Two Sentenced in $10 Million Investment Fraud Scheme

The victims’ stories of losing their retirement savings in a $10 million investment fraud scheme were heartbreaking: some lost their homes, some had to declare bankruptcy, and many suffered—and continue to suffer—from physical and emotional ailments upon learning they had virtually nothing left to retire with.

The fraudsters responsible for this fallout—who lined their own pockets with the hard-earned money of working people trying to save for their golden years—were Merrill Robertson and Sherman Carl Vaughn, Jr., two Virginia businessmen. After a joint federal law enforcement investigation into the pair’s Ponzi-like scheme, the two were ultimately brought to justice for their crimes against more than 60 victims in multiple states. In light of Robertson’s earlier conviction at trial and Vaughn’s previous guilty plea, Robertson was recently sentenced to 40 years in prison, and Vaughn—who testified at Robertson’s trial—received 12 years. The men were also ordered to pay nearly $9 million in restitution to their victims.

Robertson is a former University of Virginia football star who had worked for a large broker-dealer and was licensed as a broker. Vaughn had a business degree from another Virginia college but has never been licensed as a broker. Together, in 2010, the pair formed Cavalier Union Investments, LLC, which claimed to be a “leading private investment firm” catering to IRA account holders and offering investment opportunities—with fixed annual returns of 10 to 20 percent—in restaurants, real estate, and alternative energy. Cavalier purportedly had a variety of divisions, investment funds, and investment advisers.

But in reality, Cavalier did not have any divisions, investment funds, or investment advisers—it was just Robertson and Vaughn. And what a pair they were—Robertson no longer had his broker’s license, and Vaughn had filed for personal bankruptcy four times, including the two times he did it while working at Cavalier. Shortly after the company was formed, Cavalier became insolvent and relied on cash from newer investors to stay afloat and pay back older investors who asked for their money back—the perfect Ponzi scheme, at least for a while.

Read More

Pittsburgh Mortgage Broker Defrauded Banks, Borrowers to Enrich Himself

With hundreds of pages of paperwork and thousands of dollars on the line, getting a mortgage can be a complex and intimidating transaction for homebuyers, who often depend on experts to get them through the process.

Unfortunately for some mortgage applicants in Western Pennsylvania, dishonest real estate professionals took advantage of that trust with fraudulent practices.

As the real estate market boomed before the 2008 crash, Pittsburgh-based Century III Home Equity was a successful brokerage, closing an estimated $100 million in loans annually. As a broker, the company acted as a middleman between the mortgage applicant and the lender, but the company’s employees manipulated both sides to enrich themselves. The owner—James Nassida, IV—and his loan officers misleadingly sold customers mortgage products that were not always appropriate for their financial situation but racked up the most fees. The brokerage also fooled lenders by lying about applicants, doing things such as inflating income, misrepresenting home values, or not disclosing that down payments were actually borrowed money.

“There was massive fraud here. They were not looking out for their borrowers; they were looking out for themselves,” said Special Agent Neal Caldwell of the FBI’s Pittsburgh Division, who investigated the case with the U.S. Secret Service as part of the Western Pennsylvania Mortgage Fraud Task Force. The task force, which came together in 2008, looked holistically at the mortgage fraud threat throughout the Pittsburgh area as part of a multi-agency team involving the U.S. Attorney’s Office, FBI, IRS Criminal Investigations, U.S. Secret Service, U.S. Postal Inspection Service, and others, including state agencies. The task force’s work over a 10-year period led to 140 convictions, ranking the Western District of Pennsylvania as one of the most successful districts in the country in prosecuting mortgage fraud.

Nassida required his employees to do whatever it took to close a loan, even if it was dishonest or illegal. In many cases, the company would sell a borrower a loan with a temporary minimum payment option, designed for those with seasonal or fluctuating income, without fully disclosing the terms. In actuality, the temporary minimum payment didn’t even cover all of the interest each month, causing the loan to “negatively amortize,” or actually increase the balance of the loan. While some customers, such as house flippers, understood these products, others found them disastrous financially when they were not fully informed of the consequences of paying the lower amount over a longer period of time. This was especially difficult for borrowers once the housing market crashed in 2008—they could no longer rely on a consistent increase in their home values to keep them from going “underwater,” or owing more than their homes were worth.

Read More

Theft of Federal Funds for Housing

Alternatives Living, Inc., was a non-profit organization in the New Orleans area with a stated mission of providing affordable housing to the elderly, homeless families, and individuals with mental disabilities. And through the state of Louisiana, the non-profit received funds from the U.S. Department of Housing and Urban Development (HUD) to carry out its noble work—assisting about 660 clients annually, enabling them to live successfully within their communities.

