Examples of Corporate Fraud Investigations - Fiscal Year 2013
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.
Businessman Sentenced for Failure to Pay Payroll Taxes and Bank Fraud
On April 4, 2013, in Columbus, Ohio, Robert Jeffrey Johnson was sentenced to 15 months in prison, three years of supervised release and ordered to pay $1,334,052 in restitution to the IRS and $252,500 in restitution to the victim financial institution. Johnson pleaded guilty on September 27, 2012 to failure to pay employee payroll taxes, bank fraud and concealing documents in a bankruptcy proceeding. According to court documents, Johnson, president of Smith & Johnson Construction Company, borrowed $20 million from lenders in 2004 and 2005 to fund company operations. However, during 2004 and 2005, Johnson used his position at Smith & Johnson to have about $7 million transferred to him and to business entities controlled by him. Part of Johnson’s scheme included securing a line of credit to pay off any outstanding accounts and the end of the fiscal year to make it appear that he, or business entities he controlled, owed no money to Smith & Johnson. Johnson also purchased vehicles with funds provided by Smith & Johnson, then sold the vehicles and had the proceeds sent to himself or his representative. When the construction company filed for bankruptcy in 2006, Johnson filed false documents, failed to submit all financial records and hid assets from the bankruptcy trustee. In addition, Johnson defrauded the IRS in the amount of $156,008 in the first quarter of 2006 by withholding funds from employees’ paychecks for taxes and failing to pay the funds to the IRS.
Owner of Florida Wholesale Distributing Company Sentenced in Tax Fraud Scheme
On April 1, 2013, in Miami, Fla., David Bradman, of Miami, was sentenced to 12 months and one day in prison and one year of supervised release for his role in a tax fraud scheme. A restitution hearing will be held at a later date. Bradman had previously pleaded guilty to one count of making false income tax returns for an S Corporation (Forms 1120S) for tax year 2005. According to court documents, Bradman was the sole owner and operator of Diplomat Trading, Inc., in Miami, Florida. The company was a wholesale distributor of consumer electronics that exported merchandise to Latin America. In 2000, a scheme was devised in which Bradman and others set up a Panamanian corporation, CHF Electronics. On October 20, 2002, a false note was created to make it appear as though Diplomat Trading had borrowed $6,301,008 from CHF Electronics. The note was signed by Bradman. Checks representing purported payments on this note were sent from Diplomat Trading to CHF Electronics. Bradman inflated the amounts listed as mortgages, notes and bonds payable, and the corresponding interest deductions, in his tax returns for his S Corporation, Forms 1120S, in the name of Diplomat Trading, Inc. In addition, Bradman used CHF Electronics to cycle money for his personal use. In 2005, Bradman had a second company, MDA Inversiones, incorporated in Panama. Approximately $700,000 was moved from CHF’s bank account in Panama to a Panamanian bank account for MDA Inversiones. A majority of those funds were then wired to the United States so that Bradman could purchase two properties in Miami, Florida.
Former Corporate Executive Sentenced for Securities Fraud
On February 26, 2013, in Boston, Mass., James C. Fields, of Brookline, Mass., was sentenced to 60 months in prison, three years of supervised release and ordered to pay restitution to his victims. In November 2012, Fields was convicted for conspiracy, securities fraud, false statements to company auditors, false statements in required SEC filings, wrongful certifications of SEC filings, aggravated identity theft, and money laundering. According to court documents, beginning in about 2002, Fields, the former Chief Financial Officer of Locateplus Holdings Corporation, and later acting Chief Executive Officer, pursued several fraudulent schemes intended to artificially inflate Locateplus’ assets and revenues. Fields engaged in a series of fraudulent activities, including creating fake companies, deceiving the SEC and other regulatory authorities to avoid registering securities, and routinely deceiving Locateplus’ independent accountants and the SEC.
