OCTOBER 1, 2005 - SEPTEMBER 30, 2006
TABLE OF CONTENTS
Securities and Commodities Fraud
Health Care Fraud
Mass Marketing Fraud
Asset Forfeiture/Money Laundering
The Federal Bureau of Investigation (FBI) investigates matters relating
to fraud, theft, or embezzlement occurring within or against the national
and international financial community. These crimes are characterized by
deceit, concealment, or violation of trust, and are not dependent upon the
application or threat of physical force or violence. Such acts are committed
by individuals and organizations to obtain personal or business advantage.
The FBI focuses its financial crimes investigations on such criminal activities
as corporate fraud, health care fraud, mortgage fraud, identity theft, insurance
fraud, mass marketing fraud, and money laundering. These are the identified
priority crime problem areas of the Financial Crimes Section (FCS) of the
The mission of the FCS is to oversee the investigation of financial fraud
and to facilitate the forfeiture of assets from those engaging in federal
crimes. The FCS is divided into four units: the Economic Crimes Unit, Health
Care Fraud Unit, Financial Institution Fraud Unit, and the Asset Forfeiture/Money
The Economic Crimes Unit is responsible for significant frauds targeted
against individuals, businesses and industries to include: corporate fraud,
insurance fraud (non-health care related), securities and commodities fraud,
mass marketing fraud, telemarketing fraud, Ponzi schemes, advance fees schemes,
and pyramid schemes.
The Health Care Fraud Unit oversees investigations targeting individuals
and/or organizations who are defrauding public and private health care systems.
Areas investigated under Health Care Fraud include: billing for services
not rendered, billing for a higher reimbursable service than performed (upcoding),
performing unnecessary services, kickbacks, unbundling of tests and services
to generate higher fees, durable medical equipment fraud, pharmaceutical
drug diversion, outpatient surgery fraud, and Internet pharmacy sales.
The mission of the Financial Institution Fraud Unit is to identify, target,
disrupt, and dismantle criminal organizations and individuals engaged in
fraud schemes which target our nation's financial institutions. Areas investigated
in the financial institution fraud arena include: financial institution failures,
insider fraud, check fraud, counterfeit negotiable instruments, check kiting,
loan fraud, and mortgage fraud.
The mission of the Asset Forfeiture/Money Laundering Unit (AF/MLU) is to
promote the strategic use of asset forfeiture and to ensure that field offices
employ the money laundering violation in all investigations, where appropriate,
to disrupt and/or dismantle criminal enterprises.
In addition to these responsibilities, the AF/MLU provides strategy and
guidance to field offices as it relates to identity theft across all investigative
The AF/MLU also has responsibilities for the management of the Forfeiture
Support Project (FSP) in Calverton, Maryland. Although the FSP's mission
is closely tied to that of the AF/MLU, it does have a separate mission statement
which is documented as follows: The mission of the FSP is to support the
forfeiture component of all major FBI investigations through data entry and
analysis of financial documents, forensic accounting, and tracing assets
subject to forfeiture.
Based upon field office crime surveys, current trends in the White Collar
Crime arena, and directives established by the President, the Attorney General,
and the Criminal Investigative Division, the following national priorities
for the White Collar Crime Program have been established: Public Corruption,
Corporate Fraud/Securities Fraud, Health Care Fraud, Financial Institution
Fraud, Insurance Fraud and Money Laundering.
Although Public Corruption is a national priority within the White Collar
Crime Program, it will not be addressed in this report. Each section of this
report provides an overview, statistical accomplishments, and case examples
of the identified priority crime problems specifically addressed by the Financial
Crimes Section. Where appropriate, suggestions are made in order to protect
the public from being victimized by fraudulent activity.
I. General Overview
As the lead agency investigating Corporate Fraud, the FBI has focused its
efforts on cases which involve accounting schemes, self-dealing by corporate
executives and obstruction of justice. The majority of Corporate Fraud cases
pursued by the FBI involve accounting schemes designed to deceive investors,
auditors and analysts about the true financial condition of a corporation.
Through the manipulation of financial data, the share price of a corporation
remains artificially inflated based on fictitious performance indicators
provided to the investing public. In addition to significant financial losses
to investors, Corporate Fraud has the potential to cause immeasurable damage
to the U.S. economy and investor confidence.
While the number of cases involving the falsification of financial information
remains relatively stable, the FBI has recently observed a spike in the number
of Corporate Fraud cases that involve the backdating of executive stock options.
Stock options are corporate incentives that allow the holder to purchase
stock at a fixed "strike" price sometime in the future, regardless
of the prevailing market price. Generally, the strike price is the cost of
the stock on the date the options were granted. The benefit to the options
holder is the difference between the strike price and the later sales price.
