Friday, October 31, 2008

Former Mayor of Chicago Suburb Pleads Guilty In Kickback Scheme

Nicholas Blase, 80, former longtime Mayor of Niles, Illinois, pleaded guilty today to federal charges of taking more than $420,000 in kickbacks. The criminal complaint alleged that Blase took a 25% commission for business he steered to the Ralph Weiner & Associates insurance agency. The commissions were paid to S.M.P. Insurance Services, Inc. a shell entity controlled by Blase. In a plea agreement, Blase, who was Mayor of Niles for 47 years, resigned and pleaded guilty to one count of mail fraud and another count of failing to report income on his 2005 tax return in exchange for the government dropping nine other charges. According to court records, Blase's scheme with Weiner started in 1974 and lasted until 2005. His Sentencing is scheduled for January 29 and Blase could get as much as 20 years in prison, plus fines of $250,000 for the wire fraud and $100,000 for filing a false tax return. In a statement in court, Blase said, "I am here today because I made a mistake. I have tried to do what I thought was right. I want to take this opportunity to apologize to those I let down -- my family, my friends, and most of all, the people of Niles. We've been through a lot together. I was wrong and for that I am very sorry."

Read the story here and here. More background on the story here.

See the DOJ announcement of indictment here.

Ohio Health Care Executive Convicted In $1.9 Billion Fraud

Lance K. Poulsen, 65, the former founder and CEO of Ohio-baseed National Century Financial Enterprises, was found guilty on multiple fraud counts involving his company. According to prosecutors, Poulsen fabricated data, transferred funds between accounts to hide shortfalls and misled the investors. The case against him was bolstered by testimony from company compliance officer, Sherry Gibson, who said she had falsified records at Poulsen's request, along with providing other damning evidence. Prosecutors said at the direction of Poulsen, the company advanced $2.2 billion to six companies in which Poulsen owned a stake. He faces 30 years to life in prison if convicted. Poulson is currently serving 10 years in prison for his conviction on a criminal charge of tampering with a witness.

See background on the story here, here, here and here.

See the SEC complaint here.

Read the DOJ announcement here.

This is financial statement fraud on a massive scale. I hope they throw the book at him...

Former McAfee Employee Arrested In $3.8 Million Fraud

Susan Despinic, 35, a former employee of McAfee, Inc. in Santa Clara County and her husband Aurawm Almaneih, 37, were arrested at their home in Los Gatos, California earlier this week for allegedly misappropriating $3.8 million from the company. From May 2005 to August 2007, Despinic, former product marketing manager of McAfee, allegedly steered business to companies in which she and her husband had a financial interest. Despinic also allegedly set up a "dummy" company to which funds were directed. The couple, who allegedly used the ill-gotten funds to purchase their Los Gatos home, each face one count of felony theft and one excessive-taking enhancement on suspicion of stealing. Despinic and Almaneih were released on $1 million and $1/2 million bail, respectively. A November 14th hearing date was set. If convicted, they face up to 7 years in prison.

We note that another former employee, Ayshah Maiorano, was arrested last year on similar charges in a case that is still pending.

The company has said that they have improved security at their Sunnyvale office where the embezzlements occured.

Read the story here and here.

This is a clear case of poor business controls which I assume is what the company means when they say they have "improved security."

Los Angeles Man Pleads Guilty In $65 Million Ponzi Scheme

Curtis D. Somoza, 40, of Los Angeles, pleaded guilty Wednesday to federal charges of conspiracy, six counts of mail fraud, four counts of wire fraud and eight counts of money laundering in a Ponzi scheme that bilked some 70 investors out of $65 million. Somoza faces as much as 285 years in prison. He has also agreed to forfeit $64 million in proceeds. The fraud involved complicated bond instrument investments in life insurance pools that promised as much as 25 percent returns. Somoza's accomplice in the scheme, Robert A. Coberly, Jr., already pleaded guilty in the case. The case was originally brought by the SEC.

See the story here and here.

See the SEC complaint here.

