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 & COVID-19 Fraud Scheme
David T. Hines, 29, of Miami, was sentenced to more than six years in prison for fraudulently obtaining about $3.9 million in PPP loans and using those funds, in part, to purchase a $318,000 Lamborghini for himself. In his PPP applications, Hines falsely claimed to have had dozens of employees and millions of dollars in monthly payroll. In addition to submitting false PPP applications, Hines also assisted other individuals in obtaining fraudulent PPP loans. Hines pleaded guilty to the charges in February. As part of the sentence, the court ordered Hines to forfeit the $3.4 million in fraudulent loan proceeds and the 2020 Lamborghini Huracan.
Jason Vertz, 51, of Fresno, and Alana Powers, 45, an inmate at the Central California Women’s Facility in Chowchilla, pleaded guilty to one count of conspiracy to commit mail fraud and one count of aggravated identity theft in a scheme that targeted California Employment Development Department unemployment insurance benefits that were intended for Californians hit hardest by the ongoing COVID-19 pandemic shutdown. According to court documents, Vertz and Powers submitted several fraudulent unemployment insurance claims in Powers’ and other CCWF inmates’ names to EDD. Shortly thereafter, the benefits were loaded onto debit cards that were mailed to the addresses the defendants provided. The applications stated that the inmates had worked as maids, cleaners, fabrication welders, and other occupations, and that they were available to work, which was not true because they were incarcerated.
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.
Four executives of Continuum Healthcare and its various health centers have been sentenced to federal prison terms for their roles in an elaborate healthcare fraud scam. Bobby Rouse, 81, and Steven Houseworth, 47, both of Houston; Jeffery Parsons, 62, Crockett; and David Edson, 72, Palm Harbor, Florida, were part of the executive team for Continuum Healthcare LLC, which owned Westbury Community Hospital in Houston, as well as community mental health centers in the Houston area. The four men were responsible for the day-to-day operation of Continuum/Westbury and were involved in the implementation of the various kickback programs. Numerous people were referred for treatment in exchange for payment. However, the vast majority did not qualify for services in those facilities because they were not experiencing an acute psychotic episode or were actually suffering from mental retardation, dementia, or Alzheimer’s. Continuum billed Medicare approximately $189 million for fraudulent services and Medicaid paid approximately $66 million on those claims. Rouse was sentenced to 120 months in prison, Edson received a 48-month-term of imprisonment, while Parsons and Houseworth each received 30 months in prison.
Brenda Rodriguez, 58, of Richmond, has been ordered to prison for 25 years following her convictions of conspiracy and aiding and abetting healthcare fraud. A federal jury in Houston found Rodriguez guilty after a 3-day trial. According to court documents, Rodriguez, who owned and operated the QC Medical Clinic in Richmond, paid doctors to approve patients for home healthcare regardless of whether it was medically necessary. Rodriguez then sold those approvals to various corrupt home healthcare providers. These providers then billed Medicare for services that were either unnecessary or never provided. As a result of this scheme, the providers billed Medicare for over $11 million as a result of patients Rodriguez provided.
Tax and Financial Fraud
Hugo Cesar Granados, the 60-year-old manager of Columbia Tax Service; his adult daughter, Blanca L. Granados; his adult son, Hugo Alberto Granados; and his employee, Saul Garcia-Soto, have been charged with submitting fraudulent tax returns to the IRS. All but Garcia-Soto have surrendered themselves to the IRS – Criminal Investigations and U.S. Marshals. Garcia-Soto remains a fugitive. According to the indictment, the defendants falsified their clients’ individual income tax returns to inflate the clients’ tax refunds, which inflated the tax preparers’ fees. Hugo Granados created a training manual that instructed his employees how to file fraudulent tax returns. One of the tactics was claiming the taxpayer owned a business when no such business existed, claiming unreimbursed employee expenses such as travel and per diem, and claiming business expenses related to maintenance, utilities, supplies, insurance, and professional services that were never incurred. From 2013 to 2017, the conspirators submitted numerous fraudulent tax returns, resulting in an estimated $18 million in tax losses to the government.
Rossalynn Thomas of Temple has been charged with 11 counts of assisting in the preparation of false tax returns. Thomas operated TaxPros, a tax return preparation business. Between November 2014 through January 2017, Thomas allegedly falsified clients’ tax returns by claiming, among other things, false business income and education credits in order to generate tax refunds. The indictment further alleges that one of Thomas’s clients was an IRS agent acting in an undercover capacity. Thomas allegedly prepared a tax return for the IRS agent that falsely claimed charitable contributions and unreimbursed business expenses.
Rayshun Jackson, 51, has been charged with laundering what he believed to be proceeds of narcotics trafficking. According to the complaint, Jackson surfaced during the DEA’s years-long investigation of a large-scale opioid distribution ring, when a high-level dealer offered to introduce an undercover agent to someone who could launder drug proceeds. Over the course of several months, Jackson accepted hundreds of thousands of dollars in purported drug money and deposited the laundered money into undercover DEA bank accounts, minus his fee, according to prosecutors. If convicted, Jackson faces up to 20 years in federal prison per laundered transaction.
Bart Wade Reagor, 55, has been charged with lying about using business loans for personal expenses. The owner of Reagor Dykes Auto Group, Reagor allegedly misrepresented the purpose of a loan he applied for, concealing from the lender the fact that he planned to divert some of the proceeds from a $10 million business loan into his personal account for personal expenses. Reagor diverted more than $1.7 million to his personal account. If convicted, Reagor faces up to 90 years in federal prison, and will be required to forfeit any property traceable to the offense.