Former Executives of Financial Group Sentenced for Roles in Fraud Scheme
On February 14, 2013, in Houston, Texas, Gilbert T. Lopez, Jr., former chief accounting officer of the Stanford Financial Group Company, and Mark J. Kuhrt, former global controller of the Stanford Financial Group Global Management, were each sentenced to 240 months in prison and three years of supervised release. Lopez was further ordered to pay a $25,000 fine. Both men were convicted by a jury on November 19, 2012 to one count of conspiracy to commit wire fraud and nine counts of wire fraud. According to court documents, Lopez and Kuhrt helped Robert Allen Stanford perpetrate a fraud scheme involving Stanford International Bank (SIB). Stanford was previously sentenced to 110 years for his role. As part of the scheme, Lopez and Kuhrt kept the misuse of SIB assets hidden from the public and worked behind the scenes to prevent the misuse from being discovered. They also helped Stanford falsely represent to SIB customers that Stanford had infused hundreds of millions of dollars into SIB when in fact he had not. As part of that effort, Lopez and Kuhrt helped design a fraudulent real estate transaction that involved falsely inflating parcels of land purchased at $63.5 million to a purported value of $3.2 billion.
Former Illinois Business Owner Sentenced for Defrauding the IRS
On January 14, 2013, in Urbana, Ill., Imad Ribhi Abdallah, of Washington, Ill., was sentenced to 27 months in prison and ordered to pay $638,894 in restitution to the IRS in unpaid taxes and $27,320 to the Illinois Department of Human Services. According to court documents, Abdallah is the former owner of Ayat 1, Inc., which operated as Price Rite Food & Liquor in Decatur, Ill., and Genan 1 Inc., which operated as Super Saver Liquor in Peoria, Ill. On January 21, 2011, Abdallah pleaded guilty to one count of conspiracy to defraud the IRS related to corporate income tax returns filed on behalf of Genan 1 Inc. and Ayat 1 Inc., which under-reported taxable income. In addition, Abdallah pleaded guilty to one count of mail fraud and one count of making false statements to obtain health care benefits.
World Health Alternatives CEO Sentenced for $41 Million Fraud Scheme
On December 4, 2012, in Pittsburgh, Pa., Richard E. McDonald was sentenced to 130 months in prison and three years of supervised release. McDonald pleaded guilty in April 2012 to charges of wire fraud, securities fraud, willful certification of false statements to SEC, failure to pay over payroll taxes, and income tax evasion. According to information presented to the court, in 2003, McDonald became the President, Principal Financial Officer, Principal Accounting Officer and Chairman of the Board of Directors of World Health Alternatives, Inc. (WHA). In or around June 2004, McDonald also became the Chief Executive Officer of WHA. Between in or around February 2003 through August 15, 2005, McDonald defrauded WHA and its investors. He transferred funds from WHA to his personal bank account and other accounts under his control. McDonald also manipulated the financial records and statements of WHA by understating the amount of unpaid payroll taxes of WHA and its subsidiaries, and by overstating the amount of loans purportedly made by him to WHA. In addition, McDonald stole money from WHA by directing purchasers of newly issued shares to transfer the funds for the shares to accounts under McDonald’s control. McDonald stole approximately $6 million, and then spent the money on himself. In his capacity as CEO of WHA, McDonald falsely represented to the SEC, WHA shareholders, and prospective purchasers of WHA stock, the actual number of outstanding WHA shares by understating, in WHA’s financial statements, the actual number of outstanding WHA shares. The fraudulent understatements of the number of outstanding WHA shares falsely overstated WHA’s earnings per share, and thereby inflated the apparent market value of WHA stock. As a result of McDonald’s fraudulent conduct, WHA shareholders lost $41 million. McDonald also failed to report the funds he had fraudulently obtained from WHA and its shareholders on his personal tax returns. Finally, McDonald failed to pay over to the IRS the payroll taxes which WHA had withheld from its employees.
Former Officer of Sign Printing Business Sentenced for Mail Fraud and Failure to File Income Tax Return
On December 3, 2012, in Oklahoma City, Okla., Ronald Tead Cawthon, Jr., of Moore, Okla., was sentenced to 27 months in prison and ordered to pay $252,761 in restitution. Cawthon pleaded guilty on August 28, 2012, to mail fraud and failing to file an income tax return for 2008. According to court documents, Cawthon was employed as Vice President of a sign printing business located in south Oklahoma City. From 2006 to 2011, Cawthon issued checks totaling $155,342 on the business accounts made payable to himself or his personal creditors. He failed to file an income tax return for 2008 and failed to accurately report his income on his 2009 and 2010 tax returns.