Seattle Lawyer Sentencing Today For Bilking Clients $1 Million

Barry Hammer, 62, of Everett, Washington, is scheduled to be sentenced today by U.S. District Judge Marsha Pechman in Seattle. Prosecutors are calling for a jail term, which could be as much as four years under sentencing guidelines. Hammer pleaded guilty to a one count of wire fraud last May to stealing client investment funds which he handled. In his plea agreement, Hammer acknowledged that he "knowingly misused and converted money belonging to his clients for his own benefit ... without the clients' knowledge or consent." The fraud, which dated back to October 2002, was exposed in 2004 by a former law partner who reported the theft to the Washington State Bar Association. Hammer surrendered his law license in lieu of being disbarred. He filed a $13 million bankruptcy proceeding when his investments failed.

Read the story here and here.

I guess today is lawyer fraud day...

New Orleans Attorney To Plead Guilty In $30 Million Theft

James G. "Jamie" Perdigao, 46, former partner in the New Orleans law firm Adams and Reese, is expected to plead guilty today to federal charges of stealing some $30 million from the firm and stashing the funds in a Swiss bank account. Perdigao was re-arrested October 15 for allegedly breaking into the law firm's computer system to download documents. He is accused of of embezzling from Adams and Reese's client trust account and was originally arrested in September 2004 on mail fraud charges. In March 2007, Perdigao was indicted by a federal grand jury on charges of bank and mail fraud, money laundering, and tax evasion. Perdigao launched a counter attack by filing a RICO suit against the law firm charging it as a criminal enterprise.

Read the story here and here.

Update (11/3/08):
Perdigao pleaded gulity to 30 counts of mail fraud, bank fraud, interstate transportation of stolen funds, money laundering, income tax evasion, filing false income tax returns, obstruction of justice, unlawful computer intrusion and unlawful access to stored communications. He also consented to a forfeiture of approximately $30 million. Perdigao is scheduled to be sentenced on February 11, 2009 and faces as much as 300 years in prison, plus fines of over $8 million, in addition to the $30 million forfeiture.

Read more of the story here and here.

Virginia Priest Convicted Of Embezzling >$1 Million

Rodney L. Rodis, 52, a Roman Catholic Priest, was convicted today on state charges of embezzling more than $1 million from two rural Virginia parishes. He faces up to 200 years in prison plus restitution at sentencing which is scheduled for January 14. He is currently serving a 63 month federal sentence on separate charges of mail fraud and money laundering. According to reports, Rodis' scheme occurred over at least a 14 year period, unbeknownst to parishioners. The theft was done allegedly to support his wife and three children back in the Philippines. He is quoted as saying, "I hope that one day I'll be able to rectify my mistakes."

Read the back story here, here and here.

Florida Man Charged In Massive Ponzi Scheme

Andres L. Pimstein, 48, of Miami was charged yesterday by the SEC of selling fraudulent securities in a $30 million Ponzi scheme through two investment vehicles, The Bottom Line of South Florida, Inc. and Summit Trading LLC. The fraud was committed from at least 2005 through April 2008 wherein at least 80 investors in 5 states purchased fake securities. The SEC specficially charged that Pimstein and his companies violated sections of the Securities Acts of 1933 and 1934. According to the complaint, Pimstein told investors that the companies would use the proceeds from their investments to buy personal electronic devices from US suppliers for resale in South America. According to reports, Pimstein promised returns of as much as 18 percent to the investors. He reportedly was able to use the University of Miami's computer systems and several employees to transfer funds and launder money.

Read the story here and here.

Read the SEC's release on this case here.

Thursday, October 30, 2008

Orange County Sheriff's Office Corruption Case Begins

The trial of Michael S. Carona, former Orange County Sheriff, began yesterday in federal court in the Southern District of California. Carona, once dubbed "America's Sheriff" by CNN's Larry King, is charged with misusing his office and accepting illicit cash payments and gifts. However, the defense contends that Carona is the "victim of vengeful former associates" and the testimony of convicted felons and perjurers. Carona, who vehemently denies any guilt, faces felony charges of conspiracy, mail fraud and witness tampering.

