Examples of Corporate Fraud Investigations - Fiscal Year 2014
The following examples of corporate fraud investigations are written from public record documents on file in the courts within the judicial district where the cases were prosecuted.
Sheriff’s Deputy Sentenced in Connection with Rothstein Investigation
On July 21, 2014, in Miami, Florida, David Benjamin, of Boca Raton, was sentenced to 60 months in prison, three years of supervised release and ordered to pay $22,071 in restitution for conspiring to commit crimes in connection with the operation of the former Fort Lauderdale law firm of Rothstein, Rosenfeldt and Adler, P.A. (RRA). On May 13, 2014, Benjamin pleaded guilty to conspiracy to commit extortion and to violate civil rights. At the time of the offense, Benjamin was a Lieutenant and served as Executive Officer to then Sheriff Al Lamberti. Benjamin admitted that he utilized his position to unlawfully further the interests of RRA, its Chairman and CEO, Scott W. Rothstein, and other persons associated with Rothstein. Specifically, Benjamin admitted that he received approximately $185,000 in money and other things of value from Rothstein and RRA in return for providing his assistance when needed, including arranging with another deputy to arrest the ex-wife of an attorney who was engaged in a child custody dispute with her, arranging to use force and threats of force against the boyfriend of an escort who was threatening to expose the illicit relationship which existed between the escort and one of the partners at RRA, and assisting Rothstein in loading cash and jewelry onto a private airplane which was used by Rothstein to flee to Morocco on October 27, 2009, as the Ponzi scheme being conducted through RRA was beginning to unravel.
Maryland Man Sentenced for Defrauding SBA and IRS
On July 2, 2014, in Greenbelt, Maryland, Vernon J. Smith III, of Edgewater, was sentenced to 42 months in prison, three years of supervised release and ordered to pay $7,033,844 in restitution and forfeiture. Smith pleaded guilty on March 28, 2014 to conspiring to defraud the United States in connection with schemes to fraudulently seek federal contracts under a Small Business Administration (SBA) program and to defraud the IRS. According to court documents, Smith admitted that he conspired to defraud the SBA by directing a controlled company, Platinum One Contracting, Inc., to submit a fraudulent application and false annual updates for certification in an SBA program. As a result, Platinum received more than $52 million in contracts from the federal government to which it was not entitled. Smith and his wife Georgia Smith transferred millions of dollars from Platinum for personal uses such as gambling, lavish vacations and limousine transportation. They also transferred money from Platinum to credit card companies to pay for personal expenses that Vernon and Georgia Smith charged to Platinum’s corporate credit cards. The Smiths signed false corporate and personal tax returns for 2005 and 2006. The cost of goods sold and payments to contractors reported on the corporate returns were false because almost all of that money was paid to, and for the benefit of, Georgia and Vernon Smith at casinos. Georgia Smith pleaded guilty to conspiring to defraud the United States by filing false tax returns and will be sentenced at a later date.
California Man Sentenced for Tax Evasion
On May 16, 2014, in Santa Ana, California, Raymond Lee Leonard, of Mission Viejo, was sentenced to 30 months in prison, three years of supervised release and ordered to pay $2,452,546 in restitution to the IRS. Leonard pleaded guilty in August 2012 to a five-count Information charging him with evading taxes on his 2006 through 2008 individual income tax returns, as well as his 2005 and 2006 corporate returns. According to court documents, Leonard used telemarketers working from offices in Mission Viejo and Irvine to promote bogus oil and gas investments. In May 2006, Leonard directed his son to transfer a significant portion of funds obtained from the Consumer Information Network, Inc. (CIN) telemarketers’ oil and gas solicitations into two CIN bank accounts held for personal use. Leonard then caused his son to use the funds to purchase a seven-bedroom and eight bathroom house in Laguna Hills. Although title to the house was placed in the name of a relative, Leonard made all the decisions concerning the house, which included major renovations, and used it as his primary residence. During 2007 and 2008, mortgage payments and renovations to the house were paid for from bank accounts containing the diverted corporate funds. In addition, Leonard failed to report at least $3,393,622 in income on the individual tax returns he filed for the years 2006 through 2008, resulting in a tax loss to the government of $1,093,284. Leonard further failed to report at least $1,458,624 in income and claimed false deductions totaling $2,316,590 on CIN’s corporate returns he filed for the years 2005 and 2006, resulting in a tax loss to the government of $1,359,262. Leonard’s son, Evan Leonard pleaded guilty in October of 2013 to subscribing to a false income tax return for the 2006 tax year. He is awaiting scheduling.