When stock options are backdated, however, the date of the options is set
to a time in the past when the price of the stock was lower than on the date
the options were actually issued. Backdating stock options inflates their
value to the holder at the expense of regular shareholders. Some corporate
executives have also changed their stock option exercise date (the date the
option can be converted to stock) to avoid paying income tax. Currently,
the FBI is investigating 59 cases involving the manipulation of executive
stock options and anticipates that the number of cases will continue to grow.
Corporate Fraud remains the highest priority of the Financial Crimes Section
and the FBI is committed to dealing with the significant crime problem. As
of the end of Fiscal Year (FY) 2006, 490 Corporate Fraud cases are being
pursued by FBI field offices throughout the U.S., 19 of which involve losses
to public investors that individually exceed $1 billion.
Corporate Fraud investigations involve the following activities:
(1) Falsification of financial information, including:
(a) False accounting
(b) Bogus trades designed to inflate profit or hide losses
(c) False transactions
designed to evade regulatory oversight
(2) Self-dealing by corporate insiders, including:
(a) Insider trading
(c) Backdating of executive stock options
(d) Misuse of corporate property
for personal gain
(e) Individual tax violations related to self-dealing
(3) Fraud in connection with an otherwise legitimately-operated mutual or
(a) Late trading
(b) Certain market timing schemes
(c) Falsification of net asset values
(d) Other fraudulent or abusive trading
practices by, within, or involving a mutual or hedge fund
(4) Obstruction of justice designed to conceal any of the above-noted types
of criminal conduct, particularly when the obstruction impedes the inquiries
of the Securities and Exchange Commission (SEC), other regulatory agencies,
and/or law enforcement agencies.
The FBI has formed partnerships with numerous agencies to capitalize on
their expertise in specific areas such as Securities, Tax, Pensions, Energy,
and Commodities. The FBI has placed greater emphasis on investigating allegations
of these frauds by working closely with the SEC, National Association of
Securities Dealers (NASD) Regulation, Internal Revenue Service (IRS), Department
of Labor, Federal Energy Regulatory Commission, Commodity Futures Trading
Commission (CFTC) and U.S. Postal Inspection Service (USPIS). As reflected
in the statistical accomplishments of the Presidential Corporate Fraud Task
Force (founded 2002), which includes the above-mentioned agencies, the cooperative
and multi-agency investigative approach has resulted in highly successful
The FBI has also worked with numerous organizations in the private industry
to increase public awareness about combating Corporate Fraud, to include:
Public Company Accounting Oversight Board, American Institute of Certified
Public Accountants and the North American Securities Administrator's Association,
Inc. These organizations have been able to provide referrals for expert witnesses
and other technical
assistance regarding accounting and securities issues. In addition, the Financial
Crimes Enforcement Network (FinCEN) and Dunn & Bradstreet have been able
to provide significant background information on subject individuals or subject
companies in an investigation.
II. Overall Accomplishments
During FY 2006, the FBI investigated 490 Corporate Fraud cases resulting
in 171 indictments and 124 convictions of corporate criminals. Numerous cases
are pending plea agreements and trials. The following notable statistical
accomplishments are reflective in FY 2006 for Corporate Fraud: $1.2 billion
in Restitutions, $41.5 million in Recoveries, $14.2 million in Fines, and
$62.6 million in Seizures. The chart below is reflective of the number of
pending cases from FY 2002 through FY 2006.
Fiscal Year 2002 - 291pending cases
Fiscal Year 2003 - 279 pending cases
Fiscal Year 2004 - 332 pending cases
Fiscal Year 2005 - 423 pending cases
Fiscal Year 2006 - 490 pending cases
III. Significant Cases
COMVERSE, INC. (NEW YORK):
Comverse, Inc. (Comverse) is a New York-based designer and manufacturer of
telecommunication systems and software, with reported revenues of $1.2
billion in FY 2005. In August 2006, former Comverse Chief Executive Officer
Kobi Alexander, former Chief Financial Officer David Kreinberg, and former
General Counsel William Sorin were charged with various types of fraud
related to illegal compensation of Comverse executives. It is alleged that
Comverse rewarded certain executives of the company through Executive Stock
Option (ESO) backdating, a process that allows executives to set the grant
date of the ESO at a time in the past when the market price of the stock
was at its lowest. It is alleged that Alexander made $8 million, Kreinberg
$1.5 million, and Sorin more than $1 million from the scheme. Kreinberg
and Sorin surrendered to authorities in August 2006. As of December 1,
2006, Alexander is in the custody of law enforcement officials in the country
of Namibia pending extradition to the U.S. The FBI conducted this case
with assistance from the SEC and Department of Justice (DOJ).
