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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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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9 Defendants Charged in Chicago in International Investigation Targeting

CHICAGO — Seven Chicago-area residents are among nine individuals arrested in the United States and Nigeria as part of an international investigation into online “romance scams” and “mystery shopper” schemes.

During the Chicago-based investigation, dubbed “Operation Gold Phish,” law enforcement identified a variety of cyber-enabled fraud schemes allegedly carried out by conspirators in the U.S. and Nigeria.

One of the alleged schemes involved “romance scams,” in which a conspirator builds trust with a victim through a purported online romance before convincing the victim to send money to a predetermined recipient.

The conspirators initially contacted victims online via applications and websites, including Match.com, Facebook, and Instagram, the complaint states.

Another alleged cyber-enabled fraud involved a “mystery shopper” scheme, in which conspirators fraudulently offered victims opportunities to work as a mystery shopper and receive commissions for evaluating retailers.

The victim received a check through the U.S. mail with instructions to deposit it in a personal bank account, withdraw the money in cash, and wire it to a third party.

The check turned out to be fake, and the victims were defrauded of the wired money, the charges allege.

A criminal complaint filed Dec. 4, 2018, in U.S. District Court in Chicago charged nine defendants with conspiracy to commit wire fraud.

Arrests were recently carried out in Illinois, Texas, and Nigeria, and all of the defendants are now in law enforcement custody.

The Nigerian Economic and Financial Crimes Commission is conducting a related investigation of other individuals in Nigeria.

The U.S. charges were announced by John R. Lausch, Jr., United States Attorney for the Northern District of Illinois; Jeffrey S. Sallet, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation; and Craig Goldberg, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.

Valuable assistance was provided by the Nigerian Economic and Financial Crimes Commission. Assistant U.S. Attorneys Peter S. Salib and Charles W. Mulaney represent the government.

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Credit Card Cloners Stole Thousands

A prolific credit card scammer—who continued his crimes from behind bars—is now serving a lengthy sentence thanks to a multi-agency investigation into his card-cloning operation.

From 2014 to 2016, Syracuse, New York, resident Daquan Rice, 23, and several associates purchased credit card numbers online from hackers in Russia, Pakistan, and Ukraine, who sell the information they steal. Rice also bought credit card numbers from a friend who worked at a Syracuse restaurant who had skimmed numbers from customer credit cards on Rice’s behalf.

Rice had an associate in New York City with a credit card cloning machine, and he would provide the numbers to the person to make new cards for him. Rice and his accomplices then used these cards to buy gift cards, which they would convert into cash or money orders.

“It’s unfortunately not that hard or complicated to get your hands on stolen credit card numbers,” said Special Agent Brandon Mercer of the FBI’s Albany Division, who investigated this case along with the U.S. Postal Inspection Service, New York State Police, and local law enforcement in the Syracuse area. “This information is readily available on the dark web from hackers and other criminals.”

There was nothing a merchant could have done to stop the fraudulent transaction, because the thieves put the fake cards in their own names. So even if a cashier asked for identification, the name on the credit card would have matched their IDs.

“It was a numbers game. They would print out hundreds of these cards. They would go to the register and swipe, and if it didn’t work, they would just throw it away and use the next one,” Mercer said. “A lot of these cards were only able to used once because the cardholder noticed the fraud and shut down the card.”

The fraudsters made about $80,000 over two years.

After his 2016 arrest for credit card cloning, Rice tried to continue his scheme—from his jail cell. In 2017, he worked with an accomplice, who was not in prison, to put more than $8,000 in funds stolen through credit card fraud on Rice’s prison commissary account. Rice tried to use that account to write large checks, but the prison shut down his account for the unusual activity and contacted the FBI.

Rice pleaded guilty to wire fraud, money laundering, and aggravated identity theft, and in October, he was sentenced to more than 11 years in prison. Several accomplices have also been sentenced for their roles in the scheme.

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Cyberstalking

Children and young adults seem particularly susceptible to sextortion—when a victim is threatened with the release of private and sensitive information unless sexual favors, nude photos, or other demands are met.

But two unrelated cyberstalking crimes committed months apart and hundreds of miles away from each other serve as a reminder of the dangers of compromising personal photos being in the wrong hands, no matter the age of the victim.

In Houston, Heriberto Latigo repeatedly used nude photos of his ex-girlfriend to coerce her to have sex with him. In Crescent, Oklahoma, Troy Allen Martin similarly blackmailed his victim for $50,000.

Both men were eventually convicted and sentenced to prison for their crimes under federal cyberstalking statutes. The harm they caused their victims, however, may never be undone. Such crimes are occurring more frequently, especially among younger victims.

Latigo not only demanded sex, he also sent his victim horrible images and threatening messages. He sent the nude photos to the victim’s sister and male co-workers, and created a disturbing Facebook page that included deeply personal information about the victim.

“It’s a violent crime; he just used cyber tools to carry it out,” said Special Agent Christopher Petrowski of the FBI’s Houston office, who worked the Latigo case.

Latigo’s victim approached local police several times. The case was complicated and the victim’s story changed a number of times, in part because of pressure from Latigo, Petrowski said, making it difficult for local authorities to help effectively. She turned to the FBI, visiting the Houston office in person in spring 2015.

“When someone walks in with a story like that, it’s very emotional and difficult to figure out right away,” Petrowski said. “They’re hurting. This went on for more than a year.”

