FraudBaron.com

reuters.com | 10/29/08 | $1 Billion | suspect:  Bear Stearns | victim:  Bank of America

Bank of America sued Bear Stearns and two former hedge fund managers on Wednesday who were indicted in the first major federal case stemming from the subprime mortgage crisis.

The lawsuit in U.S. District Court in Manhattan accused Bear Stearns, which was sold in March to JPMorgan Chase & Co and three of its officers of "egregious misconduct" in a $4 billion transaction structured and marketed by Bank of America and other financing transactions in 2007.

It named Ralph Cioffi and Matthew Tannin, the former managers, who were charged June 19 with conspiracy and securities fraud related to the demise of their two funds that cost investors more than $1 billion. The pair were also charged by the U.S. Securities and Exchange Commission.

The Bank of America litigation accused the firm and three executives of breach of contract, fraud and misleading the bank.

The other officer identified as a defendant is Raymond McGarrigal, who was a senior managing director at Bear Stearns and a senior portfolio manager for the two hedge funds.

A representative for Tannin declined comment on the lawsuit. Representatives for the other defendants could not immediately be reached for comment.

In May 2007, Bank of America, at the request of Bear Stearns Asset Management, structured and marketed a $4 billion transaction known as a "CDO-squared", the suit said. A CDO is a collateralized debt obligation, and the transaction involved mortgage-backed assets pooled and structured to support the sale of certain securities.

Over several months Bear Stearns and its employees, including the three named in the complaint, concealed substantial withdrawal requests from the two funds managed by the executives, the lawsuit said.

Other changes in the business, properties, financial condition and prospects of Bear Stearns asset management were not disclosed, the bank said.

"The eventual collapse of the funds in June 2007 -- an event that contributed to the ultimate demise of Bear Stearns, predictably caused an enormous decline in the value of both the assets underlying the CDO-squared transaction and the securities issued in the transaction," the lawsuit said.

"As a direct and foreseeable consequence of defendants' misconduct, the bank sustained significant losses."

In indictments unsealed in U.S. District Court in Brooklyn in June, Cioffi and Tannin were accused of touting their funds' prospects to investors as an "awesome opportunity," while simultaneously expressing private concern about an impending subprime mortgage meltdown

Posted by at 9:48 AM | Permalink

chron.com | 10/28/08 | $107,000,000 | suspect:  Andrew Maxwell Parker | victim:  Export-Import Bank

A businessman has been sentenced to nine years and nine months after pleading guilty to charges related to bilking $107 million from a taxpayer-funded bank.

Andrew Maxwell Parker was ordered by U.S. District Judge Fred Biery on Monday to pay $10 million in restitution, equal to his profits from the scheme, and $494,822 in back taxes. And the judge ordered him to serve three years of federal supervision after he's released from prison.

Parker, 41, pleaded guilty in August to wire fraud, conspiracy, tax evasion, money laundering and filing false tax reports and faced up to 10 years in prison, as part of a plea deal.

He downplayed his role in the fraud, which happened between February 2003 to November 2006.

"I was but a cog in this big machine," Parker told the judge. "The truth is I'm caught in a system that, like with many agencies in Washington, is defective," the San Antonio Express-News reported Tuesday in its online edition.

Bank officials testified Parker exploited Export-Import Bank's medium-term loan guarantee program, forcing the bank to make good on $107 million in loans that went into default.

Parker also allegedly caused another $10 million in losses to Vinmar Finance Ltd., a commercial lender in Houston that Parker turned to in 2005 when the Export-Import Bank stalled in issuing loan guarantees to Parker's clients.

Prosecutors said Parker bought expensive cars,  as many as 14 cars in less than three years, along with four mansions, all with taxpayers' money.

The government is keeping his Hummer and one of his mansions. The remaining cars have been leased, sold or registered to relatives or others. His other homes were sold or leased.

Posted by at 9:44 AM | Permalink

clevland.com | 10/28/08 | $3,800,000 | suspect:  Jenny and Jeff Hovinen | victim: St. Vincent Charity Hospital

A Russell Township couple fleeced St. Vincent Charity Hospital out of $3.8 million - about $1.6 million more than earlier estimates - before they committed suicide in July, police said.

Jenny and Jeff Hovinen used a small grill to kill themselves by asphyxiation in their home.

Beachwood police investigated the theft because the Hovinens used bogus companies with Beachwood post office boxes to carry out the scheme. Detective Mark Nelson said police did not identify any other suspects to charge in the case.

Over six years, Jenny Hovinen, the director of marketing at St. Vincent, submitted monthly invoices to the hospital from Ohio Directory Pages and Creative Services, as well as other companies, for advertising on cable TV.

The hospital then issued checks to the post office boxes, and Jeff Hovinen, an attorney, deposited them into bank accounts. Nelson said large amounts of money were regularly withdrawn from the companies and placed into family accounts.

On July 1, hospital officials confronted Jenny Hovinen to provide information about the accounts. When she didn't, she was suspended. On that same day, the couple withdrew $46,000 from an account.

The police report did not specify what the Hovinens did with the money, but detectives learned that the couple had minimum monthly credit card payments of about $20,000.

Attempts to reach a hospital spokesman were unsuccessful.

Posted by at 9:40 AM | Permalink

montereyherald.com | 10/29/08 | $600,000 | suspect:  Karen Benson | victim:  Keith Day

TruckingA Salinas woman was sentenced to nine years in prison Tuesday for embezzling more than $600,000 from Keith Day Trucking.

Karen Benson, 38, was remanded immediately into custody by Judge Timothy Roberts in a courtroom packed with the owners and employees of the trucking company. Her husband and teenage children were also present.

Benson was the accounts manager for the company for six years. According to prosecutor Todd Hornik, she established two fictitious businesses and accompanying bank accounts under company names similar to Keith Day companies.

She deposited payments from Keith Day customers into the fictitious business accounts, Hornik said, then withdrew the money and put it into her personal accounts. The two-year scheme unraveled when Benson went on vacation and another employee covered her job.

Hornik said business owners should never have an operation that doesn't require at least two signatures for bank transactions.

"Never entrust an operation to a single person, no matter how much you think you can trust that person," the prosecutor said. "People react to stressors in different ways."

Charged with multiple felonies, Benson pleaded guilty in July to one count each of embezzlement and money laundering.

In addition to a sentence of nine years and four months, she was ordered to pay $615,900 in restitution and will be required to pay the costs of the company's forensic investigation, which could exceed $15,000.

Posted by at 9:37 AM | Permalink

lawfuel.com | 10/24/08 | $2,300,000 | suspect:  Mark Thomas Paskewitz | victim:  Medicare

 A doctor has been indicted for fraudulently billing Medicare for approximately $2.3 million in physical therapy services. The indictment, which was returned Wednesday afternoon by a federal grand jury in Santa Ana, alleges that the “physical therapy” was performed by unlicensed individuals without any supervision by the doctor, consisted only of massages, and followed the payment of kickbacks to induce Medicare beneficiaries to go to the doctor’s clinic.

Mark Thomas Paskewitz, 45, of Pasadena, was charged with 18 counts of health care fraud in connection with the operation of his Westminster clinic, Good Healthcare, Inc, which was later renamed QS Medical Group PC, Inc.

The indictment outlines a scheme in which physical therapy services were billed to Medicare as if performed by Paskewitz or qualified personnel under his direct supervision, when in actuality patients were being “treated” by unlicensed personnel and the “treatment” consisted of massages. In addition, patients were recruited to come to the clinic with illegal kickbacks.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.

Paskewitz is expected to be arraigned on the charges in United States District Court in Santa Ana on November 10. If convicted, Paskewitz faces a statutory maximum sentence of 10 years in federal prison for each health care fraud count.

These cases are the product of a joint investigation by the Federal Bureau of Investigation and the U.S. Department of Health & Human Services - Office of Inspector General.

Posted by at 9:30 AM | Permalink

reuters.com | 10/23/08 | $100,000,000 | suspect:  UBS | victim:  Healthsouth

HealthSouth Corp said UBS AG would pay the provider of rehabilitative services $100 million in cash to settle investor claims that the investment bank knew about HealthSouth's multibillion dollar accounting fraud.

The derivative shareholder lawsuit against UBS was brought by HealthSouth investors on behalf of the company. It claimed that as its investment bank, UBS was aware of HealthSouth's accounting fraud.