The case centers on Carona's relationship with benefactor and campaign contributor, Donald Haidl, a multimillioinaire businessman who bankrolled Carona's 1998 campaign for Sheriff. According to prosecutors, Haidl reimbursed donors allowing them to get around campaign finance limits. He also paid for a vaction for Carona to Lake Tahoe including thousands of dollars in casino chips. Haidl allegedly gave Carona use of his private jet and yacht and $1,000 a month in cash - allegedly to entertain a mistress. There are also allegations of other cash payments and gifts. The prosecution disclosed that it has tapes of Haidl and Carona discussing "untraceable" cash bribes and payments. All told, as much as $700,000 in cash and gifts were received by Carona, according to the prosecution.

Read the complete story in the LA Times here.


U.S. Virgin Islands Official Sentenced In Bribery & Kickback Scandal

Brent E. Blyden, 46, the former director of permits for the U.S. Virgin Islands Department of Planning and Natural Resources, was sentenced yesterday to 14 months in prison for his role in a $1.4 million bribery and kickback scheme awarding contracts to a fraudulent company. Blyden was also ordered to pay restitution of $145,775 in restitution and fines and have three years supervised release after his prison term. He is also banned from government employment for a five year period. Blyden was the recipient of kickbacks on contracts his agency controlled. A number of government officials had set up a fictitious business called Elite Technical Services which was used as a vehicle for the fraud and kickbacks, according to court documents. Five other individuals have either pleaded guilty or been convicted in this public corruption case.

Read the DOJ press release here.

Milberg Weiss Partners Sentenced

David Bershad (left) and Steven Schulman (right) were each sentenced Tuesday to six month prison terms for their role in the shareholder suit kickback scheme. Two other partners, Mel Weiss and Bill Lerach, are already serving 2 1/2 and 2 year sentences, respectively, for their conviction. Bershad and Schulman plead guilty last year in federal court in Los Angeles were both also ordered to pay $250,000 fines. Bershad has already forfeited $7.75 million and Schulman has forfeited $1.85 million. Milberg Weiss settled the case against the firm by agreeing to pay $75 million. The firm secretly payed three clients more than $11 million to serve as lead plaintiffs in cases that netted a reported $251 million in attorneys fees. The firm's practice to pay plaintiffs to file shareholder suits goes back as far as 1979 and continued until 2005. Bershad is reported to have said in court, "I personally take responsibility for what I did. It was wrong." Schulman is quoted in court as saying, "My error was to take the wrong route when that occurred. Today, I pay already a high price. I really don't know exactly how I will get out of this problem."

Read the story here, here and here.

All I have to say is , what does around, comes around.

New Jersey Bank Executive Sentenced For Fraud

Nora Phelps, 48, former head of loss prevention for the South Jersey Federal Credit Union, was sentenced yesterday to 33 months in federal prison for bank fraud. Phelps was convicted of stealing "hundreds of thousands of dollars from the credit union by depositing members’ loan payments into her family’s accounts," according to US Attorney Christopher J. Christie. In her capacity as head of loss prevention, Phelps was responsible for collecting checks on delinquent loans - some of which she deposited into her own and family members' accounts. Phelps also transferred funds out of Credit Union accounts directly into her own and family members' accounts. Her sentence included an order to pay restitution of $342,827 and three years supervised released after her prison sentence, during which she is to be barred from being employed with any fiduciary duties.

Read the story here.

Alabama College Director Sentenced

Willliam Luther "W.L." Langston, 66, former Director of the Fire College in Tuscaloosa, was sentenced yesterday to 125 months in prison and ordered to pay $1.4 million in restitution to the State of Alabama after his conviction for stealing from the College. In June, Langston was found guilty of 36 counts of theft, conspiracy, mail and wire fraud, and money laundering. He used us position to misappropriate nearly $1.5 million from the college to benefit himself, his family and his friends, according to reports. Langston attempting to show some remorse is quoted as saying, "I would like to say I am deeply sorry for any wrongs I have done. My efforts at the Fire College were a labor of love."
Read the story here.
Educational institutions are also susceptible to fraud and theft due to a relatively less effective business controls.

