Examples of Corporate Fraud Investigations - Fiscal Year 2011
The following examples of corporate fraud investigations are written from public record documents on file in the court records in the judicial district in which the cases were prosecuted.
Principals of A&O Entities Sentenced In Virginia for $100 Million Fraud Scheme
On September 28, 2011, in Richmond, Va., Adley H. Abdulwahab, of Houston, Texas, a hedge fund manager and part owner of A&O, and Christian Allmendinger, also of Houston were sentenced for their roles in a $100 million life settlement fraud scheme, which included more than 800 victims across the United States and Canada. Abdulwahab was sentenced to 720 months in prison and Allmendinger was sentenced to 540 months in prison. According to court records and evidence at trial, the principals at A&O engaged in a scheme to defraud investors by making misrepresentations about such things as A&O’s prior success, size and office locations, number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds. Both Abdulwahab and Allmendinger were active in the day-to-day management of the companies, as well as in the marketing of A&O life settlement investment products to investors. Abdulwahab also lied to investors about having a college degree in economics, as well as failing to disclose to investors that he previously pleaded guilty to a felony charge of forgery of a commercial instrument in Texas state court. When state regulators began to scrutinize A&O’s investment products, Abdulwahab and others manufactured a sham sales transaction to “sell” A&O to a shell corporate entity named Blue Dymond and later to another shell corporate entity named Physician’s Trust. This sale ended Allmendinger’s association with the fraud scheme; however, A&O and Physician’s Trust were still secretly controlled by Abdulwahab and his co-conspirators, who continued the fraud scheme through September 2009. The A&O fraud scheme caused more than 800 investors, many of whom were elderly, to lose more than $100 million. The vast majority lost all of their investment, which represented for many all of the money they had saved for their retirement. On June 22, 2011, five individuals connected with the A&O fraud scheme were sentenced: Russell E. Mackert, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, former owner and founder of A&O, was sentenced to 120 months in prison; White, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison.
Connecticut Man Sentenced for Failing to Pay Taxes on Income from Fraud Scheme
On September 22, 2011, in Bridgeport, Conn., Gary J. Stocking, of Naugatuck, was sentenced to 24 months in prison, one year of supervised release and ordered to pay $643,885 in back taxes plus interest and penalties to the Internal Revenue Service (IRS). According to court documents and statements made in court, Stocking's wife, Susan Curtis, was employed in the Property Services Division of Webster Bank, which was responsible for, among other things, the acquisition and leasing of properties for Webster Bank’s Retail Banking business. In approximately November 2007, Stocking formed, at Curtis’s request, a limited liability company called “Equity Realty LLC.” Curtis falsely represented to Webster Bank’s Vendor Management Department that the company was legitimate and was entitled to certain fees because of real estate transactions entered into by Webster Bank. In fact, Equity Realty LLC never acted as a broker or landlord in any real estate transactions. Between approximately December 2007 and October 2009, Webster Bank and its vendors made approximately 23 payments totaling more than $1.9 million to the Equity Realty LLC bank account based on false paperwork submitted by Curtis that falsely represented Equity Realty was due a commission as a result of a Webster Bank real estate transaction. Stocking did not file tax returns on behalf of Equity Realty LLC, or in any way report to the IRS the monies deposited to the Equity Realty LLC bank account. For the 2007, 2008 and 2009 tax years, Stocking willfully failed to report approximately $1.91 million in income, causing a tax loss of approximately $643,885.
Former CFO of New Jersey-Based Printing Supply Company Sentenced to 56 Months in Prison for Embezzlement Scheme
On August 2, 2011, in Camden, N.J., John Eichner, of Montvale, N.J., was sentenced to 56 months in prison, three years of supervised release and ordered to pay $2,349,162 in restitution for embezzling more than $2 million from his former employer. Eichner previously pleaded guilty to one count of wire fraud and one count of income tax evasion. According to documents filed in this case and statements made in court, Eichner, the former CFO of a graphic arts and printing supply company based in Totowa, N.J., embezzled money from 2003 through 2009 by falsifying his expense reimbursement forms. Specifically, Eichner submitted numerous requests for reimbursement for personal expenses. Eichner also caused wire transfers to be sent from company accounts to pay for additional personal expenses he incurred, including a $30,000 wire to pay for cases of wine that he had purchased from Sotheby’s. In all, Eichner fraudulently obtained more than $2 million and purposefully failed to report the illicit proceeds of his scheme to the IRS.
