The White Collar Defense Report® | September 2020 News Roundup

Kiev - PrivatBank fraud activities

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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Cars, Cash, Carats: PPP Fraud Continues Unabated

People are getting creative with their alleged PPP loan fraud coverups: In Miami, one individual allegedly claimed to be a farmer operating out of a residential home. As usual, outlandish purchases continue, including a Harley-Davidson and a Mercedes-Benz. Plus, one couple is accused of trying to flee to Poland with their ill-gotten gains.

Miami Neighbors Charged with COVID-Relief Fraud after Falsely Claiming to be Farmers
Latoya Stanley, 38, and Johnny Philus, 33, both of Miami, Florida, were charged with wire fraud and false statements. The two Florida neighbors were charged for their alleged participation in a scheme to file fraudulent loan applications seeking more than $1.1 million in PPP and EIDL loans. In Stanley’s PPP application, she claimed to employ 18 individuals from her company, Dream Gurl Beauty Supply LLC. In the EIDL application, Stanley claimed to generate over $800,000 in income and employed five individuals from a farm based in the yard of her Miami home. Philus, meanwhile, stated that he employed 29 individuals at his company, Elegance Auto Boutique LLC. In his EIDL application, Philus claimed to generate $400,000 in income and employed ten individuals from a farm located in the yard of a small residential home. In actuality, the complaint alleges that Stanley and Philus employed no one and the farms did not exist.

Five Charged with a $4 Million PPP Fraud Scheme
Darrell Thomas, 34, of Johns Creek, Georgia; Andre Lee Gaines, 66, of Dallas, Georgia; Kahlil Gibran Green Sr., 46, of Cleveland, Ohio; and Bern Benoit, 44, of Burbank, California, were indicted for fraudulently obtaining more than $4 million in PPP loans and using those funds, in part, to purchase luxury vehicles. Authorities seized a Range Rover worth approximately $125,000, jewelry, over $120,000 in cash, and over $3 million from 10 bank accounts at the time of arrest.

Nevada Woman Charged with COVID-Relief Fraud
Karen Chapon, aka Karen Hannafious, 50, of Las Vegas, Nevada, was charged in a criminal complaint with fraudulently seeking over $1 million in PPP loans. The complaint alleges that Chapon submitted fake and altered documents, including fraudulent federal tax filings, and falsely denied that she had been convicted of a felony in the past five years. The government seized nearly $600,000 in PPP loan proceeds she obtained in her alleged fraud and a Mercedes-Benz SUV.

Minnesota Man Charged with COVID-Relief Fraud and Money Laundering
Kyle William Brenizer, 32, was indicted for allegedly falsely certifying that Tru-Cut Construction LLC had monthly payroll expenses of $330,000 for 30 employees and that he was not subject to any pending criminal charges. In fact, according to the indictment, he had felony charges pending for check forgery, identify theft, and theft by swindle. According to the allegations, Brenizer received $841,000 in PPP funds by applying for the funds in someone else’s name and purchased a Harley-Davidson motorcycle, spent over $1,000 on golf expenses, and other retail and entertainment expenditures for his personal benefit.

North Carolina Man Charged with COVID-19 Relief Fraud
David Christopher Redfern, 31, was charged by criminal complaint with bank and wire fraud. The complaint alleges that Redfern fraudulently applied for two EIDLs and a PPP loan between April and June of 2020 through a company called Wilder Effects LLC that was formed in January 2020. The complaint alleges that the PPP loan application was supported by a false Employer’s Quarterly Federal Tax Return for the first quarter of 2020, showing that the company paid wages to 20 employees. The company’s bank account was frozen and about $402,000 of the $414,000 in EIDL and PPP loan proceeds were recovered.

Nevada Man Charged with Using COVID-Relief Funds to Buy House
Brandon Casutt, 49, has been charged with making false statements to a financial institution, wire fraud, bank fraud, and money laundering to fraudulently obtain approximately $500,000 from PPP loan and the Economic Injury Disaster Loan (EIDL) program. It is alleged that he laundered the funds through friends and family by writing checks to 23 different people each in the amount of $8,330 for “back pay” or “pandemic pay” in order to buy a $400,000 house in Henderson, Nevada. The EIDL application for approximately $150,000 was in the name of a charity supposedly devoted to raising awareness about cystic fibrosis. The government claims there were no employees contrary to the statements on the loan application.