Robert “Scott” Villarreal, 49, of Lakeway, was sentenced to 87 months in federal prison for a scheme to embezzle millions of dollars from a company where his ex-wife served as Chief Financial Officer. According to court records, Villareal and his ex-wife, Tamra Maurine Villarreal, stole money from the company, Richardson Enterprises, Ltd., and used it for their personal benefit, even though Tamra was paid an annual salary more than $400,000. The Villarreals used the stolen money to purchase a $2.7 million residence, travel, hotels, restaurant tabs, vehicles, lavish jewelry, rare American coins from the 1800’s, gold bars, art, a collection of designer handbags and clothes valued at hundreds of thousands of dollars, along with firearms and illegal controlled substances. In August 2020, Villarreal pleaded guilty to a three-count Information charging him with money laundering, possession with the intent to distribute cocaine and making and subscribing to a false income tax return. By pleading guilty, Villarreal admitted that from 2009 to January 2018, he schemed to embezzle funds from Richardson bank accounts and used that money for personal enrichment.
Michael Kail, 49, the former Vice President of IT Operations at Netflix, was convicted of wire fraud, mail fraud, and money laundering in connection with pay-to-play bribes and kickbacks from tech startups seeking to sell to Netflix. According to the evidence presented at trial, Kail accepted bribes in ‘kickbacks’ from nine tech companies providing products or services to Netflix. In exchange, Kail approved millions of dollars in contracts for goods and services to be provided to Netflix. Kail ultimately received over $500,000 and stock options from these outside companies.
Kristine Irene Lynch, 44, of Pilot Point, was sentenced to 24 months in prison for bank fraud. According to the court documents, Lynch was employed at the North Texas Medical Center (NTMC) from 2006 until August 2017 as Comptroller. As Comptroller, she was able to print checks herself, or have checks printed on her behalf. Lynch devised a scheme to print checks for personal use, or to have employees print them for her, drawn against the NTMC bank account. Lynch then voided the checks in the accounting system after they cleared the bank to disguise her scheme, which resulted in a loss of $467,280.
Public Corruption & Foreign Corruption
Mohamed Ahmed “Alex” Kassem, 46, an investigator with the Waller County District Attorney’s Office, has been charged with attempting to possess with the intent to distribute heroin, as well as attempting to launder drug proceeds. According to court documents, Kassem was involved in laundering of what he believed was $200,000 in drug proceeds in August 2019. If convicted of attempting to possess with the intent to distribute heroin, Kassem faces up to life in prison as well as a possible $10 million maximum fine. Upon conviction of either of the two counts of money laundering, he also faces up to 20 years of federal imprisonment. The money laundering charges also carry up to a $500,000 fine or twice the value of the property involved in the transaction.
Roel Alaniz, 40, of Weslaco, has entered guilty pleas to conspiracy to commit bribery and bribery of a public official. Alaniz, an attorney admitted he paid immigration detention employees for “alien detainee roster lists.” The lists were provided to him or his sister, Cynthia Alaniz, who is also an attorney in the Rio Grande Valley. The attorneys would then visit the detainees, or instruct others to do so, to solicit them to hire his law firm for representation in immigration proceedings. Benito Barrientez, 43, and Damian Ortiz, 31, were two employees of the Willacy County Regional Detention Center who sold the lists to Roel Alaniz. They also pleaded to conspiracy and bribery of a public official. Cynthia Alaniz, 28, pleaded guilty to making a false statement in a bribery investigation.
James Morris Balagia, 65, of Manor was sentenced to 188 months in federal prison for an international fraud scheme involving his Colombian cocaine trafficking clients. According to court documents, Balagia, a criminal defense lawyer known as “The DWI Dude,” conspired with a Florida private investigator and a Colombian attorney to swindle Colombian drug traffickers under the guise of bribing officials in the United States. During meetings in Colombia and in Collin County, Texas, the group represented that in exchange for inflated “attorney fees,” they were in contact with government officials in the United States who would accept bribes resulting in either the dismissal of their criminal charges or significant reductions in their U.S. federal prison sentences. In reality, there were no bribes or government officials.
Investment Fraud & Cyber Crime
John A. Santilli Jr., 47, of East Greenwich, Rhode Island, was charged in a scheme to defraud investors out of more than $4.2 million in connection with “Magic Mike Live,” a stage show at the Hard Rock Hotel and Casino in Las Vegas based on two Magic Mike films that chronicle the life of a male stripper. According to the indictment, Santilli managed and partly owned Aloris Entertainment, LLC, which acquired an interest – through securities called “Class A Units” – in Mike’s Mobile Detailing, LLC, the company that operates the Magic Mike Live show in Las Vegas. Santilli raised funds from victims by soliciting investments in “Aloris Magic Mike LP,” a different business that he falsely told investors owned the Class A Units. Santilli allegedly lied to investors, telling them that, in return for their investment, they would receive “shares” in Aloris Magic Mike LP that corresponded to a particular number of Class A Units and entitled them to a percentage of the profits from “Magic Mike Live.” To bolster his false claims, the indictment states, Santilli used a doctored legal document that made it appear that Aloris Magic Mike LP was a member (i.e., a shareholder) of Mike’s Mobile Detailing. If convicted of all charges, Santilli could face up to 182 years in prison.
The Justice Department announced a court-authorized operation to copy and remove malicious web shells from hundreds of vulnerable computers in the United States running on-premises versions of Microsoft Exchange Server software used to provide enterprise-level e-mail service. Through January and February 2021, certain hacking groups exploited zero-day vulnerabilities in Microsoft Exchange Server software to access e-mail accounts and place web shells (which are pieces of code or scripts that enable remote administration) for continued access. Other hacking groups followed suit starting in early March after the vulnerability and patch were publicized. Although many infected system owners successfully removed the web shells from thousands of computers, others appeared unable to do so, and hundreds of such web shells persisted unmitigated.