ENRON CORPORATION (WASHINGTON, DC):
As a result of its deceptive accounting practices--including the creation
of earnings, the manufacture of cash flow, and the concealment of debt--the
Enron Corporation (Enron) generated financial statements that were misleading
and wholly inaccurate. As of December 1, 2006, 35 individuals have been
charged in connection with the energy corporation's illegal accounting
practices. Of these individuals, 23 have pled guilty or been convicted,
including former Enron Chief Financial Officer (CFO) Andrew Fastow, former
Chief Executive Officer (CEO) Jeffrey Skilling, and former Chairman and
CEO Kenneth Lay (whose conviction was later vacated due to his death).
Fastow has been sentenced to six years in prison for his role in the accounting
scandal. Skilling was sentenced to 24 years, four months in prison, the
largest term handed down in connection to the case. The case has been handled
by the Enron Task Force, which is made up of members of the DOJ, FBI, and
IRS. The SEC also provided considerable assistance in this investigation.
SECURITIES AND COMMODITIES FRAUD
I. General Overview
With losses totaling approximately $40 billion per year, combating Securities
and Commodities Fraud remains a priority for the FBI. The losses are associated
with decreased market value of businesses, reduced or non-existent return
on investments, and legal and investigative costs. The victims of Securities
and Commodities Frauds include individual investors, financial institutions,
public and private companies, government entities, and retirement funds.
As of FY 2006, the FBI is investigating 1655 cases of Securities and Commodities
Fraud and has 157 agents dedicated to the problem. The importance of this
issue is further evidenced by the fact that these 157 agents represent a
25 percent increase in staffing for this type of fraud over the last two
Whether through college savings plans or retirement accounts, more and more
Americans are choosing to invest in the U.S. securities and commodities markets.
In fact, the Securities and Exchange Commission (SEC) suggests that the number
of people investing in securities and commodities has increased 600 percent
since 1980. This large scale investment growth, however, has also led to
significant growth in the amount of fraud and misconduct seen in these markets.
The nation's economy is increasingly dependent on the success and integrity
of the securities and commodities markets. As a result, there is a very real
need to diligently prosecute criminal activity in the markets, which the
FBI is uniquely positioned to investigate. In an effort to meet this need,
the FBI remains committed to investigating and preventing all forms of Securities
and Commodities Fraud, the most common types of which are outlined below.
Market Manipulation: Market Manipulation or "Pump and Dump" schemes
are based on the manipulation of lower-volume stocks purchased on small over-the-counter
markets. The basic goal of Market Manipulation fraud is to artificially inflate
("pump") the price of penny stocks so that the conspirators can
sell ("dump") their shares at a large profit. The "pump" involves
recruiting unwitting investors through false or deceptive sales practices,
public information, or corporate filings. Many of these schemes use "boiler
room" methods where brokers, who are bribed by the conspirators, use
high pressure sales tactics to increase the number of investors and therefore
raise the price of the stock. Once the price of the targeted shares reaches
a certain point, the perpetrators "dump" their
shares at a huge profit and leave innocent investors to foot the bill. These
schemes generate an estimated $6 billion in losses each year and have the
ability to significantly impact investor confidence.
One recent trend seen in Market Manipulation cases involves "computer
intrusion." Computer intrusion for the purpose of Market Manipulation
often includes a criminal hacking into victims' personal online brokerage
accounts and using them to purchase shares of a penny stock to inflate its
price. As in normal "Pump and Dump" schemes, once the price of
the stock reaches a certain point, the perpetrators dump their own shares
and walk away with a large profit.
High Yield Investment Fraud: High Yield Investment Fraud schemes can take
many forms, all of which are characterized by offers of low risk investments
that guarantee an unusually high rate of return. Victims are enticed by the
prospect of easy money and a fast turnaround.
One common form of these frauds is the Ponzi Scheme, which is named after
early 20th century criminal Charles Ponzi. These schemes use money collected
from new victims, rather than profits from an underlying business venture,
to pay the high rates of return promised to earlier investors. This arrangement
gives investors the impression that there is a legitimate, money-making enterprise
behind the fraudster's story, but in reality, unwitting investors are the
only source of funding.
Pyramid Schemes are another common form of High Yield Investment Fraud.
In Pyramid Schemes, as in Ponzi Schemes, money collected from new participants
is paid to earlier participants. In Pyramid Schemes, however, participants
receive commissions for recruiting new participants into the scam.
Another type of High Yield Investment Fraud is Prime Bank Investment Fraud.
