Wire Fraud, Mail Fraud, Tax Fraud and other Federal Fraud Cases

Published on: June 11, 2012

New charges for alien smuggling filed after the Defendant’s acquittal for drug trafficking were not subject to dismissal as vindictive

In Kendrick’s first trial where he faced federal charges of trafficking in marijuana and possession of a firearm he was acquitted. Shortly after his acquittal, he was indicted for the charge of smuggling an alien into the U.S. for purpose of financial gain 8 U.S.C. 1324(a)(2)(B)(ii). The Defendant claimed his prosecution for alien smuggling was based purely on prosecution vindictiveness for his beating the government at the drug and gun charges and the defendant moved to dismiss the indictment. In U.S. v. Kendrick, the 11th Circuit found no basis for prosecution vindictiveness and refused to dismiss the indictment. This is what happened.

1. The Coast Guard boarded a vessel that Kendrick was piloting off the coast of Florida and discovered 900 pounds of marijuana, a firearm and a previously deported illegal alien. Initially he was only charged with drug smuggling and firearm possession.

2. At his trial he denied knowing about the marijuana but admitted he had gone to the Bahamas to bring back illegal aliens into the U.S. for $25,000. He claims he called off the alien smuggling plan when he found they had no passports. He then backtracked from this admission and claimed he was only going there to bring back legal aliens and that was his financial motive.

Published on: May 4, 2012

Income tax evasion convictions should have been grouped together under the sentencing guidelines

by The Swartz Law Firm

Defendant Register pled guilty to 17 counts of tax related offenses. Thirteen counts concerned his failure to pay to the I.R.S. taxes that had been withheld from wages of his company’s employees. The remaining counts concerned falsifying his individual federal income tax return. The defendant challenged the district court’s guideline calculation, claiming the court erred in refusing to group all the counts in a single group as “counts involving substantially the same harm.” In U.S. v. Register the 11th Circuit reversed the sentence.

Register was the owner and operator of Criminal Research Bureau, Inc., a provider of background-check service for employers. To manage his payroll, he used a payroll processing company that prepared his employee paychecks and submitted the necessary quarterly paperwork to the IRS. Register was responsible for paying the taxes withheld over to the IRS. For about 4 years he withheld federal income tax (FICA) from his employees but he never turned it over these funds to the IRS.

He also falsified his individual federal income tax returns during this same period by paying his personal expenses directly from the company bank account. When he file his own personal returns, (filed late) he generated W-2 Forms that falsely indicated that he had been paid wages and that federal income taxes had been withheld. He used those figures to enable him to fraudulently collect refunds for the tax years 2003 and 2004. In 2005 and 2006 he added himself to the CRB payroll as an employee with an annual salary of $234,000, but he falsified his 1040 to show his federal taxes had been withheld from his salary when in fact none had been withheld. As a result he collected refunds when in reality he owed large amounts of money for 2005 and 2006.

Published on: February 17, 2012

Mail fraud counts dismissed for material variance between the evidence and the indictment

by The Swartz Law Firm

The defendant, an attorney in Dixie County Florida, was convicted of mail fraud and money laundering charges relating to two separate fraudulent schemes. One scheme involved the defendant’s conversion of funds developers gave him to hold in trust for future expenses associated with a development (River Shores Scheme). The other scheme was convincing victims to invest in a vitamin company called GenSpec Labs (GenSpec) by misrepresenting the anticipated return on the investment and the viability of the company (GenSpec Scheme). The court in U.S. v. Lander found the proof presented at trial in connection with the River Shores mail fraud count materially varied from the allegations contained in the superseding indictment.

Landers practiced as an attorney and served as the Dixie County Attorney. He had business dealings beyond his legal work as he tried to start GenSpec. A group of developers planning the River Shores project retained Landers to help guide their project through the county’s regulatory process. The developers did not know at first he was the county attorney, but after they did they gave him $820,000 as a level of security to assure buyers their project would pass through the county’s regulatory process.

The indictment charges that Landers misrepresented to developers that they were required to pay a performance bond to Dixie County through him as its county attorney. It charged that Landers deposited the $820,000 as payment for the performance bond. At the trial the government failed to present evidence to support the specific charges that the defendant made false representations about having to pay a performance bond. The government instead presented evidence of a scheme to defraud that was entirely different from the one alleged in the indictment charging the River Shores scheme. The misrepresentations that the government relies upon as proof of the offense do not coincide with the allegation of the indictment. The evidence the government offered at trial to support this fraud varied so greatly from the allegations of the indictment the Landers was unable to prepare his defense. When a material variance substantially prejudices the Defendant as it did here, the variance constitutes reversible error. The Court also reversed the money laundering convictions because they were predicated on the River Shores mail fraud count.