In addition to the cash, HealthSouth will receive a release of all claims by UBS, including a judgment in favor of UBS which is currently on appeal before the U.S. Court of Appeals for the Second Circuit.  A UBS spokeswoman declined to comment on the settlement.

In 2006, HealthSouth agreed to pay at least $445 million to settle class-action lawsuits over its accounting and financial reporting. As part of that settlement, HealthSouth investors are entitled to receive 25 percent of net recoveries from judgments against UBS, the company's former lead investment bank, HealthSouth former Chief Executive Richard Scrushy, and former auditor Ernst & Young.

The rest of the proceeds will be used to pay down long-term debt, the Birmingham, Alabama company said.

Posted by at 9:26 AM | Permalink

bizjournals.com | 1/24/08 | $250,000 | supspect: Royal Adams | victim:  IRS

A Wildwood man was sentenced to a year and a half in prison and ordered to pay more than $250,000 in restitution to the IRS Friday for filing false tax returns about his business.

Beginning in1990, Royal Adams, 56, created the corporate entity, Royal Personnel, prosecutors said.

Sometime in 1998, he entered into an informal agreement with David Icke, a British author and public speaker to split the net profits from the sale of Icke’s books, with 75 percent going to Icke and 25 percent going Adams.

For the years 2001, 2002, and 2003, Adams understated his income and overstated his deductions on his tax returns, prosecutors said. The Internal Revenue Service identified income not reported on his personal tax returns for the years 2001 through 2003 in the amount of $581,868, prosecutors said. A substantial portion of these proceeds were generated by the sale of Icke’s books. The IRS calculated the total tax loss for those years as $252,219.

Adams pleaded guilty in June to three felony counts of filing false tax returns.

U.S. Attorney Catherine Hanaway commended the work on the case by Internal Revenue Service Criminal Investigation, and Assistant United States Attorney Matthew Drake, who handled the case for the U.S. Attorney’s Office.

Posted by at 9:23 AM | Permalink

bizjournals.com | 10/24/08 | $400,000 | suspect:  Javier J. Ortiz | victim:  Medicare

A Wachovia Bank assistant vice president has pleaded guilty to conspiracy to commit money laundering in connection with a 2006 Medicare fraud scheme.

 

The plea, announced Friday by federal agents, resulted from an investigation into activities by Javier J. Ortiz, 36, who worked at Wachovia’s West Gables Financial Center on Bird Road between 2002 and September of this year.

Around 2005, Ortiz was introduced to Angel Castillo Jr., who has already been sentenced to 19 years in prison for his role in orchestrating a $48 million Medicare and money-laundering scheme.

Ortiz allegedly used his position at Wachovia to open new business checking accounts for Castillo’s medical companies.

Once the accounts were opened, Castillo and his accomplices would submit fraudulent claims to the Medicare program for reimbursement. Medicare would then issue payment checks, which Castillo’s accomplices would deposit into various medical companies’ accounts.

Ortiz would remove the computer holds on the checks, allowing Castillo’s accomplices to withdraw the money.

In exchange, Castillo would pay Ortiz lump sums of cash. Ortiz assisted Castillo in laundering more than $400,000 in fraud proceeds.

Sentencing is set for Dec. 12. Ortiz faces up to 20 years in prison.

Posted by at 9:17 AM | Permalink

newsday.com | 10/25/08 | $9,000,000 | suspect:  Rosa Abreu | victims:  FEMA

A former city official was sentenced to prison Friday for her role in stealing more than $9 million from the agency where she worked, including federal funds earmarked for Sept. 11 victim identification, according to the city Department of Investigation.

Rosa Abreu, 41, of Queens, the former director of records at the City Office of the Chief Medical Examiner, was sentenced by U.S. District Judge Robert P. Patterson in Manhattan to more than 5 1/2 years in prison and ordered to make restitution of more than $1 million, said a release from the investigation department.

Prosecutors said Abreu and her boyfriend, Natarajan "Raju" Venkataram, the former director of management information systems at the agency, conspired to take money from Federal Emergency Management Agency funding intended for a computer system tracking forensic evidence and identifying victims of the Sept. 11 attacks.

Venkataram was sentenced in July to 15 years in prison, fined $50,000 and ordered to pay $2.9 million in restitution.

Posted by at 9:03 PM | Permalink

startribune.com | 10/25/08 | $3 Billion | suspect:  Larry Reynolds | victim:  Investors of Tom Petters

Larry Reynolds, who admitted in federal court Thursday to laundering money for Minnesota businessman Tom Petters in what authorities say is a $ 3 billion investment fraud scheme, is negotiating with prosecutors to be freed until he is sentenced.

Reynolds said that beginning in 2002, he set up a bank account at his Los Angeles firm, Nationwide International Resources, and used it to help convince Petters' investors into thinking that their money would be used to buy high-end electronics merchandise for sale through big box retailers.

About $12 billion flowed through the account, Reynolds said. Numerous wire transactions passed through the account each month, generally ranging from $2 million to $25 million. The money was not used to buy electronics, however.

After the money came in, Reynolds said, he forwarded it to Petters, less a commission. At first, he said, the commission amounted to five-hundredths of a percent of the amount transferred, but that was eventually reduced to about a hundredth of a percent. Reynolds, dressed in a black T-shirt and dark slacks, said he collected about $6 million this way.

Posted by at 8:55 PM | Permalink

abajournal.com | 10/22/08 | suspect: TBD | victim:  California State Bar

Missing rent money has prompted an embezzlement investigation into a former employee of the California State Bar Association.

Robert Hawley, the bar’s deputy executive director, reported to the Daily Journal that the amount of stolen money is believed to be “into six figures.” The person under investigation was fired in September, he said.

The stolen funds were rent payments by several tenants at the bar’s San Francisco headquarters, Hawley told the publication. The missing funds went undetected while the building was under renovation.  As som tenants were paying reduced rent rates it was difficult early on to identify the missing funds.

Posted by at 8:47 PM | Permalink

stljournal.com | 10/22/08 | suspect:  Geraldine Sanders | victim:  Prestige Pools

Geraldine Sanders, 67, of South County, was sentenced on fraud charges involving the embezzlement of $389,000 from her former employer, Prestige Pools, U.S. Attorney Catherine L. Hanaway said in a statement. Sanders was also ordered to pay restitution of $389,000.

According to the facts filed with the court at the time of her plea, Sanders embezzled the money between 2005 and early 2008.

Sanders took company checks intended to pay vendors and made them out to herself. Because Sanders was the office manager and bookkeeper for the business, she was able to hide the unauthorized checks until outside accountants and auditors discovered the large discrepancy.

Posted by at 8:44 PM | Permalink

bizjournals.com | 10/23/08 | suspects:  Ronnie and Kristi Wilson | victim:  Conyers Public Housing Authority

A husband and wife from Conyers, Ga., were indicted Wednesday by a federal grand jury for allegedly embezzling more than $130,000 from the Conyers Public Housing Authority and using the money for gifts, parties and a vacation.

Between 2000 and 2007, Kristi Wilson, who was the executive director, and Ronnie Wilson, who was the lease enforcement officer for the Conyers Public Housing Authority, allegedly embezzled more than $130,000 of housing authority funds that came through grants from the U.S. Department of Housing and Urban Development. The Wilsons allegedly misused Conyers Housing Authority credit cards for vacation expenses, local meals, and personal items for their homes, including a barn, perimeter fencing, outdoor Christmas decorations, a waterslide, and Christmas gifts and parties for Housing Authority employees.

Kristi Wilson also approved and paid bonuses for herself, and padded her and her husband’s salaries.

The Wilsons are charged with conspiracy, embezzlement of federal program funds, and honest services mail fraud. The indictment includes a forfeiture count in which the United States seeks the forfeiture of ill-gotten proceeds from the alleged criminal scheme.

Posted by at 8:39 PM | Permalink

mlive.com | 10/23/08 | suspect:  Susan Barno | victim:  DeWind Wells & Dewatering, Inc.

A bookeeper convicted of embezzling $99,000 is accused of embezzling $355,000 from another company, DeWind Wells & Dewatering, Inc.