Former Chief Operating Officer Sentenced for Insider Trading, Fraud and Obstruction Of Justice
On May 9, 2014, in Central Islip, New York, Sandra Hatfield was sentenced to 84 months in prison, three years of supervised release and ordered to forfeit some $1.8 million in illicit profits. Restitution to victims will be determined at a later date. Hatfield, the former Chief Operating Officer of DHB Industries, Inc., and her co-defendant, DHB founder David H. Brooks, were convicted in September 2010 on nine counts of conspiracy, insider trading, securities fraud, and obstruction of justice arising out of a $200 million fraud. Subsequently, Hatfield pleaded guilty to filing a false income tax return. According to court documents, Hatfield and others conspired to loot DHB, a supplier of body armor to the U.S. military and law enforcement agencies. Specifically, Hatfield helped Brooks hide the related party status of Tactical Armor Products and siphon more than ten million dollars from DHB to support a thoroughbred horse-racing business. Hatfield also engaged in accounting fraud schemes designed to increase the net income and profits that DHB reported in its press releases and filings with the Securities and Exchange Commission by falsely inflating the value of DHB’s existing inventory, adding non-existent inventory to the company’s books and records, and fraudulently reclassifying expenses.
Idaho Contractor Sentenced for Conspiracy, Wire Fraud and Tax Fraud
On Feb. 27, 2014, in Boise, Idaho, Elaine Martin, of Meridian, Idaho, the former president and majority stockholder of MarCon, Inc., was sentenced to 84 months in prison, three years of supervised release and ordered to pay $98,825 in restitution to the IRS and $32,575 to the Idaho Disadvantaged Business Enterprise (DBE) Program. Martin was convicted by a federal jury on Sept. 19, 2013, on 22 criminal counts, including filing false individual and corporate tax returns, conspiracy to defraud the United States, wire fraud, mail fraud, false statement, interstate transportation of property taken by fraud, conspiracy to obstruct justice and obstruction of justice. Prior to sentencing, Martin paid in full a forfeiture amount of $3,084,038. Martin’s co-defendant, Darrell Swigert, of Boise, a minority shareholder in MarCon, was found guilty of obstruction of justice and conspiracy to obstruct justice and will be sentenced at a later date. According to evidence presented in court, as early as 1997, Martin concealed a portion of MarCon’s business income by diverting customer payments for the sales of used materials into a separate bank account. Martin did not tell MarCon’s accountant about the bank account or the unreported sales, and in fact organized the company’s business affairs to help conceal these sales from the accountant. When the IRS initiated a civil audit, Martin lied to the IRS revenue agent and told him that all business income was reported on MarCon’s tax returns. The evidence at trial, however, showed that neither MarCon nor Martin reported the income they received from the used material sales on their tax returns from 1997 through at least 2006. Martin also submitted false and fraudulent applications to have her construction company, MarCon, admitted and/or remain in two different federally funded programs, the U.S. Small Business Administration (SBA) 8(a) Program, and the Department of Transportation DBE Program. Martin took steps to artificially lower her personal net worth, by failing to report all of her income from MarCon, causing MarCon to pay for personal expenses such as renovations and landscaping for her home, and acquiring, holding and transferring assets into the names of nominees in order to appear to be economically disadvantaged. This allowed MarCon to qualify for the DBE and SBA 8(a) programs. Martin also caused false and fraudulent tax returns to be filed for herself and MarCon, Inc., which did not report all of the income received by Martin or the company. The false returns were submitted in support of MarCon’s applications to the SBA 8(a) Program and DBE Programs for Idaho and Utah, along with false personal financial statements. Martin omitted, deleted, altered and mis-categorized entries in MarCon’s financial books and records. Martin also concealed her role or relationship in other business entities that dealt with MarCon, Inc. MarCon received more than $2.5 million in government contracts based on the company’s fraudulently obtained SBA 8(a) status, and MarCon received more than $15 million in government contracts based on the company’s fraudulently obtained DBE status in the states of Idaho and Utah.
CEO of Debt Collection Agency Sentenced for Role in Multi-Million Dollar Fraud Scheme
On December 19, 2013, in Bridgeport, Conn., Peter Pinto, of East Quogue, N.Y., was sentenced to 48 months in prison and five years of supervised release. Pinto pleaded guilty on May 11, 2012 to one count of conspiracy to commit wire fraud, bank fraud and money laundering and wire fraud for his role in a multimillion dollar fraud scheme at Oxford Collection Agency, where Pinto served as Chief Executive Officer. According to court documents and statements made in court, Oxford Collection Agency was a private financial services company that engaged in accounts receivables management, primarily debt collecting. Businesses and other entities contracted with Oxford to collect debts on their behalf. Oxford collected debts from consumers under the pretense that it would report all such collections to its clients and remit the appropriate amount to the client. However, Pinto and other Oxford executives routinely caused Oxford to collect debts that were never remitted to its clients. The co-conspirators referred to these unremitted collections as a client’s “backlog.” To hide the backlog, co-conspirators would make periodic fraudulent collection reports to certain clients that under-reported the amount of funds collected. Pinto and others diverted various funds from their client remittances and used them for their own needs. Oxford’s victims lost more than $10 million as a result of this scheme. The investigation also revealed that Oxford sometimes obtained and retained business with its banking clients by paying bribes and kickbacks to bank officials. Five other Oxford executives have pleaded guilty, including Pinto’s father and Chairman of the Board, Richard Pinto. Richard Pinto was sentenced to 60 months in prison. The other defendants await sentencing.