Man Pleads Guilty to COVID-19 Fraud Involving Paycheck Protection Program
According to court documents, Tarik Jaafar, 42, conspired with his wife, Monika Magdalena Jaworska, to create four shell companies. These companies conducted no legitimate business and existed solely as a means to execute the scheme to defraud. From April 13 to May 6, Jaafar and Jaworska applied for 18 separate PPP loans in the names of the four shell companies valued at approximately $6.6 million, falsely claiming that the businesses had employees and the loans were needed to pay their employees’ salaries. Jaafar and Jaworska fraudulently induced banks to distribute approximately $1.4 million in loans which they intended to use for their personal benefit. On June 20, the couple was arrested at John F. Kennedy International Airport as they attempted to flee to Poland.

North Carolina Man Pleads Guilty to COVID-19 Relief Fraud Schemes
Brandon Lewis, 34, pleaded guilty to fraudulently obtaining multiple loans and advances under the SBA’s EIDL program between April 1 and June 19, 2020. Specifically, Lewis purchased more than 35 “aged, off-the-shelf” corporations, and then submitted approximately 68 fraudulent loan applications and non-refundable grant “advances” of up to $10,000 through the EIDL program.


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.


Tech Execs, Lottery Lawyers and Crimean Bankers Hit with Charges

Two major companies are in the spotlight this month, including Uber (obstruction) and Herbalife (FCPA). And then there’s the “Lottery Lawyer.” Read on.

Obstruction of Justice

Former Chief Security Officer For Uber Charged With Obstruction Of Justice
Joseph Sullivan, 52, was charged with obstruction of justice and misprision of a felony in connection with the attempted cover-up of the 2016 hack of Uber Technologies. According to the complaint, between April 2015 and November 2017, two hackers contacted Sullivan by email and demanded a six-figure payment in exchange for silence. The hackers ultimately revealed that they had accessed and downloaded an Uber database containing personally identifying information, or PII, associated with approximately 57 million Uber users and drivers. Rather than report the 2016 breach, Sullivan allegedly took deliberate steps to prevent knowledge of the breach from reaching the FTC.

Counterintelligence and Export Control

Three Texans, One New Yorker Indicted for Conspiracy to Sell Sanctioned Iranian Petroleum to Refinery in China for Millions in Profit
Nicholas Hovan, 34, of New York, NY; Zhenyu Wang, aka “Bill Wang,” 39, of Dallas, TX; Robert Thwaites, 30, of Dallas, TX; and Daniel Ray Lane, 39, of McKinney, TX, conspired in Philadelphia and elsewhere to arrange for the purchase of petroleum from the Islamic Republic of Iran, in violation of United States economic sanctions imposed on Iran, for sale to a refinery in the People’s Republic of China. They also allegedly conspired to launder the proceeds of the sale through shell entities and offshore financial accounts to disguise the nature of the transaction. The defendants planned two shipments of oil per month going forward, all for an expected profit of roughly $28 million-per-month.

Foreign Corruption Practices Act

Herbalife Nutrition Ltd. Agrees to Pay Over $122 Million to Resolve FCPA Case
Herbalife Nutrition Ltd. (Herbalife), a U.S.-based publicly traded global nutrition company, has agreed to pay total penalties of more than $122 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA). The resolution arises out of Herbalife’s scheme to falsify books and records and provide corrupt payments and benefits to Chinese government officials for the purpose of obtaining, retaining, and increasing Herbalife’s business in China. This includes a criminal penalty of over $55 million and approximately $67 million to be paid to the U.S. Securities and Exchange Commission (SEC) in a related matter.

Financial Fraud

“Lottery Lawyer” and Three Co-Conspirators in Iowa Indicted in $107 Million Scheme to Defraud Lottery-Winning Clients
Jason Kurland, 46, Alvin Lavon Rex, 61, Jerry Johnson, 54, and Brian Whorton, 54, were all charged with fraud offenses. As set forth in court filings, Kurland is a self-dubbed “Lottery Lawyer” claiming to represent dozens of lottery winners throughout the country with total winnings of approximately $3 billion. Some of the winners paid Kurland and his law firm hundreds of thousands of dollars, in part so that he could advise them on how to safely invest their money. After gaining their trust with primarily traditional investments, Kurland steered his clients to invest in deals controlled by Russo, Smookler and Chierchio, and received kickbacks in return – which Kurland failed to disclose to his clients.