A lawsuit filed in Kent County Circuit Court claims that Barno used the funds to pay for a new vehicle and home improvements and to pay off personal credit cards. 

Barno disputes the allegations, and her attorney, Kelly Lambert, said the company has yet to document that she took any money.

But troubles have worsened for the 40-year-old married mother of three, who lives in a neatly kept, modest neighborhood on Hazelwood Avenue SW. This week, she was arraigned in Hudsonville District Court on criminal charges connected with the case. She is charged with embezzlement over $100,000 and remained jailed, unable to post a $25,000 bond.

"The evidence indisputably shows that Susan Kay Barno surreptitiously diverted substantial amounts of DeWind Company's funds to herself under false pretenses, then attempted to conceal her scheme to defraud by removing or destroying evidence of her acts from (the company's) accounts payable vendor files or ... computer system," company attorney Robert O'Brien wrote in the civil suit.

The company said that unauthorized checks were issued to cover the costs of those personal expenditures.

State police records show Barno, formerly known as Susan Sleet, had four convictions for uttering and publishing since 1989 -- and was sentenced to three to 14 years in prison in 1990, and a shorter term in 1991. In 2002, she pleaded guilty to embezzlement of $20,000 to $50,000. She was put on probation for four years and ordered to pay $99,000 to her former employer, Leasing USA Inc., records showed.

DeWind said in its suit that Barno used false information, including incorrect Social Security and driver's license numbers, "to conceal her prior criminal convictions of uttering and publishing and embezzlement" to get the job as a bookkeeper.

Barno denied using a false identity. Lambert, her attorney, said the company hasn't provided proof his client stole money and said any transactions involving his client were legitimate. His client "denied all liability to plaintiff," records showed.

The company alleged that Barno forged signatures and used a signature stamp of Rebecca DeWind, and "otherwise abused her position of trust with the DeWind Companies for her own benefit."

Posted by at 8:27 PM | Permalink

nytimes.com | 10/18/08

With the onset of the country's current economic crisis and meltdown of financial institutions, the FBI is struggling to find to find enough agents and resources.  The main cause is the reallocation of agents from white collar crime activity to national security roles after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties.

The pressure on the F.B.I. has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac. The F.B.I. is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.

So depleted are the ranks of the F.B.I.’s white-collar investigators that executives in the private sector say they have had difficulty attracting the bureau’s attention in cases involving possible frauds of millions of dollars.

Since 2004, F.B.I. officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policy makers focused on counterterrorism.

According to previously undisclosed internal F.B.I. data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.

Over all, the number of criminal cases that the F.B.I. has brought to federal prosecutors — including a wide range of crimes like drug trafficking and violent crime — dropped 26 percent in the last seven years, going from 11,029 cases to 8,187, Justice Department data showed.

“Clearly, we have felt the effects of moving resources from criminal investigations to national security,” said John Miller, an assistant director at the F.B.I. “In white-collar crime, while we initiated fewer cases over all, we targeted the areas where we could have the biggest impact. We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims.”

But Justice Department data, which include cases from other agencies, like the Secret Service and Postal Service, illustrate the impact. Prosecutions of frauds against financial institutions dropped 48 percent from 2000 to 2007, insurance fraud cases plummeted 75 percent, and securities fraud cases dropped 17 percent.

In addition to the investigations into Fannie Mae and Freddie Mac, the F.B.I. is carrying out investigations of American International Group and Lehman Brothers, and it has opened more than 1,500 other mortgage-related investigations. Some F.B.I. officials worry privately that the trillion-dollar federal bailout of the financial industry may itself become a problem because it contains inadequate controls to deter fraud.

Republicans and Democrats in Congress are pushing for a more aggressive response by the F.B.I. Representatives Mark S. Kirk, an Illinois Republican who sits on the House appropriations committee, and Chris P. Carney, a Pennsylvania Democrat, called on Congress to triple the F.B.I.’s financing for financial crimes investigations.

That number has grown to 177 agents, who have opened 1,522 cases. But the staffing level is still hundreds of agents below the levels seen in the 1980s during the savings and loan crisis.

In white-collar crime, they said the bureau has given up only lower-level cases of marginal significance that might have never been prosecuted anyway. They say they have focused the available criminal resources on public corruption and other difficult crime issues in which the F.B.I. can make a unique contribution.

The Justice Department is relying more than ever on the state and local authorities to pick up the slack through joint task forces. And private investigators say that companies victimized by fraud are turning to them in increasing numbers because they are unable to attract much attention from the F.B.I. anymore.

In some instances, private investigative and accounting firms are now collecting evidence, taking witness statements and even testifying before grand juries, in effect preparing courtroom-ready prosecutions they can take to the F.B.I. or local authorities.

“Anytime you bring to the F.B.I. a case that is thoroughly investigated and reduce the amount of work for investigators, the likelihood is that they will take the case and present it for prosecution,” said Alton Sizemore, a former F.B.I. agent who is a fraud examiner for Forensic Strategic Solutions in Birmingham, Ala.  (Excerpt)

Posted by at 8:00 AM | Permalink

reuters.com | 10/22/08 | $364,200,000 | suspect: Parmalat | victim:  Citigroup

Shares of Parmalat hit an all time low after a jury ruled that it could not receive damages from Citigroup relating to its 2003 collapse.

 

Instead, the New Jersey state court jury awarded Citigroup $364.2 million in damages after voting six-to-one that dairy group Parmalat committed fraud, negligent misrepresentation and conversion, also known as theft.

"This adverse decision of the damage claim ... is clearly bad news for Parmalat, since expectations were pointing to a possible payment to Parmalat," Cheuvreux analysts wrote in a research note.

Posted by at 9:25 AM | Permalink

zwire.com | 10/21/08 | $28,500 | suspect:  Misty Dawn Edwards | victim:  Cowetta Chamber of Commerce

The former executive director fo the Cowetta Chamber of Commerce has been charged with embezzlement and a preliminary hearing has been set for November.

Misty Dawn Edwards, 36, has been charged with embezzlement and obtaining money by false pretenses.

She is accused of embezzling an estimated $28,500 from the Chamber over an approximate 18 month period between June 1, 2006 and Nov. 9, 2007.  She is also accused of falsely reporting payroll totaling an estimated $2,705.

In November 2007, the Coweta Police Department was alerted by Coweta Chamber Board members of a shortage of about $46,490.99 in the Chamber's bank account. Police reports indicate many of the missing funds were from the use of the Chamber's bank debit card. Board members reported to authorities the debit card was possessed by Edwards.

Edwards served as executive director of the Coweta Chamber of Commerce from March 2006 to November 19, 2007 when she resigned reportedly citing personal reasons.

Posted by at 9:10 AM | Permalink

coastlinepilot.com | 10/20/08 | $100,000 | Hotel Laguna

A longtime former employee is accused of stealing more than $100,000 from a landmark hotel located on the California coast.

Laguna Beach Police are investigating an allegation that a longtime former employee of the Hotel Laguna embezzled more than $100,000 from the hotel, according to police records.

The employee, who had left the hotel in the last couple of weeks, has not been identified.

“The suspect was in a position to manage the daily fiscal operation” of the hotel, said Laguna Beach Police Sgt. Bob Rahaeuser.

The suspected embezzlement was discovered during an audit, Rahaeuser said.

Hotel owner Claes Andersen said he had been advised not to comment on the allegation.

Posted by at 9:06 AM | Permalink

palmbeachpost.com | 10/21/08 | $18,000  | victim: First Congregational Church

The Martin County Sheriffs' Office reported that 2 women who had access to a churchs finances are suspects in the embezzlement of $18,000 of church funds.

Dr. Charles Mory said he began asking to review the church's financial records after he took over as interim pastor in April and received several past due notices from vendors.

A congregation meeting was scheduled in September to discuss the church's financial condition but was postponed by one of two women suspected of the embezzlement, according to a sheriff's report.

Church officials sent notices requesting financial documents to at least one of the suspects, but these never garnered a response, the report states.

An internal audit revealed several discrepancies in the church's bank account statements, which included cash deposits and ATM withdrawals of more than $88,000, according to the report.

Posted by at 8:58 AM | Permalink

webcpa.com | 10/20/08 | $5,700,000 | suspect:  Security Protection Inc. | victim : United States

Security guard company Superior Protection Inc. and four of its executives were indicted for failing to pay employment taxes and other charges.