Five Employees of A&O Entities Sentenced for $100 Million Fraud Scheme
On July 22, 2011, in Richmond, Va., five employees for A&O Resource Management Ltd. and various related entities were sentenced for their roles in a $100 million fraud scheme with more than 800 victims across the United States and Canada. Russell E. Mackert, general counsel for A&O, was sentenced to 188 months in prison; Brent Oncale, former owner and founder of A&O, was sentenced to 120 months in prison; David White, the former president of A&O, was sentenced to 60 months in prison; Eric M. Kurz, a wholesaler of A&O investment products, was sentenced to 60 months in prison; and Tomme Bromseth, an A&O sales agent in the Richmond area, was sentenced to 36 months in prison. All five pleaded guilty in the fall of 2010 and early 2011 for their roles in the fraud scheme at A&O, which falsely marketed life settlement products to investors, many of whom were elderly. According to court documents, the conspirators at A&O defrauded investors by making misrepresentations about A&O’s prior success, its size and office locations, its number of employees, the risks of its investment offerings, and its safekeeping and use of investor funds. When state regulators began to scrutinize A&O’s investment products, conspirators manufactured a sham sales transaction to “sell” A&O to an offshore shell corporate entity named Blue Dymond and later to another offshore shell corporate entity named Physician’s Trust. However, A&O and Physician’s Trust was still secretly controlled by A&O principals and their conspirators.
Co-Founder of High Tech Company Sentenced for Embezzling Corporate Funds
On July 15, 2011, in Seattle, Wash., Mark E. Phillips was sentenced to 48 months in prison, three years of supervised release and ordered to pay a $15,000 fine. Phillips was convicted by a trial jury in March 2011 of four counts of wire fraud, one count of mail fraud, and two counts of money laundering. According to filings in the case and testimony at trial, Phillips is a co-founder of MOD Systems, Inc. and served as a director and Chief Executive Officer of MOD from its founding in 2005, until March 27, 2009. MOD is a start-up technology company engaged in the business of developing music and video downloading technology for retail kiosks. Records indicate that Phillips caused company money to be transferred to a bank account controlled by his then-girlfriend. The money was supposed to be used to pay for services provided by the woman’s company, but she never invoiced the company for any services or kept any of the money transferred into her account. Instead, the money was controlled by Phillips, and he directed her to pay for luxuries for himself. Additionally, Phillips transferred $1.5 million out of the company to his personal account in April 2008, as a down payment for a $2.3 million penthouse.
Former Bank Vice President and Co-Conspirator Sentenced to Prison for $11.2 Million Conspiracy
On June 30, 2011, in Charlotte, N.C., Scott Welch, of Mooresville, North Carolina, was sentenced to 70 months in prison, followed by three years of supervised release for an $11.2 million conspiracy to defraud a bank. Welch was ordered to pay $11,221,462 in restitution to the bank and $1,713,083 to the Internal Revenue Service (IRS). Welch’s co-defendant, John P. Cousar, Jr., a retired Charlotte firefighter, was also sentenced today to 33 months in prison, followed by three years of supervised release. Cousar was ordered to pay $5,901,593 in restitution to the bank and $1,124,448 to the IRS. The defendants were also ordered to forfeit to the government hundreds of thousands of dollars in assets, including three real properties. In June 2010, Welch and Cousar pleaded guilty to mail fraud conspiracy and tax violations. According to court documents, from at least 2000 through November 2008, Welch served as the vice president in the bank’s distribution utility center in Charlotte. As vice president, Welch oversaw the payment of invoices submitted by outside vendors who provided goods and services to the bank. Welch used his position to lead the conspiracy by directing co-defendant Cousar and others to transmit bogus invoices totaling over $11 million through their respective businesses to the bank. The invoices, which falsely reflected that actual goods and services were provided to the bank, were transmitted to the bank by the co-conspirators through the U.S. mails. Thereafter, the bank issued payment for the invoices totaling more than $11 million during the nearly eight-year time period of the conspiracy. Cousar submitted approximately $5,901,593 in bogus invoices during the time period of the conspiracy and made kick back payments to Welch in connection with the scheme.