Published on: November 30, 2011

Another Jefferson County Commissioner in the Sewer for Accepting Bribes from an Engineering Firm

by The Swartz Law Firm

In U.S. v. White, former Commissioner White of Jefferson County, Alabama, was convicted of the federal crime of conspiracy to take a bribe in connection with federal funds. White was also convicted of the substantive federal crime of bribery in violation of 18 U.S.C. § 666. In writing the opinion, Judge Carnes had this comment about the overall integrity of the Jefferson County Commissioners.

‘Kleptocracy’ is a term used to describe ‘a government characterized by rampant greed and corruption.” [Citing the American Heritage Dictionary of the English Language] To that definition dictionaries might add, as a helpful illustration: ‘See, for example, Alabama’s Jefferson County Commission in the period from 1998 to 2008.’ During those years, five members or former members of the commission that governs Alabama’s most populous county committed crimes involving their ‘service’ in office for which they were later convicted in federal court. And the commission has only five members. One of those five former commissioners who was convicted did not appeal. We have affirmed the convictions of three others who did. This is the appeal of the fifth one.

First, some background. Jefferson County Alabama had entered into an agreement with the U.S. Environmental Protection Agency following a lawsuit against the county for untreated sewage released into the county’s rivers and streams. The agreement required the county to fix its sewer system at the cost of $3 billion. The county hired engineering firms to do the repair and renovation work. One of Whites responsibilities as Jefferson County Commissioner was to oversee the hiring of the engineering firms that contracted with the county to perform the sewer construction work. One of those engineering firms won lucrative contracts with the county because the firm’s owner bribed White. In exchange for the contracts totaling $1 million, White collected $22,000 in cash from its owner.

Published on: August 26, 2011

Court of appeals vacated a criminal restitution judgment and ordered a new hearing because the government failed to link false documentation to mortgage fraud loss

by The Swartz Law Firm

U.S. v. Singletary is a classic example of mortgage fraud seen in Miami and other parts of Florida. Singletary was charged with conspiracy to defraud a federally insured bank in violation of 18 U.S.C. §1344 and other federal criminal charges stemming from a scheme to defraud mortgage lenders and the Federal Housing Authority (F.H.A.) which insured mortgages loans issued by the banks. The defendants pleaded guilty and sentenced to federal prison, but they appealed the criminal restitution order, which is the amount of loss caused by their fraud.

The defendants purchased and repaired homes in need of substantial work to be marketable. After restoring the property the defendants would place the homes on the market. Potential buyers would be referred to mortgage companies controlled by the defendants. The mortgage officers would then assist the potential buyer obtain a mortgage that would be insured by the F.H.A. The F.H.A. would insure a mortgage up to 97% of the sale price as long as the buyer was able to invest a minimum 3% down payment of the price at which the defendants agreed to sell. If the buyer received a portion as a gift, it had to come from a relative or employer, and the lender had to document the gift with a gift letter specifying the nature of the relationship, the source of the funds, and had to be signed by the parties donor and borrower. Of course the defendant’s mortgage brokers committed mortgage fraud by sending bogus gift letters to verify the buyer’s down payment. Other times they created false employment verification letters or provide false “credit explanation” letters to beef up creditworthiness.

The issue here is the amount of restitution the defendants owed. The sentencing court determined the amount was a loss to the F.H.A. of $3 million in expenses as a result of the 89 foreclosed properties. The defendant objected to the loss determination. The government had the burden at sentencing of establishing by a preponderance of the evidence the amount of the F.H.A. losses and the sentencing court was required to explain its findings with sufficient clarity to enable the appellate court to conduct review.
At the sentencing, there were obvious credibility problems with loan officers that handled the false gift letter files. These were some of their credibility problems:

They could not recall some of the closings
They could not say with certainty that some of the gift letters identified were false; and
They could not say that the buyers had not received the gift.

The appellate court ordered a new hearing on the issue of the amount of restitution. It ruled the government failed to meet its burden with respect to each mortgage for which it sought restitution. The sentencing court pegged the loss at $1 million but gave no explanation for how it came up with that estimate. Furthermore, the sentencing court did not identify the particular false loans mortgages that had caused losses.
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Published on: August 18, 2011

The Eleventh Circuit upheld a federal bribery conviction for an Alabama County Commissioner who gave county business to an investment firm in return for cash, jewelry, and expensive clothes

by The Swartz Law Firm

U.S. v Langford is about a politician who went bad. Langford took more than $240,000 in bribes in the form of cash, clothing, and jewelry from codefendant William Blount while serving as a county commissioner in Jefferson County Alabama. Blount ran investment banking firm that specialized in underwriting and marketing municipal bonds. As a commissioner, Langford had the authority to select firms to handle the county’s financial transaction. Blount solicited and received business from the county for his investment firm, handling many of the county’s transactions for general obligation bonds and other county financial transactions. The deals yielded net benefit of about $5.5 million to Blount’s firm. In exchange, Blount gave Langford about $150,000 in cash and $90,000 worth of clothing and jewelry, including buying sprees at expensive clothing and jewelry stores in New York City. This led to multiple charges of bribery, mail and wire fraud, money laundering, and tax fraud.