"A grand jury indicted the company for conspiracy to defraud the United States of employment taxes, bribery, failure to pay prevailing wages, tax evasion, filing false tax returns and causing a firearm to be present in a federal court facility. Also indicted were company president John Heard; two executives identified as controller and/or CFO, Gary Lambert and John Bailey; and operations manager William Lane."

"According to the indictment, Heard failed to pay employment taxes totaling more than $5.7 million since 1987. Heard and Lambert allegedly opened and closed companies and used the names of fictitious people on corporate documents and forms filed with the IRS in an effort to impede the IRS. Heard, Lambert and Bailey also allegedly filed false tax returns that significantly overstated the amount of employment taxes that had been paid by their security companies, including SPI. The indictment also charges John Bailey with four counts of willfully making and subscribing to false employer’s quarterly tax returns that he submitted for SPI.

Some of the executives have also been accused of failing to provide required firearms training to guards, failing to pay the guards correctly, and offering gratuities and bribes to a government official in exchange for favorable treatment in bids for government contracts.

The indictment further alleges that the company routinely failed to pay overtime, prevailing wages and other benefits to the security guards as required under federal contracts.

Each of the two conspiracy counts and each of the two tax evasions counts against Heard carries a maximum of five years' imprisonment upon conviction. Heard and Lane face a maximum punishment of 15 years' imprisonment upon conviction of the bribery charge. The gratuity and firearms charges each carry a maximum sentence of two years’ imprisonment. Bailey faces up to three years’ imprisonment on each of the four counts of filing a false return upon conviction. Each of the 11 charges alleged in the indictment also carries a maximum $250,000 fine upon conviction. Arraignment has been set for October 22. 

Posted by at 1:12 PM | Permalink

reporternews.com | 10/17/08 | $850,000 | suspect:  Laura Minor and Sheri Lynn Mitchell |  victim:  Hendrick Health System

The U.S. Attorney's Office in Lubbock provided more details Friday about the alleged embezzlement of more than $850,000 by two women from Hendrick Health System.

According to U.S. Attorney Richard B. Roper, 52-year-old Laura Minor -- a former Hendrick employee and Abilene resident -- and 48-year-old Sheri Lynn Mitchell -- owner of a physician recruiting business -- engaged in a fake invoice scheme and defrauded Hendrick out of "hundreds of thousands of dollars."

"Mitchell would submit invoices to HHS for physician recruiting services that were not provided," a news release from U.S. Attorney Richard B. Roper said. "Minor would cause the invoices to be paid by HHS. Mitchell would then kickback to Minor amounts ranging from one-third to one-half of the payment. Minor never disclosed her financial relationship with Mitchell to anyone at HHS."

Minor is alleged to have received $283,126 in kickbacks from Mitchell, who lives in Cleveland, Tenn.

The alleged embezzlement occurred between April 2002 and November 2007 while Minor worked as an assistant in physician relations and later as director of physician recruiting for Hendrick. Mitchell owned and ran Physician Source, a physician recruiting business.

Posted by at 1:05 PM | Permalink

news.yahoo.com | 10/17/08 | $116,000 | suspect:  Jocelyn Kirsch and Edward Anderton : victim:  many

A college student who with her boyfriend stole the identities of friends and neighbors was sentenced Friday to five years in prison and ordered to pay more than $100,000 in restitution.

Jocelyn Kirsch, a former Drexel University student, and then-boyfriend Edward Anderton used the money for expensive salon visits, exotic vacations and fancy dinners.

Federal guidelines called for a prison sentence of 70 months, but U.S. District Judge Eduardo C. Robreno credited Kirsch for her apparent remorse and for her July 14 guilty plea to aggravated identity theft and other counts.

Kirsch, 23, and Anderton acknowledged stealing the identities of friends and neighbors in the Philadelphia area in 2006 and 2007 to net more than $116,000 in goods and services.

The scheme unraveled when an employee at an upscale salon told police that a check for Kirsch's $2,250 hair extension job had bounced. About the same time, a neighbor of the couple told police a package she did not order had been sent to her.

Police released photos showing the two posing in matching red swimsuits by a luxury hotel pool and kissing near the Eiffel Tower.

Anderton, a 25-year-old University of Pennsylvania graduate originally from Everett, Wash., is to be sentenced Tuesday.

Posted by at 1:01 PM | Permalink

inrich.com | 10/16/08| $1,600,000 | suspect:  Patricia and Darryl Cheek | victim:  X-Ray Engineering

A Mechanicsville couple who embezzled $1.6 million from a Richmond company were sentenced to 46 months in prison yesterday for bank fraud and money laundering.

U.S. District Judge Henry E. Hudson Patricia and Darryl Cheek to each make $1,595, 010.32 in restitution to the X-Ray Engineering Co. of Virginia.

The money was taken from the firm from December 2004 to 2007. Patricia Cheek was a longtime employee in charge of purchasing supplies, maintaining accounts and managing the company's financial account records.

They used the money to pay their personal expenses, make charitable donations and to pay the operating expenses of Aurum Leo Productions, an audio and video company owned and operated by Darryl Cheek.

According to the Cheeks and the government, they donated $160,000 to the Richmond SPCA. In an Oct. 6 letter to Hudson, the Cheeks said they owned two dogs, seven cats and fish.

Reached by telephone following yesterday's sentencings, Robin Starr, chief executive of the Richmond SPCA, said the amount involved was less that $160,000 and said her organization was victimized by the Cheeks, too. She said the couple still owe over $80,000 in unpaid debts.

"Contributions" is a misnomer, she said. She said the Cheeks bought goods and services in charity auctions intended to benefit the SPCA.

Posted by at 12:54 PM | Permalink

nytimes.com | 10/18/08 | $1,000,000 | suspect:  Ellen Hauer | victim:  Hampton Management

A controller for a Harlem apartment building management company pleaded guilty on Friday to stealing more than $1 million from her employer.

The controller, Ellen Hauer, 52, of the Bronx, pleaded guilty in State Supreme Court in Manhattan to firstdegree grand larceny in exchange for a sentence of 3 ½ to 10 ½ years in prison.

Ms. Hauer admitted that she stole more than $1 million from January 2001 to March 2008. She used the money to pay credit card bills for Las Vegas trips, Caribbean cruises, jewelry, furs and Victoria’s Secret lingerie, prosecutors said.

The plea deal requires Ms. Hauer to transfer all of her assets, including cash, an interest in four racehorses, a 401(k) account containing $39,800 and all of her American Express Rewards points, to her employer, Hampton Management.

Ms. Hauer, a Hampton employee for 30 years, became controller in 1997 and began stealing immediately, prosecutors said. They said the charges include thefts only back to 2001 because of the statute of limitations.

Ms. Hauer was authorized to sign checks for up to $10,000 for business purposes, prosecutors said. They said she made $110,000 a year, but used money from her own bank account just once since 2001, to pay a credit card bill.

Posted by at 12:49 PM | Permalink

augusta.com | 10/16/08 | $350,000 | suspect: Elizabeth Copeland | victim:  Cot Campbell

A 34-year-old Aiken woman, accused of stealing more than $300,000 from her employer's personal account, was sentenced Wednesday to serve four years of a five-year prison sentence.

Mr. Campbell hired Mrs. Copeland as an executive secretary in 2003. She was responsible for maintaining files, paying personal bills and mailing income tax returns and tax payments to the Internal Revenue Service.  Soon after being hired, Mrs. Copeland began writing checks on Mr. Campbell's personal checking account and depositing them in her account, Assistant Solicitor Steven Kodman said. She never mailed the tax returns and cashed payments meant for the IRS, he said.

In March, Mr. Campbell learned his tax returns had not been filed for four years and that he owed taxes. An investigation by Aiken Public Safety revealed that Mrs. Copeland had embezzled money on 67 occasions, spending it on a down payment for a house, an interior decorator, vacations, gifts, clothes, private school for her son, a Lexus, a nanny and day care. She also paid off her and her husband's student loans. (Excerpt)

Posted by at 12:36 PM | Permalink

mlive.com | 10/16/08 | $400,000 | suspect: Tina Ricotta | victim:  H.R. "Kelly" Calamari

A woman accused of embezzling more than $400,000 from a wealthy older man may have her conviction reduced from a felony to a misdemeanor.