Philadelphia Man Sentenced for Tax Fraud Scheme
On May 24, 2011, in Philadelphia, Pa., Joseph D. Val was sentenced to 57 months in prison, followed by three years of supervised release and ordered to pay $1,465,577 in restitution to the victim of the scheme and $318,702 in restitution to the Internal Revenue Service. Val pleaded guilty to one count of filing a false tax return and one count of wire fraud in February 2011. The charges related to a fraud scheme devised by Val through which he stole a substantial amount of money from a financial services firm at which he was employed as a project manager. As part of the scheme, Val registered the fictitious name, “Allied Technical Group” (ATG) with the Pennsylvania Secretary of State. ATG had no operations and was used by Val solely to steal money. Val created false invoices from ATG, which he submitted to the firm at which he worked claiming that ATG had performed work for the company and, in total, sought payment of nearly $1.5 million. Val took numerous steps to make ATG appear to be a legitimate company, including opening up a bank account for ATG and obtaining a telephone number and email address for ATG. He also used an address in Center City, Philadelphia for ATG and devised a company slogan that he used on the false invoices. Val used the funds he stole to purchase luxury vehicles, to make substantial renovations to his residence, to purchase other luxury items, and to pay for personal expenses.
Michigan Man Sentenced to Prison for Ponzi Scheme and False Income Tax Returns
On May 17, 2011, in Grand Rapids, Mich., Roger Lee Clark, formerly of Wyoming, Michigan, was sentenced to 78 months in prison for committing a multi-million dollar Ponzi scheme and filing false income tax returns. The judge also ordered Clark to pay restitution to the victims and serve a combined total of four years of supervised release. Clark also agreed to a money judgment of $9,162,380 and the forfeiture of undeveloped real property as well as numerous vehicles. Clark was also ordered to pay $163,646 in back taxes. According to information presented in court, Clark claimed that he owned and operated CRM Investors Corporation for the past 16 years, despite never having any training in financial planning or any related financial fields. Clark used CRM, along with other fictitious businesses that he created, to hide money and assets from victims and evade his income taxes. In 2007, Clark instructed a California investor to wire transfer $1,001,500 into a bank account controlled by him. Clark explained to the investor that she was investing in the T-Bill trading program and that her investment was 100 percent secure. Clark admitted that in September and October of 2007, he sent the victim two wire transfers of $180,000 each and lied to her that the payments represented earnings from her investment, when in fact, the first payment came from her own principle and the second payment was from the principle of another investor. On January 29, 2009, Clark emailed the California investor indicating that all of her money was lost, but never stated where the money actually went. Clark filed a 2007 tax return that reported his total income to be slightly over $11,000 when he knew that his actual total income was significantly higher.
Michigan Chiropractor Sent to Prison for Tax Evasion
On May 3, 2011, in Grand Rapids, Mich., Kerry Thomas Kilpatrick was sentenced to 24 months in prison and two years of supervised release for tax evasion. Kilpatrick was also ordered to cooperate with the IRS and pay restitution of $85,014 for taxes owed in 2002. In his plea agreement, Kilpatrick admitted that he evaded paying taxes for income he earned as the self-employed owner of the Kilpatrick Chiropractic Life Center in Grand Rapids for the 2002 tax year. He also acknowledged that he did not pay federal income taxes on income earned from 1999-2007. According to court records, during 1999 through 2007, Kilpatrick paid himself through direct payments from his business credit union account without including any withholdings for state or federal payroll taxes. Kilpatrick also used the business credit union account to make direct payment on his home mortgage, along with other personal expenditures. During 2001 through 2002, Kilpatrick formed numerous holding companies, corporations, and enterprises that lacked any economic substance and were located in Nevada, Oregon, and the Republic of Panama. He used the entities to evade his income taxes, pay local property taxes on his real estate, and to hold the title on his 1999 Ford Expedition, $63,000 Tiffin Motor Home, and other property.
Owner of Cleaning Service Business Sentenced on Tax Charges
On April 11, 2011, in Los Angeles, Calif., Sergio Villegas, the sole shareholder of Blue Line Cleaning Service, Inc., located in Orange, California, was sentenced to 12 months and a day in prison, followed by two years of supervised release, and ordered to pay $220,469 in restitution, $2,000 in fines, and a $100 special assessment. According to his plea agreement, during the years 2004, 2005, and 2006, Villegas conducted financial transactions in a manner that was designed to conceal his true and correct taxable income. Villegas failed to deposit all of Blue Line Cleaning Service’s business checks received for cleaning and maintenance services into the business bank account. Instead, Villegas diverted funds from his corporation for his personal use by cashing checks payable to Blue Line Cleaning Service and then depositing the cash into his personal bank account. For tax years 2004, 2005, and 2006, Villegas failed to report additional business receipts of over $396,000 on Blue Line’s corporate returns (Forms 1120). The resulting additional corporate tax due was $142,635. In addition, for the same tax years, Villegas diverted over $396,000 in business receipts for his personal benefit and failed to report the diverted funds on his personal returns (Forms 1040). The resulting additional individual income tax due was $77,834.