Unfortunately, the chief financial officer (CFO) of Alternatives Living—Rickey Roberson—had another purpose as well: to use some of the funds from HUD, specifically earmarked for needy individuals, for his own personal gain. And as a result, there were clients who were not able to get the services that they needed.

How did this all start? In 2010, HUD had contracted with the state of Louisiana to administer its Community Development Block Grants in order to implement affordable housing programs throughout the state. Alternatives Living was one of the organizations selected by the state to provide housing support services to qualified residents.

However, fast forward to 2015. The Louisiana Legislative Auditor, a state government entity, released a public report which concluded that executives at Alternatives Living may have used public funds for personal gain. Based on that report, the FBI’s New Orleans Field Office—after notifying its partners at HUD’s Office of Inspector General—opened a joint investigation.

And what the FBI and HUD investigators uncovered, after looking into the finances of both Alternatives Living and Roberson personally, seemed to validate the findings of the audit report.

As CFO at Alternatives Living, Roberson was entitled to use the non-profit’s credit cards, and he had signature authority on Alternatives Living bank accounts. He used both payment methods to assist clients, but the accounts were also used to pay for his kids’ cell phone bills and some school tuition as well as personal travel, satellite radio, concert tickets, sports tickets, cruise expenses, repairs to his luxury automobiles, and even medical bills for the family dog.

In June 2016, Roberson was indicted on various charges, and in September 2017, in light of the evidence uncovered during the investigation, he pleaded guilty to theft of federal grant funds and agreed to pay more than $84,000 in restitution. Last month, he was sentenced to a federal prison term.

Read More

International Fraud and Money Laundering Scheme

A Texas businesswoman and a Texas lawyer were recently sentenced to lengthy federal prison terms for their roles in an international money laundering conspiracy that defrauded dozens of victims across the U.S. Both were also ordered to pay restitution of more than $3.7 million to their victims.

Last October, Priscilla Ann Ellis—after being convicted by a federal jury—received 40 years in prison, while attorney Perry Don Cortese received 25. Ellis’ daughter, Kenietta Rayshawn Johnson—who took part in the conspiracy as well—was sentenced to 40 months. Three additional individuals were also indicted as part of the conspiracy—one pleaded guilty and two are awaiting extradition from Canada. And eight other individuals have been charged separately.

And for Ellis, as if a 40-year prison term wasn’t long enough, she—while being temporarily held at a local jail right after her conviction in the money laundering conspiracy—tried to solicit other inmates to help her hire a hit man to murder several witnesses who had just testified again her at trial (and then attempted to undertake another financial fraud scheme to pay for the hit man). She was convicted on those charges in March of last year, and on January 4 of this year, she received an additional 65 years in prison—a term that will run consecutively to the 40 years she got for the original case.

The money laundering investigation was run by Special Agent Deven Williams out of the FBI’s Tampa Field Office—one of the original subjects was operating out of the Tampa area and had opened more than 80 bank accounts there.

According Williams, the investigation began when the FBI Atlanta Field Office—with a fraud victim who had wired money to a bank account in Tampa—sent a lead to Tampa requesting an interview with the owner of the bank count. “Also,” explained Williams, “a law firm in Tampa had been targeted by fraud and it approached the Tampa Police Department, who then referred it to the FBI. From there, we were able to link the two together.”

Here’s what investigators uncovered:

From at least January 2012 to around September 2015, the conspirators defrauded dozens of victims across the United States and then laundered the funds, much of which were sent overseas.

Read More

Feds crack down on birth tourism at ‘maternity hotels’

Federal Homeland Security agents raided 20 alleged “maternity hotels” in Southern California where pregnant Chinese women pay tens of thousands of dollars to live to ensure a “made in America” baby, reports said.

The feds raided locations in Los Angeles, Orange and San Bernardino counties on Tuesday, targeting three competing birth-tourism schemes, officials told NBC News, which was on the scene of one of the raids.

One of the properties was the ultra-deluxe Carlyle building in Irvine, California, which housed pregnant women and new moms for fees ranging between $40,000 and $80,000 to ensure their children would have American citizenship, the outlet reported.

“I am doing this for the education of the next generation,” one of the women told NBC News.

None of the moms or moms-to-be were arrested. Police treated them as material witnesses and paramedics were standing by during the raids in case any of the women went into labor.

It’s not illegal to have a child in the US while in the country with a tourist visa, but lying to obtain the visa is illegal.

“If you lie about your reasons for coming here, that’s visa fraud,” Claude Arnold, special agent in charge of Homeland Security Investigations for Los Angeles, told NBC News.