Earlier this month, Tina Ricotta of Hadley Township in Lapeer County, Michigan accepted a plea agreement that would reduce 6 felony accounts against her to one count of attempted uttering and publishing of a $117,726 check  - a five year felony.

If she completes the term of her sentence, scheduled for January 26, 2009, she can appeal to have the conviction reduced to a misdemeanor.

Investigators say that the she forged 13 checks in 2005 and 2006 from H.R. “Kelly” Calamari, now 98, and the retired founder of the Eldorado Tire Company.  Investigators say that it appeared that the two had a personal relationship prior to July 2005.

 

Posted by at 9:49 AM | Permalink

register-herald.com | 10/15/08 | Christian Giggenbach

Legal documents filed by a defense lawyer for Kevin Scott O’Brien, the central figure in the multimillion-dollar Greenbrier County cattle and banking scandal, say it’s not the “typical fraud case” and many of his victims’ losses were “unintended.”

O’Brien, 28, pleaded guilty to one count of mail fraud in February which prosecutors say included sophisticated Ponzi schemes and phantom herding — the selling of cattle to more than one buyer — to cheat more than a dozen victims of more than $5 million in less than one year.

“His family is well regarded in the community. His scheme succeeded, in part, because he traded on his family’s reputation,” Assistant U.S. Attorney L. Anna Forbes wrote in a presentencing memorandum. “Some of the victims were banks; a few were relatively wealthy people; but several were just hard-working folks who did business the way it always had been — with a firm handshake and an expectation that the defendant would do what he said he would do.”

Defense lawyer Rodney Smith said in his presentencing memorandum to the court that O’Brien began acquiring cattle while still attending Greenbrier East High school, and by the age of 23 was operating a cattle broker business in the county.

“He (O’Brien) initially profited by raising cattle and engaging in relatively small cattle deals,” Smith wrote. “When an opportunity presented itself to engage in cattle deals with well-established cattle brokers in the Greenbrier Valley, Mr. O’Brien, against his father’s advice, embraced the opportunity.”

Smith said O’Brien participated in several large cattle deals “with cattle dealers around the country,” but “due to poor business decisions ... by 2005, at the age of 25, he soon found himself deep in debt and unable to meet financial obligations.

“To keep his business afloat and pay creditors, Mr. O’Brien began engaging in illegal conduct, including ‘kiting’ checks and selling a group of cattle to more than one buyer,” Smith wrote. “For a short period of time, (his) illegal conduct allowed him to remain in the cattle business ... by March 2006, however, (his) tenuous financial situation collapsed.”

Smith said an investor stopped payment on a big check and a First National Bank account was frozen to recover funds owed on outstanding loans, thus pushing him into “financial ruin.”

“Mr. O’Brien’s illegal efforts to prolong the life of his business resulted in debts that far exceeded his assets, and he had no viable option other than to file for bankruptcy,” Smith wrote. “(His) conduct can be distinguished from ‘typical’ fraud cases because even though the losses were foreseeable, the vast majority of the losses suffered by the victims were unintended.”

Smith then argued O’Brien continued cheating people in order to be able to pay back the other people he was already cheating.

“He engaged in most of his illegal conduct to allow him to continue to be a cattle broker with the hope that he could pay his investors and make a living,” Smith wrote.

For these reasons and others, according to Smith, O’Brien’s prison term should be less than the eight to 10 years that’s been recommended by his probation officer and agreed to by the U.S. Attorney’s Office.

Smith also cites O’Brien’s cooperation in helping convict former First National Bank president Charles A. Henthorn and former FNB board president G. Thomas Garten.

Henthorn pleaded guilty to taking $9,700 in bribes from O’Brien and Garten pleaded guilty to aiding and abetting those bribes earlier this year.

O’Brien wore a tape-recording device when speaking to Henthorn to gain evidence against him for prosecutors.

His client has already paid a steep price for his criminal conduct, Smith wrote, by losing respect in his small community, disappointing loved ones and suffering tremendous financial losses of his own that will have a life-long effect.

Furthermore, Smith said, O’Brien will never be able to operate the same type of scams again because of his newfound notoriety.

“Because (his) criminal prosecution has received a tremendous amount of media coverage in his community, it is highly improbable that individuals will place the trust in him necessary to engage in the same criminal conduct upon his return to the community.”

A new twist to the case may also decrease O’Brien’s prison term. Documents filed by the United States last month indicated O’Brien has given evidence which could possibly produce more indictments in this complicated case.

O’Brien, along with Henthorn and Garten, is scheduled to be sentenced Friday by U.S. District Judge Thomas E. Johnston in Beckley.

O’Brien’s multimillion-dollar bankruptcy cases continues to play out in federal bankruptcy court.

Posted by at 7:57 AM | Permalink

chron.com | 10/14/08 | ALICIA A. CALDWELL, AP

Three former executives of an El Paso charity accused of contract fraud were arrested Tuesday, authorities said, in a probe that has also ensnared local public officials.

FBI agents arrested Robert E. "Bob" Jones, Ernesto Lopez, and Patrick James Woods on various fraud charges alleged in a 37-count indictment issued Thursday. The indictment is sealed.

The three men waived arraignment Tuesday and filed not guilty pleas, said Mary Stillinger, Lopez's attorney. All were being held on bond Tuesday night.

Stillinger said she had not read the entire indictment but Lopez looked forward to the case moving ahead so he can defend himself.

"We don't think Pat Woods is guilty of anything," said Woods' lawyer, Jim Darnell. Darnell and Jones' lawyer, Joe Spencer, said they had not seen the indictment and could not comment on the allegations. Both lawyers said their clients had done nothing wrong.

The federal probe of businesses tied to Jones also sparked a continuing investigation into public corruption that has targeted several current and former public officials. Federal investigators won't detail the connection between the public corruption probe and that of Jones, but have said the raids on public officials' homes and offices were part of the probe into Jones' employees.

Several people, including a former El Paso County commissioner and chief of staff to current County Judge Anthony Cobos, have pleaded guilty to corruption charges. According to federal court records, that probe involves 12 separate investigations and has uncovered widespread abuses.

Details of the cases against those who have pled guilty have remained sealed under court order.

Jones is the former head of the National Center for the Employment of the Disabled, a clothing company that was once the primary supplier of chemical-warfare suits for the military. The company, which has since become Ready One Industries, was raided by federal officials in 2006 as part of a probe of the company's government contracts, which required that at least 75 percent of NCED workers filling government orders be blind or severely disabled.

Two civil oversight groups — the President's Committee for Purchase from People Who are Blind or Severely Disabled and a Virginia nonprofit that helps administer government contracts — concluded that only about 7 percent of workers were handicapped while Jones ran the company.

Jones, who is charged with all 37 counts, abruptly resigned amid the federal probe and has denied any wrongdoing.

Darnell said Woods left the company sometime in 2007.

Shana Jones, a spokeswoman for the U.S. Attorney's Office in San Antonio, said Jones, Woods, and Lopez, are accused of lying to the contract overseers about the number of disabled people employed to fill the lucrative government contracts and embezzling or stealing at least $5,000 from the company.

The indictment calls for the men to forfeit tens of millions of dollars.

Shana Jones said prosecutors want Robert Jones to forfeit $58.9 million and Lopez to give up $51.2 million. Prosecutors are asking that Woods forfeit just $4.2 million.

All three men were initially charged in a five-count indictment issued in late September.

Lopez, the former NCED chief operating officer, faces 17 counts of the new indictment. Woods is a former NCED officer and member of the board of directors and faces five counts.

According to federal investigators, the initial contract probe at NCED also revealed numerous financial issues, including management fees of about $14.5 million the company paid to Jones' family trust from 1999 to 2006.

The NCED contracts were worth more than $834 million

Posted by at 7:50 AM | Permalink

news.yahoo.com | 10/14/08 | Associated Press

Rather than face a second trial, the former chief executive of Enron Broadband Services pleaded guilty Tuesday to one count of wire fraud.

The plea deal requires Joseph Hirko, 52, of Portland, Ore., to serve up to 16 months in prison and make about $8.7 million in restitution to the government for Enron victims. He also agreed to cooperate with prosecutors in other pending broadband prosecutions.

Hirko's sentencing is set for March 3.