Business Owner Sentenced for Tax Evasion
On February 25, 2011, in Urbana, Ill., Mohammed Qattoum was sentenced to 14 months in prison, followed by 3 years supervised release, and ordered to pay $287,619 in restitution for tax evasion. According to court documents, Qattoum, owner of JB Food & Liquor, pleaded guilty to not reporting all income from his business on his corporate tax return. On November 17, 2010, Qattoum entered pleas of guilty to two counts of tax evasion for under reporting the business income on his corporate income tax returns for 2005 and 2007. Qattoum also pleaded guilty to one count each of witness tampering and making false statements. On April 10, 2008, Qattoum attempted to persuade a witness to withhold information from the grand jury and on April 9, 2008, provided false information when he was interviewed by agents with the Internal Revenue Service.
Associate of Former University of Louisville Dean Sentenced for Tax Fraud
On February 11, 2011, in Louisville, Ky., Thomas Schroeder, of Port Byron, Illinois, was sentenced to 46 months in prison and two years of supervised release for his role in a sophisticated criminal scheme to avoid paying $786,167 in federal income taxes. Schroeder was found guilty on September 8, 2010, of conspiring to impede the Internal Revenue Service (IRS). According to evidence presented at trial, from 2001 through 2008, Schroeder conspired with Robert Felner, former University of Louisville Education Dean, to use the Illinois based National Center on Public Education and Prevention (NCPEp) – an agency created by Schroeder as president – to commit tax fraud by using the NCPEp to conceal money obtained from the National Center on Social Policy at the University of Rhode Island, the Rock Island County Counsel on Addictions, and the University of Louisville. Felner is currently serving a 63 month prison sentence after pleading guilty to conspiracy to commit money laundering, mail fraud, conspiracy to defraud the Internal Revenue Service and six counts of federal income tax evasion.
Former Owner & Former In-House Counsel of Cincinnati Company Sentenced to Prison for Tax Crimes
On January 28, 2011, in Cincinnati, Ohio the former owner of Buddy’s Carpet, Leif D. Rozin, and Alan W. Koehler, the company’s former in-house counsel, were sentenced to prison for their roles in a tax fraud scheme. In 2008, a jury found Rozin and Koehler guilty of a conspiracy to defraud the United States. In addition, the jury found Rozin guilty of filing a false corporate income tax return and tax evasion, and found Koehler guilty of assisting in the filing of a false corporate income tax return. Rozin, was sentenced to 12 months and one day in prison, three years supervised release, 2,000 hours of community service, and ordered to pay a $30,000 fine as well as the cost of his prosecution. Koehler was sentenced to 18 months in prison, three years of supervised release, and ordered to pay a $20,000 fine. During the three-week trial, the evidence showed that Rozin and Koehler conspired with others to defraud the United States by having Rozin, Inc., doing business as Buddy’s Carpet, purchase several sham “Loss of Income” insurance policies from an insurance company in the U.S. Virgin Islands. The co-conspirators used these sham insurance policies to evade approximately $775,000 in income taxes on their 1998 tax returns. Evidence revealed that Rozin and Koehler engaged in a series of purchases of these insurance policies and took numerous steps to conceal their scheme, including creating backdated documents. The evidence further showed that Rozin, Koehler, and others attempted to conceal their participation in these sham arrangements by establishing offshore nominee entities in foreign countries, such as Nevis. Also sentenced for their participation in the scheme were Bruce M. Cohen, an unlicensed financial and insurance salesman, and Milton Liss, an investment and insurance advisor. Cohen was sentenced to 37 months in prison and Liss was sentenced to 12 months and one day in prison.
