The White Collar Defense Report® provides updates on cases, policy developments and trends in the white collar area, including federal criminal matters as well as civil cases such as qui tam cases and SEC enforcement actions.
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PPP Loan & COVID Fraud Prosecutions
As always, we kick things off with Paycheck Protection Program (PPP) fraud cases, which continue to dominate DOJ’s criminal docket. But alleged COVID fraud doesn’t stop with the PPP. Here are two cases that stood out to us.
East Texas Man Submits ‘Random’ Names Found on the Internet to Apply for $5 Million PPP Loan
Samuel Yates, 32, of Maud (near Texarkana), was charged with two counts of wire fraud in connection with his $5 million PPP loan application. He claimed to have more than 400 employees with an average monthly payroll in excess of $2 million, when, in fact, he had none. According to a DOJ press release, “Yates submitted a list of purported employees that he obtained from a publicly available random name generator on the internet. He also submitted forged tax documents with each application.”
Two NY Pharmacy Owners Charged in a $30 Million Medicare Fraud and Money Laundering Case
Pharmacy owners Peter Khaim, 40, and Arkadiy Khaimov, 37, both of Forest Hills, New York, were charged with conspiracy to commit health care fraud and wire fraud, and conspiracy to commit money laundering, as well as other crimes, for their alleged role in a $30 million Medicare fraud scheme. According to prosecutors in the Eastern District of New York, they “exploited emergency codes and edits in the Medicare system that went into effect due to the COVID-19 pandemic in order to submit fraudulent claims for expensive cancer drugs that were never provided, ordered, or authorized by medical professionals.” Specifically, the DOJ alleges, they submitted fraudulent claims to Medicare for the cancer medication Targretin Gel 1%, which sells for $34,000 for a 60-gram tube. To cover their tracks, prosecutors alleged they created a “complex money laundering conspiracy.”
Could your business already be in DOJ’s crosshairs?
There is an unprecedented coordination between government agencies regarding the investigation of PPP fraud crimes. In many cases, businesses with no intent to defraud U.S. taxpayers get caught in a net of overzealous prosecutions. Business owners and executives must seek experienced counsel if they receive any indication they are being investigated.
Tax Fraud & Conspiracy
Seven North Carolina Tax Preparers Plead Guilty to Conspiring to Defraud the IRS
Seven Charlotte, North Carolina, tax return preparers pleaded guilty to conspiracy to preparing and filing false tax returns. Joseph Octave and Vonyeda Carson pleaded guilty on Jan. 12, 2021, while Melissa Greene, Natisha Holloman, Kimberly Joline, Whitney Vargas-Medrano and Wendia Courtois pleaded guilty earlier in 2020. Prosecutors say the tax preparers, working through Octave’s Kapital Financial Services, falsified clients’ tax returns by claiming deductions, business losses, American Opportunity credits, education credits, and earned income tax credits that the clients did not incur, in order to fraudulently increase refunds to be paid by the IRS. Octave trained employees on how to file false returns and provided them with scripts and cheat sheets, and she also instructed employees not to provide clients with copies of their tax returns and not to review the completed tax returns with clients beyond the refund amount.
Atlanta Tax Professionals Plead Guilty in $1.2 Billion Charitable Deduction Scheme
Stein Agee of Canton, Georgia, and Corey Agee of Atlanta, Georgia, pleaded guilty for their roles in a wide-ranging tax scheme involving fraudulent syndicated conservation easement (SCE) tax shelters, a tool used for protecting environmentally and historically important land. The Agees sold investments in sham SCEs that promised investors they would receive $4 in charitable tax deductions for every $1 invested. The scheme enabled clients to claim more than $1.2 billion in fraudulent tax deductions and generated hundreds of millions of dollars of tax loss to the United States. Prosecutors say they will also be going after the lawyers, accountants, appraisers and other professionals that enabled the sham deductions.
Boeing Agrees to Pay $2.5 Billion for Putting ‘Profit over Candor’ in 737 MAX Case
The Boeing Company has entered into an agreement with the DOJ to resolve a criminal charge related to a conspiracy to defraud the Federal Aviation Administration’s Aircraft Evaluation Group (FAA AEG) in connection with the FAA AEG’s evaluation of Boeing’s 737 MAX airplane. Boeing will pay more than $2.5 billion, including a $243.6 million criminal penalty; $1.7 billion in compensation to Boeing’s 737 MAX airline customers; $500 million to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 in 2018 and Ethiopian Airlines Flight 302 in 2016. “Boeing’s employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of its 737 Max airplane and engaging in an effort to cover up their deception,” said Acting Assistant AG David P. Burns of the DOJ’s Criminal Division.
Financial Fraud & Embezzlement
Former Houston Pastor Sentenced to 6 Years in ‘Historical Chinese Bonds’ Scam
Former mega-church pastor Kirbyjon H. Caldwell, 67, was sentenced to 6 years in prison for his role in a scam to bilk investors in a fraudulent scheme to invest in historical Chinese bonds. He was also ordered to pay $3.5 million in restitution and a $125,000 fine. The Chinese bonds, which were issued by the former Republic of China prior to losing power to the communist government in 1949, were simply collectibles with no value outside of the memorabilia market. Potential investors were told that they would be obtaining a partial ownership interest in the bonds and that they would receive exponential returns on their investments in a short period of time. In 2013 and 2014, Caldwell convinced investors to put approximately $3.5 million in the bond deals. That money was divided between Caldwell and his co-conspirators. Needless to say, the “investors” never received any returns.
Former Attorney Pleads Guilty to Embezzlement and Tax Charges
Former attorney Kevin M. Brill, 61, of Newton, Mass., pleaded guilty in a long-running scheme to embezzle funds from trusts for which he served as trustee. He had served as a trustee for three family trusts with funds, but he began embezzling funds from the accounts and used the proceeds to buy a Vermont vacation home, among other things.
Public Corruption & Foreign Corruption
Third Dallas Real Estate Developer Charged with Bribing City Council Members
Real estate developer Sherman Roberts, 66, was charged with bribing two unnamed Dallas City Council Members to support his various apartment projects. In return for cash payments and the promise of future payments after her city council tenure ended, Council Member A voted to authorize more than $1.9 million in City of Dallas funding for Mr. Robert’s Serenity Place project; recommended that the project receive a 9 percent low-income housing tax credit from the Texas Department of Housing; and demanded that developers with competing projects withdraw their applications for funding in order to increase Mr. Robert’s chances. In return for a $600 cash payment plus the promise of a $60,000 lump sum payment and a $2,000 monthly stipend, Council Member B agreed to stop the City of Dallas from issuing a Request for Proposal (RFP) for Mr. Robert’s Patriot’s Crossing project and to cast votes in favor of the project on the City Council. If convicted, Mr. Roberts faces up to 15 years in federal prison.
Deutsche Bank Agrees to Pay over $130 Million to Resolve FCPA and Fraud Case
Germany-based Deutsche Bank has agreed to pay more than $130 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme. The resolution out of the Eastern District of New York includes criminal penalties of $85 million, criminal disgorgement of $681,480, victim compensation payments of $1.2 million, and $43 million to the SEC. The charges arise out of a scheme to conceal corrupt payments and bribes made to third-party intermediaries by falsely recording them on Deutsche Bank’s books and records. “Deutsche Bank engaged in a criminal scheme to conceal payments to so-called consultants worldwide who served as conduits for bribes to foreign officials and others so that they could unfairly obtain and retain lucrative business projects,” stated Acting U.S. Attorney Seth D. DuCharme of EDNY.