President of Costa Rican Company Sentenced for Fraud Scheme
On October 23, 2012, in Richmond, Va., Minor Vargas Calvo was sentenced to 60 years in prison for carrying out a half-billion-dollar fraud scheme that affected more than 3,500 victims throughout the United States and abroad. Vargas, a citizen and resident of Costa Rica, is the majority owner of Provident Capital Indemnity (PCI) Ltd., an insurance and reinsurance company registered in the Commonwealth of Dominica and doing business in Costa Rica. Vargas was sentenced for one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, three counts of wire fraud and three counts of money laundering. Evidence at trial showed that Vargas and Jorge Castillo, PCI’s purported independent auditor, used lies and omissions to mislead PCI’s clients and investors regarding PCI’s ability to pay claims when due on the financial guarantee bonds that PCI issued. Evidence at trial showed that Vargas spent more than $23 million of his ill-gotten gains on his professional soccer teams in Costa Rica, his unrelated companies, his family and himself. Castillo, who was a PCI employee prior to becoming PCI’s “outside auditor,” pleaded guilty to conspiring to commit mail and wire fraud and awaits sentencing.
Michigan Gas Station Owner and His Bookkeeper Sentenced for Tax Fraud
On October 17, 2012, in Detroit, Mich., Elsayed Kazem “Tom” Safiedine was sentenced to 21 months in prison and Mary Fawaz was sentenced to 12 months and one day in prison. Safiedine and Fawaz were convicted by a jury of conspiring to defraud the United States by impeding and impairing the lawful functions of the IRS. According to evidence at trial, Safiedine was an officer and member of multiple business entities that operated and leased gasoline stations in the Detroit area. Fawaz was an officer of JSC Corporation, a business operated by Safiendine, and also served as a bookkeeper and office manager for several of Safiedine’s businesses. From 1998 through 2001, Safiedine and Fawaz arranged for third parties to negotiate checks from Sunoco Incorporated made payable to JSC Corporation. The checks from Sunoco, which totaled $845,000, were not properly reported to the accountant for JSC Corporation and as a result, were not included as income on JSC’s corporate tax returns filed with the IRS. In addition, Safiedine and Fawaz participated in the sale of a gasoline station owned by one of Safiedine’s businesses, MTK & KLC Partnership. They advised the accountant for MTK & KLC that the gas station sold for $175,000 less than its actual sale price, thus resulting in an understatement of income on the MTK & KLC partnership income tax return.
Former CFO of Connecticut Non-Profit Sentenced for Embezzling More Than $348,000
On October 10, 2012, in Hartford, Conn., William Lavimoniere, of Plainfield, was sentenced to 33 months in prison, three years of supervised release, and ordered to pay full restitution to Project Genesis and its insurance carrier. He was also ordered to pay $176,448 in back taxes and interest, as well as any applicable penalties, to the IRS. On May 9, 2012, Lavimoniere pleaded guilty to one count of wire fraud, one count of failure to file a tax return and one count of aiding or assisting in the filing of a false tax return. According to court documents and statements made in court, Lavimoniere was the Chief Financial Officer of Project Genesis, Inc., in Willimantic. Project Genesis is a non-profit corporation that serves Connecticut adults and students who have disabilities. From approximately June 2008 to September 2011, Lavimoniere embezzled $348,160 in corporate funds by using Project Genesis’s internal accounting software to keep certain terminated employees on the payroll after their official termination date. He would then transfer the terminated employee’s salary to one of three personal bank accounts. Lavimoniere also disguised electronic funds transfers to his personal bank accounts as payments to the United States Treasury or to various vendors. Lavimoniere used the embezzled funds to pay for his living, travel, entertainment and home improvement expenses. In addition, Lavimoniere did not file any federal individual tax returns for tax years 2008 through 2010 and failed to pay taxes on his legitimate income from Project Genesis, the embezzled income, and income from a separate business he owned and operated. To cover up the money he embezzled from Project Genesis, Lavimoniere reclassified some of the embezzled funds as expenses on the annual informational Form 990 that Project Genesis filed with the IRS.