Wisconsin Lawyer Sentenced for Stealing More Than $3 Million in Mortgage Fraud Scheme
On January 25, 2011, in Minneapolis, Minn., Jason Fischer was sentenced to 50 months in prison and ordered to pay more than more than $3 million in restitution for mail fraud and money laundering in connection with stealing more than $3 million in a mortgage fraud scheme. According to court documents, Fischer admitted that from 2006 through May 2009, he orchestrated a scheme to divert funds from the escrow account at Real Source Title, a company he jointly owned and managed. The company, which had offices in Mahtomedi and Burnsville as well as in Illinois and Hudson, Wisconsin, routinely accepted wire transfers and checks from buyers and lenders. Those funds were to be held in escrow for the sole purpose of closing residential real estate transactions. Fischer, however, used the diverted funds for personal benefit. To further his scheme, Fischer represented to buyers, lenders, underwriters, and others that the money deposited into the company’s escrow account was, in fact, used only to close real estate transactions. He made those representations by producing and mailing false HUD-1 settlement statements to people of interest. In truth, however, Fischer regularly withdrew escrow-account money to pay for personal and business expenses as well as to fund prior company real estate transactions. In 2008, for example, Fischer invested approximately $500,000 in escrow dollars into the opening and operation of a restaurant. Between 2006 and May of 2009, Fischer diverted approximately $3 million from the escrow account at Real Source Title; and by May 2009, the account was depleted and unable to fund 15 loans. As a result, buyers, sellers, lenders, underwriters, and others suffered significant financial loss.
Iowa Businessman Sentenced for Tax Fraud
On January 12, 2011, in Des Moines, Iowa, Mark Terbeek was sentenced to 22 months in prison, two years of supervised release and ordered to pay $60,000 for tax evasion. According to court documents, Terbeek was vice president and accountant for two corporations; Value Marketing, Inc. and East Central Publishing. For a nine year period beginning in 1997, Terbeek began making large distributions to himself, classifying them as printing expenses in the company’s books. The companies filed false corporate tax returns and deducted those payments as expenses. Terbeek failed to claim those distributions totaling more than $813,000 on his personal income tax returns.
Florida Man Sentenced on Conspiracy and Tax Charges
On January 5, 2011, in Orlando, Fla., Robert Fischetti was sentenced to 36 months in prison, followed by three years of supervised release, and ordered to pay $183,402,531 in restitution and a $175 special assessment. In addition, Fischetti was ordered to cooperate with the Internal Revenue Service (IRS) regarding all outstanding taxes, interest, and penalties. Fischetti pleaded guilty in June 2010 to charges of conspiracy and failure to file tax returns. According to his plea agreement, Fischetti served as an officer of Transcontinental Airlines (TCA) which offered an opportunity to invest in a program titled, Employee Investment Savings Account (EISA). In his position, Fischetti balanced TCA's various bank accounts and mailed quarterly statements to investors which falsely represented that their money was earning interest. Fischetti knew EISA investment money was being deposited into general TCA accounts and not being invested. In another scheme, Fischetti conspired with others to sell stock shares in Transcontinental Airways Travel Service, Inc. (TCA Travel), a Delaware corporation which had no tangible assets and ceased to exist in March 1999. Despite these facts, TCA Travel stocks were sold until 2006 and investors were sent false account statements. Court documents indicate that over 1,500 victims invested over $200 million in the EISA program and over 300 victims invested over $55 million to purchase TCA Travel stock. According to court documents, Fischetti used investors' funds to pay his personal expenses. Fischetti failed to file tax returns for tax years 2003, 2004, and 2005. During those years, Fischetti received $978,974 in compensation from TCA.
Three Individuals Sentenced for Defrauding Major Retail Company
On December 20, 2010, in Minneapolis, Minn., Russell Cole was sentenced to 180 months in prison for conspiracy to commit mail fraud and wire fraud, wire fraud, tax evasion, conspiracy to commit money laundering, and conspiracy to defraud the U.S. government. His wife, Abby Cole, was sentenced to three years of probation for conspiracy to commit mail fraud and wire fraud, conspiracy to defraud the United States, and tax evasion. Also, Robert Bossany was sentenced to 90 months in prison for conspiracy to commit honest services mail fraud and money laundering. All three were in a scheme designed to defraud a major retailer by over-billing for computer parts. As a result of the scheme the Coles and Robert Bossany invoiced the major retailer for $41 million more than the original bids for the products. Furthermore, Russell Cole misrepresented on individual and business tax returns the sales and profit from an eBay business he ran. From 2005 to 2007, Russell Cole understated his net income from the Internet business by more than $1.8 million. In addition to understating his businesses gross receipts in general over a four-year period, the Coles understated the company’s gross receipts by more than $3 million for 2006 alone. The Coles also overstated on business tax returns the cost of goods it sold. To that end, they directed company employees to inflate the cost of parts purchased from suppliers and enter false purchase orders into the company’s books and records. Moreover, the Coles paid for a large amount of personal expenses, including credit card debt and a number of luxury purchases, such as high-end jewelry and month-long stays at luxury hotels in Las Vegas, with business funds. They then classified those expenditures as business expenses on the company’s tax returns.