Cops focused their efforts on the ringleaders behind the scheme. Court papers allege the fraudsters pocketed hundreds of thousands of tax-free dollars to help Chinese nationals get visas and a pampered life once they arrived, up until their delivery date in an American hospital.

The organizers allegedly used a website to attract customers, drawing in expecting mothers with the attractive benefits of a child with US citizenship: 13 years of free education, low-cost college financial aid, less pollution and a path for the entire family to emigrate when the child turns 18.

The women were advised on what lies to tell to obtain a tourist visa; how to fly through Hawaii, Las Vegas or Korea to avoid the suspicions of immigration officers at Los Angeles International Airport; and how to disguise their pregnancy during their trip, court documents allege.

The women’s handlers escorted them to doctors’ visits and trips to restaurants and shops, the court papers say. One agent followed one of the suspects to Target and Babies R Us.

While birth-tourism schemes are nothing new, investigators believe the practice is growing, NBC reported. Court papers cited a study that found 40,000 children are born to women in the US on a travel visa each year.

Read More

Dallas officers arrest nightclub magnate who laundered money

DALLAS -Alfredo Hinojosa ran an “empire” of nightclubs across North Texas, according to a federal indictment, raking in more than $100 million from 2014 to 2016.

At the same time, Hinojosa allowed dealers to sell cocaine in his clubs’ bathrooms to keep business booming and then helped launder money for a Mexican band’s tour bus.

Hinojosa, 57, pleaded guilty this week to charges of conspiracy to manage a drug premises and conspiracy to structure transactions to evade reporting requirements, according to court documents.

The case was initially filed in October 2016, and a new indictment was filed against Hinojosa and 10 other defendants on Tuesday.

Hinojosa has not yet been sentenced. As part of the plea deal, he agreed to forfeit $200,000, a Ferrari F355, a Land Rover Range Rover, a Hummer H2, a Mercedes-Benz and a Gillig Motorhome, the court documents said.

His attorney, Frank Perez, declined to comment on the case Wednesday.

The case also involved two former Dallas police officers, Eddie Villarreal, 48, and Craig Woods, 60, who worked security at Hinojosa’s clubs. Villarreal and Woods pleaded guilty to making a false statement to the FBI this week for lying about their involvement with Hinojosa.

Their attorneys could not be reached for comment Wednesday.

It was unclear Wednesday night which of the remaining defendants have been taken into custody.

‘Man, they got to do business’

Hinojosa owned more than 40 nightclubs across the state, including the Far West, Medusa and OK Corral clubs in Dallas and the OK Corral club in south Fort Worth, on the north side of La Gran Plaza. The clubs were still open this week, according to the U.S. attorney’s office.

At each location, Hinojosa allowed a crew of “certain selected” dealers to sell cocaine in $20 baggies in the restrooms. In a recording obtained by authorities, Hinojosa said, “we can’t really clean it [up] because then we lose business,” the indictment said.

“Man, they got to do business,” Hinojosa said in the recording. “I told them we don’t care . . . we just don’t want for everybody to see him . . . They want it [cocaine] right there. They don’t want to go looking downtown.”

The indictment named the dealers, who face drug charges in the case: Eloy Alvarado Montantes, 36, of Grand Prairie; Jose Omar Santoyo Salas, 32, of Arlington; Erick Johan Lopez Cuellar, 30, of Fort Worth; Raul Nunez, 25, of Grand Prairie; and Cesar Mendez, 27, of Dallas.

Read More

Pair arrested for credit card fraud after alert security notices suspicious

Pleasant Grove CA Dec 5 2017  Pleasant Grove police arrested a man and a woman after they reportedly attempted to pick up six orders from essential oils company doTerra totaling more than $13,142 from Nov. 24 to Friday.

The orders were reportedly made using credit card information that was hacked from a Nashville company named Z Health, according to police reports.

On Friday, a doTerra security employee called Pleasant Grove police to report that two people were at the Pleasant Grove company to pick up product that was suspected of being purchased with a stolen credit card number. The order was placed online and the pair didn’t have the credit card in their possession.

The employee reported the pair was in a white Ford pickup with a California license plate. After the pickup left the doTerra property, officers executed a traffic stop on it near 1300 West and 100 South. The vehicle reportedly changed lanes without signaling and had a recently expired registration.

During the traffic stop, the man reportedly said his license was suspended and he couldn’t provide any form of identification. He reportedly provided a name of Jose Martinez and an age that didn’t match his stated date of birth. The man said three times he was 25 years old and born in 1986, reports state. He later said he was born in 1991.

The woman, identified as Jessica Contreras, 30, of Rifle, Colorado, said the man’s name was Martinez and he was her boyfriend of two years.