He admitted to allowing press releases to be distributed in 2000 that said a groundbreaking operating system had been embedded in Enron's broadband network that would allow users to pay only for bandwidth they used instead of a flat monthly fee.

The operating system was still under development and the bandwidth-on-demand feature never materialized. Hirko admitted that he knew broadband operating system, or BOS, hadn't been embedded and couldn't provide bandwidth on demand.

Per Ramfjord, one of Hirko's lawyers, said in Tuesday's online edition of the Houston Chronicle that the plea allowed him to "reduce the risk of going to trial and puts him in a position to be able to return to an active life as soon as possible."

A trial of Hirko and four other EBS executives ended in September 2005 with jurors unable to reach verdicts on most charges. Hirko was acquitted in the 2005 trial on 14 of the 27 charges against him, two of them for insider trading and 12 for money laundering. He was charged in a new indictment with wire fraud, securities fraud and insider trading.

Hirko had been set to go to trial in December alongside Rex Shelby, a former top software executive.

"Today's plea closes another chapter in the Enron scandal," Acting Assistant Attorney General Matthew Friedrich said in a news release.

Enron, once the nation's seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.

The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

 

Posted by at 7:22 AM | Permalink

sanluisobispo.com | 10/14/08 | Julie Lynem

Big-money, fast-paced careers on Wall Street are not what most MBA students at Cal Poly’s Orfalea College of Business dream about.  But as the trouble in the nation’s financial capital continues, some Cal Poly business students and educators have given close attention to the drama unfolding 3,000 miles away.

Bradford Anderson, a law lecturer at the college who teaches ethics, said the recent meltdown provides a good learning opportunity for students earning master’s degrees in business administration.

Associate Dean Chris Carr said the problems at the highest levels of banking and finance are a reminder to this year’s group of 92 graduate students that “you have to be on top of your game” in learning new skills and thinking about the future.

“A lot of really smart people, some with graduate degrees, maybe MBAs and Ph. D. s, might have said that this could never happen. They couldn’t see it coming,’’ Carr said.

Business schools across the country saw a significant shift toward ethics in the early part of the decade, following the scandals that rocked the accounting world, said Tony Pals, spokesman for the National Association of Independent Colleges and Universities.

The recent financial shakeup could further push schools to stress ethics or de-emphasize curricula that promote immediate returns and risky behavior, he said.

The Orfalea College, with class sizes of about 50 each year, does not require its students to take a mandatory ethics course —an effort to provide flexibility in class schedules—but the business program has for years incorporated ethics education into the curriculum.

Most students participate in a national ethics competition at Loyola Marymount University in Los Angeles or take a class called “corporate governance in ethical organizations.”

In that course, students are asked to solve real-world, ethical dilemmas, said Anderson. The idea is to help students to maintain their integrity and credibility by identifying inappropriate and incorrect business practices.

Students are taught to steer clear of such behavior and poor decisionmaking.  “There are always good people doing good things and coming up with good, creative ideas, and there are always bad people coming up with creative ideas to take money away from other people,’’ Anderson said.

But Anderson noted that “making money can be done in an ethical way.’’

“It can be a positive sum game. You can make a contribution to better society, and you can make a profit,’’ he said.

Nicholas Miura, who entered the MBA program after being an engineer in the Air Force, believes business schools should focus more on ethics.

“Studying business ethics does not mean that an individual will be ethical,’’ he said. “But it will give them a framework to understand the ethical implications of their actions. I think more ethics should be taught because it is a lot harder to plead indifference than ignorance.’’

Cal Poly’s learn-by-doing philosophy and creating socially responsible managers were two things that impressed MBA student McKinnon. Aiming to pursue a career in marketing, McKinnon will take the ethics course and believes that he will be a more ef fective manager because of the college’s approach. “That (socially responsible) is the term that jumped out at me,” said

McKinnon, who comes from a family of MBAs and had researched several institutions before choosing Cal Poly.

Classmate Amy Cook also will take the ethics class this spring. So far, students in other classes have debated Congress’ rescue plan and whether it’s fair in a free-enterprise system. “It’s been a huge topic of discussion in all of our classes,” she said.

Cal Poly’s hands-on approach to learning may serve students well as they face increasing competition from those who seek a dif ferent kind of educational experience or want to work in industries other than finance.

Many Cal Poly MBA grads do not seek jobs in finance; rather they choose jobs in fields such as engineering, agriculture and architecture.

“It’s possible that you might see fewer students entering finance programs next year,” said Pals, adding that there’s a relationship between economic downturns and spikes in MBA enrollments.

“It’s difficult to predict if that would last longer than a year. So much of it depends on the direction of the economy and the fallout.’’

For Cook, this couldn’t be a better time to be in school. Cook hopes to return to marketing — her chosen field before graduate school — after she completes the one-year MBA program.  “I’m glad I’m furthering my education now,’’ she said. “I think next year, they’ll have a big influx of people trying to do this with their time.”

Posted by at 7:17 AM | Permalink

mlive.com | 10/14/08 | John S. Hausman

Jennifer Ann Prince, 37, of 1420 Porter on Tuesday waived her 60th District Court preliminary examination and was bound over for trial on the felony charge of embezzling $100,000 or more from Industrial Assemblies Inc., a retail equipment maker. Prince is accused of stealing $236,000 from the firm.

Scott Hanson, president of IAI, said earlier this month that Prince was in charge of the company's accounts payable and accounts receivable. She allegedly wrote checks to herself, then put a supplier's name in the ledger.

Hanson said the alleged embezzlement was discovered by his bank. The company manufactures retail fixtures such as displays and cash register stands.  Court records show that Prince also was convicted in 2007 on a misdemeanor embezzlement charge for stealing money from her previous employer, Details Landscape and Irrigation Co. of Norton Shores.

Her arrest in that case came after she had already started working for Industrial Assemblies. The allegation was that she stole $3,800 from the landscaping firm. She worked as a bookkeeper and paid bills for the company. Prince at that time lived at 1041 Vick in Norton Shores and worked from her home, according to the police report.

Details Landscape owner Douglas Staal contacted Norton Shores police on April 12, 2007, after being advised by his bank that his account was overdrawn.

Police obtained a felony warrant in early May charging Prince with embezzlement by agent or trustee of more than $200 but less than $1,000. After she failed to turn herself in, she was arrested at her home May 22 and arraigned in court.

In August 2007, the felony charge was dismissed and she pleaded guilty to a misdemeanor charge of embezzlement by agent or trustee of less than $200. In October 2007, 60th District Judge Michael J. Nolan sentenced her to probation and ordered her to pay fines and costs. Staal told The Chronicle in an email that he got his money back.

IAI owner Hanson said Prince started work for his company in April 2007.  The current court file lists the dates of the alleged embezzlement from IAI as beginning April 1, 2007, and continuing through Sept. 19 of this year.

Posted by at 7:09 AM | Permalink

smartbriefs.com | 10/10/08 | Press Release

 A jury today awarded $31.8 million against Big Four firm KPMG in an accounting fraud lawsuit. Cast Art Industries, LLP v. KPMG, LLP, Superior Court of New Jersey Law Division – Middlesex County (Docket No. MID L-3295-03). With interest, the verdict is over $41 million, an amount believed to be the largest ever awarded against KPMG.

 

Cast Art sued KPMG in 2003 for professional malpractice and negligence for failing to detect a massive financial fraud at Papel Giftware, Inc. prior to Cast Art acquiring Papel in December 2000. The Honorable Phillip Paley presided over the trial, which began on Wednesday, September 10, 2008.

“We applaud the jury for their unanimous verdict and their finding that KPMG made false representations. In times like these, the public must be able to rely on auditors,” stated Michael Avenatti, counsel for Cast Art. For three years prior to its acquisition of Papel, KPMG repeatedly affirmed that Papel’s financial statements were accurate when in reality KPMG knew the company’s management had engaged in a number of fraudulent schemes designed to inflate the value of the company to potential buyers. Cast Art was represented at trial by Michael Avenatti and Alex Conti of the California law firm Eagan O’Malley & Avenatti, LLP and Alan Wasserman of the New Jersey law firm Wilentz, Goldman & Spitzer, P.A.