Texas Restaurant Owner Sentenced for Filing False Income Tax Returns
On December 13, 2010, in Houston, Texas, Maria F. Argueta, the owner of Taqueria Arandas No. 13 Inc., was sentenced to 12 months and one day in prison, one year of supervised release, and ordered to pay $237,561 in restitution to the IRS. According to court documents, Argueta owned Taqueria Arandas No. 13 Inc., through which she operated a restaurant in Houston. In a plea agreement executed on May 17, 2010, Argueta admitted she had helped file Corporate Income Tax Returns for Taqueria Arandas No. 13 Inc., for tax years 2000 through 2004 that under-reported sales by approximately $1,432,236 and taxable wages to employees by approximately $343,782. She further admitted that because of the false filings, the corporation underpaid income taxes by approximately $184,962 and underpaid employment taxes by approximately $52,599. Argueta is one of 13 local Taqueria Arandas Restaurant owners charged with filing false federal income and employment tax returns for their restaurants. To date, these defendants have paid the IRS almost $5.5 million in delinquent taxes, penalties and interest and all remain subject to audit and further assessment of taxes, penalties and interest.
Former Quest CFO Sentenced to 16 Years for Defrauding Company
On November 29, 2010, in Oklahoma City, Okla., David Grose was sentenced to 192 months in prison, three years of supervised release, and ordered to pay $1 million in restitution and forfeit $1 million in assets. According to court documents, Grose served as the Chief Financial Officer for Quest Energy Partners, L.P. (Quest), a publicly-traded oil and gas exploration and production business based in Oklahoma City from 2004 to 2008. Grose’s responsibilities included supervising Quest’s financial accounting and books, coordinating quarterly reviews and annual audits by outside auditors, certifying the accuracy of reports filed with the U.S. Securities & Exchange Commission (SEC), and ensuring that all employees complied with Quest’s internal ethics policies. According to the evidence at trial, in the summer of 2008, Grose planned to make a $1 million personal investment in a hydrogen fuel technology company. He told the hydrogen fuel technology company that the investment would be funded with his own money. Instead, under the pretext of paying for the purchase of pipe, Grose wired approximately $1 million from Quest to a pipe supplier. Within minutes of the transfer, Grose contacted the pipe company to cancel the order and instructed the pipe company to wire the money to the hydrogen fuel technology company instead of returning the money to Quest. Evidence showed that Grose then caused the transaction to be documented on Quest’s financial records as payment for pipe. As a result, Quest lost $1 million. This investigation led to three other cases: On November 12, 2010, Jerry Dale Cash was sentenced to 108 months in prison for making a false Sarbanes-Oxley certification to the Securities & Exchange Commission (SEC) by failing to disclose his diversion of $10 million in corporate funds. In addition, Cash was ordered to pay $5 million in restitution towards the $12 million stipulated restitution amount. On May 14, 2010, Brent Mueller, of Edmond, Oklahoma, Quest’s former purchasing director, was sentenced to 24 months in prison and ordered to pay over $1 million in restitution. According to court documents, Mueller learned that Grose had illegally wired $1 million out of Quest to use for a personal investment and he took several steps to cover up the crime, including trying to recover the $1 million to prevent Quest from discovering the illegal diversion.