The man was later identified as Armando Mendoza, 31, of Downey, California, reports state.

The doTerra security employee told police that the man had repeatedly picked up packages from the company, beginning with a $160.13 order on Nov. 24. On subsequent days, the man returned to pick up four additional packages averaging $3,245, purportedly on behalf of purchasers in Colorado and North Carolina, reports state. Police contacted a credit card investigator, who reported that the cardholders had reported the fraudulent activity and canceled their cards.

Read More

Father/Son Tutoring Company Executives Sentenced for Fraud

“The father-and-son executives of two suburban Chicago tutoring companies have been sentenced to federal prison for orchestrating an $11 million fraud scheme that bilked more than 100 school districts around the country, including Illinois.

From 2008 to 2012, JOWHAR SOULTANALI and his son, KABIR KASSAM, fraudulently obtained funds from the school districts by misrepresenting the nature of their companies’ tutoring services and falsely inflating invoices for tutoring work that was never performed. Soultanali and Kassam also paid bribes to school officials and teachers to make sure the fraud was not detected. The bribes included a Caribbean cruise for an assistant principal in Texas and an outing to a gentleman’s club for a state education official in New Mexico.

Soultanali, 62, of Morton Grove, Ill., and Kassam, 38, of Wheeling, Ill., each pleaded guilty last year to one count of mail fraud. U.S. District Judge Amy J. St. Eve on Friday sentenced Soultanali to six years in prison, and Kassam to five years and ten months in prison.

The sentences were announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; John P. Selleck, Acting Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation; and Thomas D. Utz Jr., Special Agent-in-Charge of the North Central Region of the U.S. Department of Education Office of Inspector General. The Chicago Public Schools Office of Inspector General assisted in the investigation.

“Defendants abused the trust that the Department of Education placed in them to carry out a massive fraud that was not merely extensive, but also egregious,” Assistant U.S. Attorneys Kruti Trivedi and Barry Jonas argued in the government’s sentencing memorandum. “The fraud in this case had a significant impact on both the failing school districts that allocated their federal funds to defendants and on the students at those school districts.”

Soultanali served as director of operations for BRILLIANCE ACADEMY INC. and its wholly owned subsidiary, BABBAGE NET SCHOOL INC., both based on Niles, Ill. Kassam was the president of both companies. The firms contracted with school districts to provide tutoring services to students on-site at schools and via laptop computers.

According to the charges, Soultanali and Kassam furnished the school districts with false applications and marketing materials that fraudulently inflated the companies’ services. The companies falsely stated that they provided pre-testing of enrolled students, created customized tutoring programs, provided ongoing progress reports to schools and parents, and compiled accurate student improvement results after the tutoring was completed. In total, Brilliance and Babbage received $33 million from more than 100 school districts and small schools throughout the country.

The fraud scheme also involved numerous bribes paid to some school officials, with the expectation that the officials would assist in procuring federal funds for the tutoring services.

In addition to Soultanali and Kassam, the investigation resulted in criminal charges against Brilliance and Babbage, as well as three school officials in Texas and one state education official in New Mexico
who pocketed the bribes.”

View Source

Connecticut Group Staged Car Accidents for Insurance Money

“After a autumn evening of drinking and using drugs in 2013, a group of friends got into an Audi A6 and drove to the remote Wilderness Road in Norwich, Connecticut. The car slid off the road, hitting a tree.

Everyone in the car survived, but this seemingly typical crash was no accident.

Despite their impairment, the driver and passengers had purposely planned the crash to collect the insurance money. It was one of many crashes that a group of Connecticut residents were connected to over several years—contributing to higher car insurance premiums for all drivers and wasting public resources like ambulance responses.

In the October crash, driver Mackenzy Noze got out of the Audi and drove away in a getaway car, while his friend, Jacques Fleurijeune, climbed into the driver’s seat of the damaged Audi and called 911. Fleurijeune told police he had hit the tree while swerving to avoid a deer—though no witnesses or police ever saw the alleged deer.

The four passengers were all taken to the hospital and eventually received insurance settlements for their injuries, which were fake. Fleurijeune also received payment for the value of the car, and others in the car gave some or all of their injury payouts to Noze and Fleurijeune.

This scenario played out numerous times with various combinations of co-conspirators from 2011 through 2014, with insurance companies paying out $10,000 to $30,000 per crash in about 50 crashes. Many of them happened under similar circumstances—late-night, single-car crashes on remote roads without witnesses. In the fall, the drivers would claim to have swerved hitting a deer. In the winter, they said they lost control on a snowy street. To up their payout, they used older, European cars, which tend to hold their value over time.