Posted by at 11:57 AM | Permalink

reuters.com | 10/13/08 | Edith Honan

A former chief executive of the Duane Reade Holdings Inc drugstore chain pleaded not guilty on Friday to securities fraud, conspiracy and charges of making false statements to securities regulators.

Former CEO Anthony Cuti, 63, is accused of providing false information during negotiations over the purchase of Duane Reade, previously a publicly held company, by private equity firm Oak Hill Capital Partners in 2004.

U.S. Magistrate Judge Frank Maas in Manhattan federal court released Cuti, who surrendered to authorities on Friday morning, on a $3 million personal recognizance bond.

According to the U.S. Attorney's Office in Manhattan, from December 2000 through June 2005, Cuti and former Chief Financial Officer William Tennant "engaged in a scheme to misrepresent Duane Reade's financial performance" to investors and fraudulently made millions of dollars.

The SEC filed separate civil charges accusing the pair of multimillion-dollar accounting schemes when they were in charge of Duane Reade, the biggest chain of drug stores in the New York City area.

Cuti's attorney in the civil case, Jeffrey Sklaroff, said in a statement that the transactions were disputed and had no effect on stockholders, bondholders, the company or Oak Hill.

Tennant will be arraigned at a later date, prosecutors said. His attorney was not immediately available for comment.

Posted by at 11:54 AM | Permalink

tallahasse.com | 10/13/08 | Angeline J. Taylor

Rosanne Stone, former church bookkeeper arrested on charges of grand theft and money laundering, pleaded no contest to the grand theft charge this morning in Circuit Judge Kathleen Dekker’s courtroom.  Stone was originally arrested in February after being accused of embezzling more than $500,000 from Episcopal Church of the Advent.

The case has been deemed as possibly the biggest embezzlement case the Sheriff’s Office has ever seen.  But attorneys agreed to eliminate the money laundering charge.

Stone’s attorney, Robert Harper Jr., said, “We’re not contesting the facts to the grand theft charge. It’s going to be an issue of paying back the church and the people who have been hurt.”

Stone has also requested for the judge to give a departure sentence thereby forgoing a jury trial. The minimum sentence is 21 months. The maximum sentence is 30 years.

Back in February, investigators with the Leon County Sheriff’s Office said Stone, 50, took the money from three church accounts over four years. Sgt. James McQuaig said it was possibly the biggest embezzlement case the Sheriff’s Office has ever seen. He said Stone used the money to buy antiques, jewelry, silverware, lamps and glassware on eBay.

“We counted and literally have hundreds of items seized as evidence,” McQuaig said.

Posted by at 11:51 AM | Permalink

ap.google.com | 10/9/08 | Gene Johnson

Two former software executives grossly overstated their company's revenue to attract more than $50 million in private investment, prosecutors said Wednesday, adding that the fraud was uncovered late last month when a worker found a set of cooked financial books as she was cleaning out a desk.

Paul Thomas Johnston, a founder and chief executive of Entellium Corp., and Parrish L. Jones, its chief financial officer, resigned Sept. 30 and were charged Wednesday with one count of wire fraud in U.S. District Court. Johnston wrote in his resignation e-mail that he was "deeply shamed and sorry" about what he had done.

Prosecutors said they don't know where all of the money went, but believe the bulk of it was put into the company.

Entellium spokesmen did not immediately return a call or an e-mail seeking comment. Assistant U.S. Attorney Carl Blackstone said about 40 of its 60 employees in Seattle were laid off Friday. The fate of 75 workers at the company's office in Malaysia was not immediately known.

Johnston and Jones were arrested at their homes Tuesday night and made initial court appearances Wednesday. A magistrate judge released Jones on bond, but Johnston, a citizen of the United Kingdom, will remain in custody pending a detention hearing set for Friday. Prosecutors said they believe he poses a flight risk.

The two were each represented by court-appointed lawyers for purposes of Wednesday's hearing, but given their finances, the judge ordered them to hire their own attorneys for future hearings. Neither court-appointed lawyer spoke with reporters after the hearing.

The privately held Entellium makes Web-based programs that help companies track sales and customer information. Most of its clients are U.S.-based, and include small-to-mid-sized manufacturing, technology and construction firms.

"We have both made a grave mistake (in) misrepresenting our revenue to the board," Johnston wrote to two of the company's directors in his resignation e-mail, which was cited in the federal complaint. "Looking back at the time we thought we would be able to right the wrong and correct our representation, but we have not been able to do this."

He added: "Clearly this is devastating news and something we both regret and are deeply sorry for. Our families are not aware of this and we are telling them now."

Johnston and Jones founded the company in 2004 and almost immediately began overstating revenues by $400,000 a month, according to Johnston's e-mail.

Since 2006, they claimed revenue of nearly $15.5 million, when in reality the company took in less than $3.8 million, FBI Special Agent Patrick Garry wrote in the complaint.

Johnston and Jones presented the inflated revenue statements to the company's board to attract private investment, prosecutors alleged. Of the more than $50 million Entellium has raised, more than $19 million came from the Bellevue-based Ignition Partners — a venture capital firm started by former executives at Microsoft Corp. and McCaw Cellular Communications. The latter became AT&T Wireless.

Two of Ignition's partners serve on Entellium's board, and said they would not have invested had they known the true state of the company's finances, the complaint said.

Most recently, Ignition provided the company with $2 million in April.

Barry Abraham, a shareholder who said he left Entellium in 2005 after serving as vice president of sales, was indignant. He suggested an audit would have uncovered the misrepresentations, and people on the company's board — especially the Ignition representatives — must have known what was going on and let it happen while they waited for Entellium's business to take off.

A woman who answered the phone at Ignition said the firm had no comment. Ignition lawyer Steven Yentzer did not return a call.

"When you raise $50 million — $50 million — doesn't anybody ever do an audit?" Abraham asked. "You don't hand over $19 million on a hunch, because you feel like (Johnston) is a good guy. The reason there was no audit called was because there was a big white elephant in the room."

Prosecutors said the scheme was uncovered late last month when Melisah Wojtacha, Entellium's vice president of human resources, was cleaning out a desk formerly used by the company's head of sales. Wojtacha found five "board books" — compilations of financial data presented to board members — and turned them over to company controller Sonya Huntzinger.

Huntzinger saw the inflated revenue statements and brought them to the attention of a board member on Sept. 29, the complaint said. The next day, the board informed Johnston that a contract CFO would be coming to "check some things out," and Johnston and Jones quickly resigned.

Entellium's legal counsel brought the matter to the attention of the U.S. attorney's office.

"Truthful accounting and transparency are critical to our financial systems," U.S. Attorney Jeffrey C. Sullivan said in a written statement. "I want to commend Entellium for contacting law enforcement when it became aware of inflated revenue claims made by company executives. Corporations are on the front line in rooting out fraud, and we need and expect them to come forward."

One of the 40 people laid off Friday was Erik Krause, director of product management, who had been at the company since 2004.

"When you do work in a startup, that is one of the big risks, that the company doesn't make it," he said. "We knew it was an option, but it's still a big surprise for everybody."

Wire fraud is punishable by a maximum 20 years in prison and a $250,000 fine.

Posted by at 11:48 AM | Permalink

smdailyjournal.com | 10/11/08 Michelle Durand

A former Redwood City attorney transferred more than $800,000 from a client’s trust into his own account and swindled more than $100,000 from two other elderly clients through a home improvement loan and forged document, according to the District Attorney’s Office.

Edward Duff Hume, 59, of Solvang, resigned from the California Bar in September 2007. The request took effect in April and disciplinary proceedings are pending.

San Mateo County prosecutors meanwhile charged Hume with embezzlement by the executor of an estate, grand theft, forgery and second-degree burglary.

Hume was arrested last Friday and appeared in court yesterday for initial arraignment. He pleaded not guilty and asked for a court-appointed attorney. Hume remains in custody on $500,000 bail and returns to court Oct. 15 for Superior Court review conference and Oct. 21 for a preliminary hearing.

While practicing law in Redwood City, Hume allegedly took the money between July 6, 2004 and May 2006. Hume, who was a licensed attorney in Redwood City since 1975, represented Frederick Helversen in the family trust. After Helversen’s 2002 death, Hume acted as the trustee and prosecutors say he embezzled $824,361.28 over the course of 18 months.