It took some time for the FBI and federal prosecutors to determine that Latigo had likely violated federal cyberstalking laws. The FBI sent letters to social media companies to preserve certain records in order to prevent Latigo from covering his tracks. Agents also served search warrants, seizing computer equipment from his home.

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Financial Fraud

A 77-year-old former landfill owner and investment banker from Pennsylvania who came up with a surefire way to make money—by illegally charging high interest rates on loans made to those who could least afford them—will likely spend the remainder of his life in prison.

Charles Hallinan, dubbed by prosecutors as the “godfather of payday lending” because his tactics to circumvent state laws and hide his long-running scheme paved the way for others to follow in his footsteps, recently received a 14-year federal prison sentence for his role in collecting hundreds of millions of dollars in short-term loans with interest rates that approached 800 percent.

Prosecutors portrayed Hallinan as a ruthless loan shark who enriched himself by trapping his victims in an endless cycle of debt. His scheme was simple: make small loans with fixed fees that borrowers agreed to pay back quickly, typically when their next payday arrived—hence, the name payday loans. A borrower might take out a $300 loan to cover an emergency car repair and agree to pay it back, along with a $90 fee, within two weeks. But if the loan was not repaid within that time, new fees were applied and the principal was not reduced.

For example, if a person borrowed $300 and agreed to pay a $90 fee with a two-week due date but failed to repay the loan for eight weeks, his or her fee would then be $360, and the original $300 loan would still be due.

“Anyone who didn’t have a desperate need for money would not take out one of these loans,” explained Special Agent Annette Murphy, who investigated the case from the FBI’s Philadelphia office. “People with limited resources were getting sucked into a cycle of paying fees and not paying down the principal.”

That was how Hallinan collected an astonishing amount of money from what is estimated to be hundreds of thousands of low-income victims from around the country. According to court documents, Hallinan was in the payday loan business from at least 1997 to 2013. The documents also revealed that between 2007 and 2013, Hallinan loaned $422 million and collected $490 million in fees. “During that period alone,” Murphy said, “he netted $68 million.”

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Prolific Fraudster Sentenced to 40 Years

He was, in the words of the assistant U.S. attorney prosecuting him, a “financial predator.” And the federal judge he recently stood before called his long-term fraud crime spree “outrageous” and “despicable,” noting the more than 500 victims ensnared by his latest scheme.

The individual in question is Harris Dempsey “Butch” Ballow, a Texas man who had seemingly made a career out of separating people from their hard-earned money through various financial scams—starting back in the 1980s. But that career has finally come to end: The 75-year-old Ballow was sentenced in May to 40 years in prison after pleading guilty to defrauding investors in a Nevada company. He was also ordered to pay more than $37 million in restitution to those investors.

And according to FBI Houston Special Agent Kendall Hopper, who worked the case, what made this particular criminal scheme even worse was that Ballow had perpetrated it while he was a fugitive from justice hiding out in Mexico. “Ballow fled the United States in late 2004, right around the time he was scheduled to appear in court for sentencing on a previous federal conviction for fraud-related money laundering,” said Hopper, “but instead of keeping a low profile, he brazenly continued his criminal ways.”

In this most recent scheme that netted him the 40-year prison term, Ballow and co-conspirators were able to buy up the majority of the publicly traded shares of a Nevada company called E-SOL International Corporation and install fictitious people as company officers. At the time, E-SOL had almost no assets and conducted no business. Ballow then rebranded E-SOL as a holding company for a couple of phony businesses—of course controlled by him and his associates—and got to work soliciting investors.

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Violent Gang Leader Orders Eyewitness Murdered

On the evening of October 23, 2014, Douglas and Deborah London of York County, South Carolina—just across the border from North Carolina—were watching television in their home when the doorbell rang. When they opened the door, she was immediately shot in the head by a man standing outside, and her husband was shot multiple times. Their adult son, who was also present, made a frantic call to 911, but the couple died next to each other on the floor of their home.

As the York County Sheriff’s Office began to investigate the double homicide, they asked the FBI’s Charlotte Field Office for help.

In the coming months, the investigative team of FBI special agents and task force officers from the Charlotte-Mecklenburg Police Department uncovered a web of violence that stretched across state lines and beyond local prison cells.

Turned out that the Londons had been specifically targeted—they were the owners of a mattress store in Pineville, North Carolina that had been robbed at gunpoint by three men five months earlier. Jamell Cureton, the leader of the Valentine Bloods—a hood, or set, of the national and exceedingly violent United Blood Nation (UBN) gang—had gone into the store and pulled his gun on Douglas London, who had his own gun. The two exchanged gunfire, and Cureton was hit. Also at the scene that day were Nana Adoma, the lookout who was just inside the door; and David Fudge, the getaway driver in the car outside.

The three escaped and drove Cureton to a hospital, but all three were taken into custody shortly afterward by local police and faced state charges.

Realizing that Douglas London was the only eyewitness who could identify him in the mattress store robbery, Cureton—who was in state custody at the time—discussed the “elimination” of London with other gang members through a series of phone calls, letters, and in-person visits.

Valentine Bloods member Malcolm Hartley was to be the triggerman. He was driven to the Londons’ home by fellow gang member Briana Johnson, rang the couple’s doorbell, and murdered them both in cold blood. “And then,” said FBI Special Agent Chad Pupillo, “Johnson drove him back to Charlotte, where they met with other gang members, disposed of the evidence—including burying the murder weapon—and celebrated the victims’ murders.”

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