For the insurance companies, these repeat crashes raised red flags. So the National Insurance Crime Bureau (NICB), a non-profit organization that serves as a liaison between law enforcement and insurance companies, shared crash data with the FBI and the U.S. Attorney’s Office for the District of Connecticut. The NICB’s suspicious accident data helped investigators hone in on the worst offenders.

“It was just a good, old-fashioned case, conducting interviews and reviewing documents—such as police reports and insurance company records—looking for patterns,” said Special Agent Daniel Curtin, who investigated the case out of the FBI’s New Haven Division. “With a lot of these staged crashes, the fraudsters made interstate telephone calls to file the insurance claims, and the calls were recorded, forming the foundation for many of the wire fraud counts.”

Noze, 33, the group’s ringleader, was convicted of conspiracy to commit mail and wire fraud and sentenced last month to four years in prison. Six others, including Fleurijeune, have been charged and convicted.

While insurance fraud may seem to be a victimless crime, that’s far from the case.

Estimates show car insurance fraud costs the average policyholder about $300 per year in higher premiums, according to NICB Supervisory Special Agent John Gasiorek, who assisted the FBI with the investigation.

Additionally, staged accidents are a safety hazard, both to those involved and other drivers. While in this ring, the conspirators generally did not involve other motorists, criminals sometimes do stage accidents involving unsuspecting drivers.

“You never know who’s going to come around the corner. You could hit an innocent person. It’s really a public safety issue,” Gasiorek said, noting that even willing participants in the staged accidents are unexpectedly injured.

“When insurance companies pay fraudulent claims, everyone’s premiums go up,” Curtin said. “More importantly, the staged crashes pose risks to first responders. You had police officers and EMTs rushing to crash scenes. The wasted time of medical professionals was also a concern with ER doctors and nurses treating these fraudsters for non-existent injuries. It took time away from other patients who really needed medical attention.”

At least in the local region, Curtin said word has gotten out that law enforcement is working these cases and bringing perpetrators to justice.

“The insurance companies have said that suspicious claims, especially those involving single-car accidents on remote roads, are down in southeastern Connecticut,” Curtin said. “They’re not seeing these types of suspicious accidents because this case has sent a message.”

Read More

Commodities Fraud Sentencing

Self-professed investment professional Pedro Jaramillo was a pro at promoting himself and his financial prowess. Through a slickly produced online video, phony office space on Wall Street, and promises of unrealistic financial returns, this Peruvian national living in New York managed to convince more than two dozen investors to trust him with more than $1.2 million of their hard-earned money.

Jaramillo, however, never invested a dime of their money—instead, he used it to line his own pockets and keep his Ponzi scheme going. Even his claim to be an investment professional was false—he wasn’t licensed to do anything remotely connected to financial advising and/or investing.

But, as with most Ponzi scheme operators, Jaramillo eventually ran out of funds to keep his fraud scheme afloat, and two unhappy investors reported their concerns to the FBI. After an intensive investigation by the FBI’s New York Field Office—in close coordination with the U.S. Attorney’s Office for the Southern District of New York—Jaramillo was arrested and charged with commodities fraud in December 2016, pleaded guilty in April 2017, and was sentenced last month to 12 years in federal prison.

Investigators determined that, beginning at least in January 2014 until his arrest, Jaramillo—using his Latin American heritage as a common bond—had been soliciting potential victims mostly from Latin American immigrant communities in the U.S. to invest in commodity futures contracts. He told would-be investors that their money would be invested in short-term commodities contracts with a guaranteed (and unrealistically high) rate of return.

And he established his financial bona fides with potential clients using various methods.

His online video, done in Spanish, opened with flashy depictions of Wall Street and the New York Stock Exchange. Then, Jaramillo himself made his pitch to potential investors, telling them, “Money is being earned on every transaction. All you have to do is work with a proven winner.” He delivered all sorts of promises about how client investments would be handled—including being set up in individually managed and federally protected accounts. Unfortunately for his investors, none of what Jaramillo said in the video was true.

To further impress potential investors, Jaramillo met with many of them in rented office space on Wall Street, where he touted his prior financial successes and his relationship with a well-known global investment bank. Again, this “relationship” with the bank proved to be non-existent, and he had no prior Wall Street investment successes.

Jaramillo also created and handed out documents with simple charts and graphs that purported to illustrate past successes and his high rates of return. This were yet more false facts he fed to his victims.

The FBI investigation included numerous interviews with the victims of Jaramillo’s scheme. Many of these people—including retirees, working professionals, and manual laborers—lost their life savings, retirement money, or homes.

Read More