Miami Woman Sentenced In Investment Scheme Fraud

Lillian Glaubman of Miami, Florida was sentenced yesterday to 78 months in jail followed by 3 years of supervised release for her role in an investment scam that bilked 737 victims out of more than $18 million. She had plead guilty to one count of conspiracy to commit mail and wire fraud and one count of mail fraud in July. Glaubman was one of a group of individuals that had set up a fraudulent internet kiosk business, Pantheon Holdings, a/k/a Internet Machine Company. Investors paid $18,000 for the opportunity 13 other defendants have been convicted or plead guilty in the fraud.

For a summary of the case history go here.

Wednesday, October 29, 2008

Maine Woman Sentenced For Embezzling From Family Business

Paula Caron, 52, of Waterville, Maine, was sentenced yesterday to 9 years in prison for embezzling nearly $1 million from the family business, Winslow Aluminum, Inc. The fraud occurred over a four year period from 2003 to 2007. Caron, the company's bookkeeper and daughter of the founder, was apparently able to circumvent all controls. She was originally indicted on one count of illegal taking" in January and plead guily to theft charges in May this year. She recently returned a small portion of the money when the company was on the verge of bankruptcy. Caron's sentence was suspended down to 3 1/2 years, plus probation and restitution of some $770,000. Yes, its all female fraud day today. Family businesses are also susceptible to this kind of fraud since most family members tend to trust eachother to a high degree and there also tend to be a lack of controls. You can bet that something was going on with Caron that made her think she could simply take from the company and not get caught eventually.

Ohio Woman Charged With Grand Theft

Kathleen A. Lee, 60, of Heath, Ohio, was accused on state charges of "grand theft" in the embezzlement of some $330,000 from the Hospice of Central Ohio where she had been employed since 1995. Lee confessed that she printed "numerous" checks to herself over the past several years. The investigation is continuing, but since 2005, investigators believe she stole at least $330,000. Licking County prosecutors are also considering adding charges of forgery and "corrupt activity."

Is it my imagination or are there a lot of women frausters today?

This looks like another classic case of lack of controls in the organization. Like non-profits, small businesses are prone to this kind of embezzlement from a determined employee. Once ensconsed in a position of relative authority - in this case check writing ability - there is little stopping someone from engaging in this kind of fraud.

Virginia Banker Charged With Embezzlement

Rebecca Dawn Lawn, 35 of Jonesville, Virginia, was indicted today on federal charges of embezzlement. Lawn is specifically accused of bank fraud, bank embezzlement, money laundering and making a false statement on a loan document in the theft of nearly half a million dollars from the bank where she worked. She faces up to 120 years in prison and a $3 million fine if convicted. According to the indictment, Lawn obtained the funds from The People's Bank, where she was an employee, by establishing a credit line under a fictitious identity.

See the press release here.

Massachusetts State Senator Arrested

Dianne Wilkerson, eight term Massachusetts state senator, was arrested today on charges of public corruption. She is accused of accepting cash in exchange for the introduction of legislation, or in legal parlance, "attempted extortion under color of official right and theft of honest services." If convicted, Wilkerson faces up to 20 years in prison plus a $250,000 fine for each of the charges.
Read the US Attorney's press release here.

See the criminal complaint here.

The Boston Globe has posted a story that provides a lot of details.

Update (10/30/08):
The Massachusetts State Senate passed today a resolution urging Wilkerson, facing federal bribery charges, to step down. Undercover photos were released showing her stuffing cash under her swater and down her bra. Wilkerson remains defiant and plans on continuing her re-election campaign.
Wilkerson should resign and face the music.
Update (10/31/08):
Wilkerson announced today that she would end her campaign for re-election. A growing chorus has called for her to resign outright. She said she would make a decision on November 5th about her future as a state senator.

Former Non-Profit Head Charged With Fraud

Patricia Ann Miller, 44, of Duluth, Minnesota was charged yesterday in federal court with allegedly defrauding the non-profit she ran. "Patty" Miller, as she is known, was the executive director of the First Witness Child Abuse Resource Center in Duluth. She was charged with bilking the Center and its clients of some $120,842 in funds that were used to pay for personal expenses. She faces a maximum of 20 years in prison but will likely work out a plea agreement for much less time.

Read the details here.