The wire and mail fraud charges alleged that Langford’s fraud deprived the citizens of Jefferson County of their right to receive his “honest services,” for which Langford had a fiduciary duty to provide. A violation of the wire and mail fraud statutes include a scheme to deprive another of the intangible right of honest services. According to the Eleventh Circuit, when a public official uses his office for personal gain, he deprives his constituents of their right to have him perform his official duties in their best interest. There was sufficient evidence to show Langford deprived the citizens of honest services by showing his position in the county gave him authority to choose Blount’s firm and he did select the firm which receive millions of dollars in benefits in exchange for cash, and jewelry, without disclosing these valuable items. The court found the evidence sufficient to prove the elements of mail and wire fraud because Langford sent packages containing merchandise purchased for him by Blount to his office in Alabama. Langford caused the use of the wires when Blount used his American Express card to make purchases on Langford’s behalf to further the scheme to defraud the county.

Langford also challenged several evidentiary rulings.

He challenged the admission of “eye-catching” gambling winnings contained in his income tax returns, but the returns were admissible to show failure to report the cash or gifts as income. The bank records relating to his credit card were offered to show the special treatment he received in exchange for county business by causing the county to hire the bank as its financial adviser for bond transactions. The Court found the bank records were properly admitted under the business record exception of Rule 803(6) of the rules of evidence.
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Published on: August 12, 2011

Florida A & M student’s conviction and sentence for hacking into the school’s computer system to make grade changes was upheld

by The Swartz Law Firm

In U.S. v. Barrington, the defendant and some friends at Florida A & M University decided to improve their grades for graduate school applications. They devised a plan to access the school’s internet based grading system using keylogger software, a program which captures every keystroke made on a computer. A codefendant working in the Registrar’s office installed the program on various University computers and managed to capture the usernames and passwords made by school employees as they signed onto their computers. Not only did the defendants change grades, they added credits for courses failed or not taken and changed the residence of non-resident students to qualify them for in-state tuition. Barrington and his friends were indicted on conspiracy to commit wire fraud (18 U.S.C. §1349), fraud using a computer (18 U.S.C. §1030), and aggravated identity theft 18 U.S.C. §1028.)

The defendant challenged the admission of prior bad act evidence, under to Rule 404(b) of the Federal Rules of Evidence, showing how Barrington had previously changed grades for a coconspirator using forged instructor signatures on University grade change slips. The court applied the following 3-step test:

The evidence must be relevant to an issue other than the defendant’s character;

There must be sufficient proof so that the jury could find that the defendant committed the extrinsic act; and

The evidence must be probative value that is not substantially outweighed by undue prejudice.
The court found the evidence was probative of intent, and found a basis for the jury to find he committed the extrinsic act and it was not outweighed by unfair prejudice.

Barrington also challenged the trial court’s limitation on his cross examination of a government witness by preventing him from questioning him about a pending Florida state burglary charge because the charged had not yet been reduced to a conviction. The appellate court found that the cross on the burglary charge would not have presented a different impression of the witness’ credibility because the defendant’s counsel elicited sufficient information from the witness about his possible motive to testify and his personal bias against the defendant to enable to jury to assess his credibility.

Barrington also claimed the prosecution was on a legally erroneous fraud theory in that changed grades do not constitute a property interest and therefore the Government’s proof did not establish financial deprivation as required under the wire fraud statute. The court rejected the argument, finding FAMU has a property right to the tuition generated by class hours a student registers for and the higher tuition paid by non-resident students.
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Published on: July 17, 2011

Conviction for fraudulent billing Florida and California Medicaid programs for recycled blood-derivative medication was upheld in U.S. v. Bradley

by The Swartz Law Firm

Bradley and codefendants were convicted of conspiracy to commit wire fraud, mail fraud and money laundering along with other federal statutes. Bradley, the lead defendant, owned “Bio-Med Plus,” a pharmaceutical wholesaler that purchased and sold blood-derivatives (intravenous immune globulin) used to treat patients with HIV. The fraud Bradley committed was that he recruited physicians who dispensed blood-derivatives (IVIG) at AIDS clinics in the Miami area to fill their prescription at Bradley’s pharmacies for a kickback. Bradley purchased the unused portions (from patients who failed to appear at the clinic for the IVIG infusion) for one-third of the price that Florida Medicaid paid the pharmacies.