Asset Forfeiture

Justice Department Seeks Forfeiture of Two Commercial Properties Purchased with Funds Misappropriated from PrivatBank in Ukraine
The United States is alleging that commercial real estate in Louisville and Dallas worth $70 million were acquired using funds misappropriated from PrivatBank in Ukraine and are subject to forfeiture based on violations of federal money laundering statutes. The complaints allege that Ihor Kolomoisky and Gennadiy Boholiubov, who owned PrivatBank, one of the largest banks in Ukraine, embezzled and defrauded the bank of billions of dollars. They laundered a portion of the criminal proceeds using an array of shell companies’ bank accounts, primarily at PrivatBank’s Cyprus branch, before they transferred the funds to the United States to purchase these properties.

Health Care and Tax Remain Prosecution Priorities

Two major headaches for must of us, health care and taxes, remain a major issue for the DOJ as well.

Health Care

NextHealth Marketer Charged in $60 Million Kickback Scheme
A federal grand jury in Dallas indicted Vinson Woodlee, owner of Med Left LLC, on one count of conspiracy to pay and receive health care kickbacks and three counts of soliciting and receiving health care kickbacks. From 2012 to 2018, Mr. Woodlee allegedly collected more than $60 million in kickbacks. Of the $60 million, he passed $16.8 million on to “his” physicians and $30.6 million on to sub-marketers who “likely” passed a portion along to “their” physicians.

Two Individuals Charged in 23-Count Indictment Alleging Prescription Drug Kickbacks, Health Care Fraud, and Aggravated Identity Theft
The indictment charges David Guerrero, 41, of Milwaukee and Alexander Shister, 51, of Mequon, Wisconsin. It alleges that Shister, who owned several pharmacies, paid kickbacks to Guerrero, who worked at two clinics, in exchange for Guerrero routing prescriptions for compounded pain cream medication to Shister’s pharmacies. Shister’s pharmacies then sought and received reimbursement from Medicare and Medicaid for filling these prescriptions.

Tax Fraud

Houston Attorney Sentenced to Prison for Offshore Tax Evasion Scheme
Jack Stephen Pursley, a/k/a Steve Pursley, was sentenced to 24 months in prison for conspiring with a client to secretly bring to the U.S. more than $18 million in untaxed money held in foreign banks. Pursley received more than $4.8 million and a 25% ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme and used the money for personal investments, including a vacation home in Vail, Colorado, and property in Houston, Texas.

Portland Tax Preparer Charged with $3 Million Tax Fraud
Elizabeth Munoz, 36, has been charged with preparing more than 1,000 false and fraudulent federal income tax returns on behalf of herself and her clients that requested over $3 million in fraudulent refunds. According to court documents, from 2015 through 2018, Munoz operated a tax return preparation business that promised her clients the “biggest refund guaranteed.” It is alleged that she manipulated various entries on their returns to falsely claim tax credits for which her clients were not eligible.

Philadelphia Return Preparer Sentenced to Five Years in Prison for Tax Fraud
A Philadelphia tax return preparer was sentenced to 60 months in prison for conspiring to defraud the United States, preparing false client tax returns, wire fraud and identity theft. According to the evidence presented at trial, Nvahbulai Quisiah owned and operated First Premier Tax Service. He falsified clients’ tax returns by claiming false dependents based on stolen minors’ identities, as well as false itemized deductions and business losses in order to increase the refunds paid by the IRS.

Embezzlement

Ex-Company Controller Who Embezzled $2.8 Million from Employer and Cheated on His Taxes Sentenced to More Than 7 Years in Federal Prison
Sean Edin Talaee, 63, pleaded guilty in May 2019 to one count of mail fraud and one count of subscribing to a false income tax return. Talaee worked as the controller overseeing the accounting and tax payments of Printograph, Inc., a commercial printing company that does business as GotPrint.com. During this time period, Printograph made a series of periodic estimated tax payments based on the company’s expected gross income, deductions, and credits for each year. On at least eight separate occasions, Talaee obtained company checks from Printograph’s president but instead inserted his own taxpayer information when filling out the IRS voucher forms that accompanied the estimated tax payments.

Antitrust

Seventh Generic Drug Manufacturer Is Charged In Ongoing Criminal Antitrust Investigation
Teva Pharmaceuticals USA Inc. (Teva) has been charged with conspiring to fix prices, rig bids, and allocate customers for generic drugs. According to the charges filed, the company participated in three conspiracies from at least as early as May 2013 until at least in or around Dec. 2015. Consumers were allegedly overcharged at least $350 million.