Non-profits often become the victims of fraud due to the simple fact that they tend to lack adequate checks and balances and other business controls. In this case the theievery caught up to Miller and the board rightfully fired her and referred the case to the police. Experience suggests that if she weren't prosecuted, she would likely end up at another company or non-profit and begin her shenanigans all over again.

Former Milwaukee Alderman Sentenced

Former Milwaukee Alderman, Michael McGee, Jr. was sentenced yesterday to 6 1/2 years in prison for extorting from local businesses he held sway over with liquor licenses. In June, McGee was convicted on nine counts of bribery, extortion and attempted extortion. He was also ordered to pay restitution of $107,433. McGee sat on the city's powerful Licenses Committee and targeted minority businesses with liquor licenses. He was heard in secretly taped conversations telling business owners, "I need bread" and that he would "take cash or check." McGee lost his re-election bid and is currently facing criminal charges that he plotted to have a man beaten. He is also said to have attempted to intimidate witnesses.

According to a statement published by U.S. Attorney Steven Biskupic, "The evidence at the trial showed that Michael McGee Jr. was one of the most corrupt elected officials in Milwaukee's history. Although his sentence was below that recommended by the government, his case should serve as a deterrent for other elected officials who may prey on their constituents."

Read the whole story here.

Yet another local politician with their hands in the till. When will they learn?

Tuesday, October 28, 2008

Greenwich, CT Man to be Sentenced Today

Robert E. Bridges, 52, is scheduled to be sentenced today after pleading guilty to 2 counts of wire fraud and admitting that he bilked investors out of more than $5 million through various fraudulent investment schemes. He faces up to 40 years in prison, $5.4 million in restitution and a fine of up to $10.8 million. He was arrested at JFK airport October 12, 2007 after his indictment on 9 counts of wire fraud and 7 counts of interstate theft. Bridges managed to avoid 22 grand jury subpoenas during the investigation.

For the background story, read here.

I am willing to bet that if a reasonable level of due diligence had been conducted, Bridges past would have been revealed to be somewhat checkered. Read our article on conducting due diligence in a post 9-11 world here.

Update (10/28/08): Bridges was sentenced to 70 months in prison (almost six years), plus three years of supervised release and ordererd to pay restitution in the amount of $5,096,954.

Monday, October 27, 2008

Senator Ted Stevens Guilty On All Seven Counts

Senator Ted Stevens was found guilty on all seven counts of failing to report more than $250,000 in improper gifts he received between 1999 and 2006. Stevens who has not indicated whether he will step down faces up to 5 years in federal prison. Read stories here and here and here.

Update (10/31/08):
Senator Stevens vows to continue he re-election compaign and claims he has been convicted of nothing, pending the appeals.

Giant Golf CEO Pleads Guilty

Colin Nathanson, the former CEO of Orange County, California-based Giant Golf Company and Big Play Enterprises, plead guilty on October 20th to six counts of mail fraud related to a $28.4 million scheme to defraud investors with a phony securities offering. The criminal case followed from a civil SEC enforcement action against Nathanson. In his plea agreement, Nathanson admitted that he convinced several hundred people to invest money in a fraudulent invesment vehicle, Nathanson Investment Trust, which supposedly gave them an interest in an "internet-based technology company." He admitted to a number of other fraudulent investment schemes including one involving an online casino business. Nathanson is scheduled to be sentenced on February 9, 2009.

Read the whole story here.

It seems as though there is no end to the litany of securities fraudsters these days. I don't see this trend changing any time soon. With the market crash and onoing credit crunch, we can expect more high profile - large dollar frauds.

New Jersey mayor sentenced in bribery case

The former mayor of Orange, New Jersey was sentenced to 9 months in prison and ordered to pay a $10,000 fine in a case in which Mims Hackett Jr. and 10 other public officials were arrested on September 6, 2007 for allegedly accepting a $5,000 bribe to help an insurance brokerage firm get business in the town. The brokerage turned out to be an undercover sting operation of the FBI which was charged with investigating public corruption in Northern New Jersey. Hackett plead guilty on May 27 as did most of the other defendants.

Read the full story here.

It is good to see that even your local Mayor cannot get away with this kind of insidious corruption.