Bio-Med put those derivatives in their inventory and sold the unused derivatives to third party pharmacies in Florida and California for a substantial profit. The third party pharmacies unwittingly billed Medicaid for theses unused prescriptions. Bradley’s pharmacies filled prescriptions with the recycled derivatives and obtained reimbursement from the state’s Medicaid programs.

The Court of Appeals decided that a reasonable jury could find sufficient evidence that the defendants engaged in a scheme to defraud Florida Medicaid and Medi-Cal. It determined that Florida Medicaid and Medi-Cal never intended to reimburse for recycled blood derivatives that had been previously dispensed; that Bradley knew of these policies; that the programs would not knowingly pay for recycled blood derivatives previously dispensed; that the Bradley purchased recycled medications at discount prices from corrupt physicians with the intent to resell them for a significant profit; and that the defendants sold them off at full wholesale prices to pharmacies which dealt almost exclusively with Medicaid patients that bill the Medicaid program as if the blood derivative had never been recycled.
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Published on: June 26, 2011

Conviction of defendants in massive Atlanta area mortgage fraud upheld by Eleventh Circuit; U.S. v. Hill

by The Swartz Law Firm

The facts of U.S. v. Hill can be summarized as a scheme to obtain over 300 mortgage-backed loans for buyers who used the loans to purchase houses and condominiums from Hill and his associates for more than market value. Almost all of the loans went into default causing losses of 38 million to lenders and guarantors. Hill and his associates sold properties to straw buyers for substantially more than the cost or fair market value. Properties often went into default. In order to obtain the highest possible loans values (for these inflated prices) the lenders were given multitude of false statements: source of down payment, value of properties, income and employment of buyers, whether buyers would occupy properties, and whether any properties were being leased. Hill recruited people with good credit scores to serve as straw buyers of the properties. Often he made up employment of his straw buyers to convince lenders they could qualify for a loan, even to the extent of generating fake w-2s and pay stubs or answering the phone as the borrower’s employer. The final indictment had 187 counts ranging from conspiracy, wire fraud, mail fraud, false statements to a bank, money laundering.

Several issues were raised. Four defendants asked for their trials to be severed from their codefendants’ trials on various ground including mutually antagonistic defenses, prejudice from being tried with codefendants, or inability to pick a fair jury. All lost on this challenge. A Batson challenge to the jury selection was raised and the court found no evidence the prosecution used its peremptory strikes in a racially discriminatory manner.

Another issue raised was the use of the victim witnesses who were representatives of the victim lenders to testify about whether the misrepresentations in fraudulent loan applications would have had any effect on their decision to approve a loan. The objection was that these lay witnesses giving expert witness testimony were not qualified to give expert testimony. The court found it was properly treated as lay testimony for the bank representatives who testified about how the company does business as it was based on particularized knowledge gained in their position.

Published on: May 27, 2011

Four Rothstein associates charged in Miami with conspiracy in connection with Ponzi scheme

by The Swartz Law Firm

On May 27, 2011, the U.S. Attorney Miami filed charges against four individuals in connection with the Scott Rothstein’s fraudulent Ponzie scheme. Rothstein has already pled guilty and sentenced to 50 years for operating the fraudulent operation from 2005 through November 2009, through his law firm, Rothstein, Rosenfeldt, and Adler, P.A. (RRA), in Ft. Lauderdale, Florida. Rothstein and others fraudulently obtained approximately $1.2 billion from investors through bogus investment and other schemes. Rothstein and co-conspirators used RRA to fraudulently induce investors to: (1) loan money to non-existent borrowers based upon promissory notes and requests for short-term bridge loans for business financing; and (2) invest funds based upon anticipated pay-outs from purported confidential civil settlement agreements. The four charged all worked for Rothstein’s firm.

The information filed against Howard Kusnick alleges that, while an attorney at RRA, Kusnick engaged in a scheme to defraud two clients of RRA by authoring a letter purporting to settle pending litigation in the clients’ favor. In fact, no such litigation had been instituted and no such settlement existed. Rather, the purpose of the letter was to lull the clients into believing that RRA was pursuing litigation on their behalf when, in fact, the clients’ funds had been used to pay off earlier investors and to further the investment fraud scheme.

In this aspect of Rothstein’s Ponzi scheme, Rothstein settled a lawsuit in favor of the defendant and against his client, without the clients’ knowledge, thereby obligating the clients to pay $500,000 to the defendant in the civil lawsuit. To perpetuate and conceal the fraud, defendant Rothstein and these co-conspirators created a false federal court order, purportedly signed by a U. S. District Judge, stating that the clients had won the lawsuit and were owed a judgment of approximately $23 million. The false court order also stated that the defendant in the civil suit had transferred the funds to the Cayman Islands to avoid paying the judgment. Rothstein and these co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.