Fraudulent Investment Scheme Nets California Man 41 Months in Prison
On November 15, 2010, in San Diego, Calif., Mohit A. Khanna was sentenced to 41 months in prison and three years of supervised release following his conviction for conspiracy to commit mail and wire fraud and filing a false federal tax return. Khanna was also ordered to pay $15,901,724 in restitution to more than 200 victims of his investment fraud scheme. According to court records, Khanna pleaded guilty on June 17, 2010, to charges of conspiracy and filing a false tax return. In his plea agreement, Khanna admitted that he held himself out as a successful foreign currency trader when, in reality, he used the money to fund a lavish lifestyle, pay exorbitant returns to investors, and pay undisclosed commissions to others to recruit new investors to keep his fraud scheme operating. According to court documents, Khanna further admitted that he fraudulently enticed investors by offering monthly returns ranging from 8 percent to 50 percent. In pleading guilty, Khanna admitted that he caused investors to loose more than $15 million, some of which represented retirement savings. Although Khanna used a large portion of the $15 million to pay phantom returns to investors, he also diverted more than $4 million to himself to fund his lavish lifestyle, which included luxury homes in Rancho Santa Fe, Rancho Bernardo, and Virginia, luxury vehicles, and expensive vacations. In addition, Khanna admitted that he filed a fraudulent tax return for the tax year 2007 by failing to report all of the income that he received from the operation of his Ponzi scheme. According to court documents, to carry out his scheme, Khanna enlisted the services of accountant Randolph Hirsch and attorney Gustav Bujkovsky. Hirsch sent a letter to investors that fraudulently represented that MAK 1's bank account balance exceeded $50 million. When the scheme was collapsing, Bujkovsky concealed investor funds in his attorney-client trust account so that the funds could not be garnished. Later, he obstructed the Securities and Exchange Commission’s (SEC) investigation of Khanna by failing to disclose the concealed investor funds. He also misled the SEC into believing that Khanna would appear for an SEC deposition when Bujkovsky knew that he had advised Khanna to flee to India to avoid being deposed. On August 17, 2010, Hirsch pleaded guilty to RICO and money laundering charges and is awaiting sentencing. On August 31, 2010, Bujkovsky pleaded guilty to obstruction of justice and tax evasion and is also awaiting sentencing.
Oregon Residents Sentenced on Tax Evasion Charges
On November 4, 2010, in Eugene, Ore., three Oregon residents were sentenced to prison for conspiracy, tax evasion, and structuring. Jerry Miller, of Redmond, was sentenced to 33 months in prison, three years of supervised release, and was ordered to pay over $200,000 in restitution to the Internal Revenue Service (IRS). William Cardwell, of Carlton, was sentenced to 12 months and a day of in prison, three years of supervised release, and was ordered to pay $197,594 in restitution to the IRS. His wife, Jennifer Cardwell, was sentenced to 5 months in prison, to be followed by five months of home detention, and was ordered to pay $114,379 in restitution to the IRS. According to evidence presented at Miller's trial, between 1995 and 2005, Miller and the Cardwells worked at Business Administrative Services (BAS), a company owned and operated by the Cardwells in Bend, Oregon. BAS was, in part, a payroll tax company. In 1995 and 1996, Miller and the Cardwells began using abusive trusts to evade the assessment and collection of their federal income taxes. They further attempted to thwart the IRS’s efforts to assess and collect federal income taxes by entering into a “Professional Services Agreement” with BAS, whereby Miller and William Cardwell agreed to donate their time to BAS, and in return, BAS agreed to pay their personal expenses. Miller and the Cardwells used BAS’s corporate bank account to pay many of their personal expenses. Additionally, Miller and the Cardwells used BAS to obtain preloaded ATM cards that were also used to pay personal expenses. In October 2005, Miller and the Cardwells also filed false federal income tax returns for 1998-2004.
Former Internet Executive Sentenced to 30 Months in Prison for Insider Trading
On October 27, 2010, in Tyler, Texas, Stanley Swanson pleaded guilty to insider trading of a publicly traded security and was sentenced to 30 months in prison. According court documents, Swanson was the CEO and President of SafeScript Pharmacies, also known as RTIN Holdings, Inc., a publicly traded company that marketed itself as an electronic prescription technology company. In 1999, Swanson resigned from his position as president, and his son, Curtis Swanson, assumed control of RTIN holdings. Stanley Swanson continued as CEO until 2003. In September 2003, the Securities and Exchange Commission began to investigate Curtis Swanson's fraudulent activities, specifically that Curtis Swanson and others fraudulently inflated RTIN's publicly-reported revenues and income. Over the following six months, Stanley Swanson was aware of the SEC investigations of his son and RTIN and sold over 500,000 shares of RTIN stock and received proceeds of more than $2 million. In a separate proceeding, Curtis Swanson pleaded guilty to securities fraud and was sentenced to 120 months in federal prison.