In 2006, Hume allegedly asked two other clients to loan him $100,000 for home improvements on the condition the money was repaid by the end of the year. Hume did not repay the funds and in 2006 is accused of presenting a forged document to one victim’s Menlo Park bank asking for $6,000 from her personal account. The bank would not honor the document after learning from the woman she didn’t approve the transfer.

Of the amount stolen, Hume used approximately $200,000 on landscaping at his Solvang home, said Chief Deputy District Attorney Steve Wagstaffe.

If Hume is convicted, he faces seven years in prison, Wagstaffe said.

The criminal charges and pending disciplinary actions are just the latest in Hume’s resume, according to the State Bar of California.

In January 1998, Hume was found ineligible to practice law. He was switched back to active status that March but again found ineligible in October 2002. In November, he returned to active but in July 2007 was again ineligible. His status stayed as such until his resignation was recognized in April.

In 1998, according to the BAR, Hume received a stayed one-year suspension and two years probation for not responding to his client’s requests for information and failing to perform legal services competently.

In 2002, Hume received the same discipline plus an actual 30-day suspension for failing to comply with the probation conditions of the previous incident. He filed five quarterly probation reports late, failed to file five more and didn’t finish ethics school.

Posted by at 11:45 AM | Permalink

bizjournals.com | 10/6/08 | Kevin Kemper

Worried about the exposure of those in her department to criminal charges, a National Century Financial Enterprises Inc. finance executive kept copies of company documents in her basement to share with investigators if they ever came calling. Jessica Bily, the former associate vice president of funding at National Century, told jurors who will decide the fate of her former boss Lance Poulsen that she decided to copy documents that detailed allegedly illegal payments to clients so she and her employees would be protected in case a criminal probe was ever launched.

From her vantage point at the center of National Century’s finance department, Bily testified she watched as superiors directed employees to shift funds among accounts to hide shortfalls, make multimillion-dollar advances to some clients in violation of its agreements with investors, and change data in investor reports to avoid raising red flags.

Bily testified Thursday at the criminal fraud trial of Poulsen, the 65-year-old founder and former CEO of Dublin-based National Century. The government has accused Poulsen of running a nearly decade-long fraud at National Century that resulted in more than $2.84 billion in investor funds going missing when the company collapsed into bankruptcy in 2002.

Poulsen is standing trial in U.S. District Court in Columbus on securities fraud, wire fraud and money laundering charges. He has pleaded not guilty to all charges.

Bily, who began at National Century after college and rose to become a senior executive, testified that advances approved by Poulsen concerned her so much that she kept her own set of records on the advances at home. She guided the jury through several documents she had created to track the funding.

She showed jurors how one company, owned in part by Poulsen and National Century cofounders Donald Ayers and Rebecca Parrett, received more than $7.8 million for operating expenses and more than $7.8 million for its real estate investment trust in the span of less than a week.

Those transactions, Bily said, were not allowed under National Century’s master indenture agreement, a governing document that defined for investors how the company operated.

Bily said she knew of nearly $1 billion that had been illegally advanced to clients by August 2002, six of which were owned by Poulsen.

On cross-examination, William Terpening, Poulsen’s attorney, attempted to draw doubt in jurors’ minds by asking Bily about her education and her contact with Poulsen.

Bily graduated from Wright State University in Dayton in 1994 with degree in English. Until she worked at National Century, she had no training in finance.

Terpening also asked Bily if she had ever read National Century’s governing documents, such as its master indenture agreement, sale and subservicing agreement and private placement memorandum. Bily admitted she had only read a sample sale and subservicing agreement, a document that governed how National Century worked with the health-care providers it financed. When she had questions about other aspects of the business, Bily said she would turn to her superiors for answers.

Bily said she was too intimidated to express her opinions on National Century’s allegedly illegal actions to Poulsen. Instead, Bily said she would relay her concerns to her immediate supervisors.

Terpening also questioned Bily about her cooperation with the government. She admitted that she reached out to help investigators in early 2003, but at the behest of her attorney. Bily also said she went through National Century’s computer network to find documents that would be helpful to the government. On some of those documents, Bily attached explanations of what Poulsen was trying to accomplish.

But Terpening reminded Bily that she and Poulsen didn’t talk together about strategy, and asked why she thought she knew what Poulsen’s intentions were. Bily said she thought it was obvious what Poulsen was trying to do.

Posted by at 3:18 PM | Permalink

recordonline.com | 10/7/08 | Staff Writer

A former Orange County Jail lieutenant who 10 years ago siphoned $130,000 from jail accounts and served time in prison is again behind bars.

William J. Stenson Jr. surrendered himself to authorities Tuesday morning after learning there was an outstanding warrant

for failing to pay $90,000 in restitution.

Stenson, who lives in Mexico, appeared before Orange County Judge Jeffrey Berry, who set bail at $90,000 cash or

$350,000 bond.

As he was being handcuffed and led out of the courtroom, Stenson turned to his lawyer, Brandon Ozman, and asked: “Will

you call my wife?”

In 1998, Stenson was a lieutenant at the Orange County Jail in charge of bail and inmate accounts.

The 15-year Sheriff’s Office veteran vanished Feb. 25, 1998, as questions swirled about his handling of a bail account.

Investigators patched together a paper trail of deceptive bookkeeping practices and Stenson was indicted on grand larceny

charges for stealing $130,000.

Stenson hid out in Mexico and remained on the lam for two years before turning himself into the FBI in Laredo, Texas. His

disappearance and indictment was one of a series of embarrassing incidents and scandals to rock the administration of

then-Sheriff H. Frank Bigger.

Stenson, now 66, was sentenced to two to 10 years in state prison. He was paroled in January 2004.

Ozman told Berry that his client had been stopped by the Department of Homeland Security twice, once in Houston and

once in Newark, and was never told that there was an outstanding warrant.

He still has friends in the courthouse and got a call that there was a warrant for his arrest, Ozman said.

Posted by at 3:16 PM | Permalink

prnewswire.com | 10/7/08 | Press Release

A loan broker from the Philippines has been charged in connection with a $15 million scheme to defraud the Export-Import Bank of the United States (the Ex-Im Bank), Acting Assistant Attorney General of the Criminal Division Matthew Friedrich and U.S. Attorney for the District of Columbia Jeffrey A. Taylor announced today.

A federal grand jury in the District of Columbia returned a nine-count indictment earlier today against Bettina Balderrama, a/k/a Bonnie Balderrama, 57, of Manila, Philippines. The indictment charges that Balderrama brokered approximately $15 million worth of fraudulent loan transactions between companies located in the Philippines and U.S. lending banks, in which the Ex-Im Bank acted as guarantor or insurer.

The Ex-Im Bank, an independent agency of the United States, is the official export credit agency of the United States and issues loan guaranties and insurance to U.S. banks on behalf of creditworthy foreign companies for the purpose of purchasing U.S. goods. Once the Ex-Im Bank issues a loan guaranty or insurance policy, if the foreign borrower defaults on its loan repayments to a lending bank, the Ex-Im Bank pays the amount of the outstanding loan to the lending bank.

According to the indictment, between December 2001 and October 2004 Balderrama identified companies in the Philippines that wanted to borrow money to purchase U.S. goods and lending banks in the United States that would lend money for the purpose of buying U.S. goods. Balderrama then assisted the borrowers in executing loan agreements with the lending banks and in obtaining loan guaranties or insurance policies from the Ex-Im Bank as part of the loan agreements. The indictment alleges that Balderrama recruited a U.S. exporter,

Cristina Song, for the purpose of purchasing U.S. goods and shipping those goods to the Philippine borrowers, and then instructed Song to prepare false shipping documents and submit those false documents to the lending banks to make it appear that she had purchased and shipped goods. The indictment alleges that Song did not purchase the goods called for in the loan agreements, and instead misappropriated a majority of the loan proceeds and sent large portions of those proceeds to bank accounts owned and controlled by Balderrama and other foreign bank accounts as directed by Balderrama.

Balderrama has been charged with one count of conspiracy to defraud the United States and to commit offenses against the United States; three counts of submitting false statements to the Ex-Im Bank; one count of conspiracy to commit money laundering; three counts of money laundering; and one count of obstructing a proceeding before a department and agency of the United States.

Posted by at 3:12 PM | Permalink

startribune.com | 10/7/08 | David Phelps