violence and threats to control them as well.

“He recruited girls and women who were down on their luck,” said Special Agent Jaime Corman, who investigated this case out of the FBI’s Memphis Field Office. “He told his victims he would take care of them, but he violently kept them in check and controlled every aspect of their lives.”

Instead of trafficking the young women online, as many pimps do today, he had them walking an area of Memphis known for prostitution. A Memphis police officer found her there and notified the FBI, who was able to assist her and help find and stop her trafficker.

While agents investigated the case, specialists from the FBI’s Victim Services Division helped the girl find resources to rebuild her life. Since then, she has found an apartment and a job, and she overcame her fear of Hawkins to testify against him at his trial.

“These guys target the most vulnerable—runaways, foster kids, kids who come from difficult circumstances,” Corman said. “They commit crimes against these girls, making them sell their bodies. We want to show these young women that there’s something else out there for them, and they don’t have to continue down this path.”

Last July, Hawkins was convicted of five sex trafficking charges, and in November, he was sentenced to 30 years in prison.

Corman said the FBI works closely with local law enforcement to stop traffickers and help victims. Local police are often the first to interact with the victims, while the FBI brings national resources to these cases, which often span multiple states and jurisdictions. In this case, after being contacted by a local officer, the FBI helped not only track down the pimp but also manage the complexity of bringing in victims from other parts of the country to participate in his trial.

“Local law enforcement are the people who come in contact with these victims, and we count on them to recognize human trafficking and call us,” Corman said.

Although January is National Slavery and Human Trafficking Prevention Month, the FBI and its partners work to end human trafficking all year long. The FBI’s approach is a victim-centered one, working to get pimps off the streets and help the victims move forward with their lives. In addition to the investigative work, the Bureau’s Victim Services Division works with hundreds of victims of human trafficking each year—notifying them about the status of their offenders’ cases and connecting them with resources to unify them with their families, find jobs, find housing, obtain drug treatment if necessary, and more.

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