In these schemes, victims are told that certain financial instruments (notes,
letters of credit, debentures, or guarantees) have been issued by well-known
institutions such as the World Bank and offer a risk-free opportunity with
high rates of return. Perpetrators often claim that the unusually high rates
of return and low risk are the result of a worldwide secret exchange open
only to the world's largest financial institutions. Victims are often drawn
into Prime Bank Investment Frauds because the criminals use sophisticated
terms, legal looking documents, and claim that the investments are insured
Advanced Fee Schemes: In these scams, victims are persuaded to advance relatively
small sums of money in the hope of realizing a much larger gain. In Securities
Fraud, victims are told that in order to have the opportunity to be an investor
in an initial offering of a promising security, investment (business or land
development) or commodity, the victim must first send funds to cover taxes
or processing fees. Advanced Fee schemes are further defined in the Mass
Marketing Section of this report.
Hedge Fund Fraud: Hedge Funds (HFs) are private investment partnerships
that routinely accept only high-wealth clients willing to invest at least
hundreds of thousands of dollars. Historically, these high wealth investors
were deemed "financially sophisticated," and, as a result, HFs
have been unregulated and are not required to register with any federal or
state regulatory agency. More recently, many middle class investors have
been exposed to HFs through ancillary investments such as pensions and endowments.
There are over 8,800 HFs currently operating, with over $1.3 trillion in
assets under management.
The lack of regulatory scrutiny has made the industry vulnerable to fraud
by HF managers. The types of fraud associated with HFs include: overstatement
of HF assets, misappropriation of assets, miscalculation of HF manager performance
fees, trading on insider information, market timing, and late trading.
Commodities Fraud: Commodities fraud is perpetrated by firms or individuals
that sell futures and options through illegal means. For example, investments
in precious metals or commodities may be sold based on fraudulent sales pitches
claiming high rates of return, with little risk, if clients purchase commodities
through a financing agreement. Sometimes the perpetrators will offer the
opportunity to speculate on movements in the price of commodities, without
ever actually taking delivery of the commodity. Traders may also illegally
manipulate the price of a commodity. In these cases, the traders report fraudulent
pricing information or corner-the-market on certain commodities in order
to inflate the price for their profit.
Foreign Currency Fraud: The perpetrators of these frauds are foreign currency
trading firms that entice individuals into investing in the spot foreign
currency (Forex) market by false claims and high pressure sales tactics.
Additionally, individual currency traders employed by large financial institutions
may manipulate Forex prices and divert profit to themselves. Corrupt currency
trading firms use fraudulent sales practices including false and deceptive
guarantees of future return on investment. These firms may even create artificial
account statements that reflect a purported investment in the Forex market
when, in reality, no such investment has been made. When the currency trading
firms actually invest clients’ funds into the Forex market, they do
so not with intent to conduct a profitable trade for the client, but merely
to "churn" the client's account. Churning creates large commission
charges benefitting the trading firm at the expense of the client's interests.
Broker Embezzlement: Investors and corporations must place a significant
amount of trust in their brokers because these individuals have access to
information related to their clients' personal or corporate wealth. Unfortunately,
some unscrupulous brokers abuse this trust by stealing directly from their
clients. These criminals may forge investor checks, transfer funds or securities
without authorization, sell non-existent securities, accept undisclosed kickbacks
on the sale of investments or produce false and misleading statements in
the sale of the investments.
The FBI works closely with various governmental and private entities to
investigate and prevent fraudulent activity in the securities markets. In
an effort to help bolster these relationships and optimize workforce needs,
many FBI Field Offices operate task forces and working groups with other
law enforcement and regulatory agencies. These agencies include the SEC,
Attorney's Office (USAO), Commodities Futures
Trading Commission (CFTC) National Association of Securities Dealers (NASD),
U.S. Postal Inspection Service (USPIS), and the Internal Revenue Service
(IRS). Cooperation among agencies helps the FBI address the problem of Securities
and Commodities Fraud more effectively and allows the FBI to more efficiently
allocate its resources.
Late Day Trading: Late Day Trading is the illegal buying and selling of
mutual funds after regular market hours. After the market closes each day,
no one is allowed to trade mutual funds and therefore, the price remains
constant. If any material information affecting a fund becomes public after
hours, an opportunity is created for traders to capitalize on the set price.
Traders illegally exploit this opportunity by buying or selling the fund
at the closed price, knowing that the material information released will
affect the value at the opening of the market and making significant illegal
profits for their clients. Late Day Trading is like making your bet after
you've seen your opponent's cards.
II. Overall Accomplishments
During FY 2006, the FBI investigated 1165 cases of Securities and Commodities
fraud and recorded 302 indictments and 164 convictions. Many of these Securities
Fraud cases are pending plea agreements or trials. The following notable
statistical accomplishments are reflective in FY 2006 for Securities and
Commodities Fraud: $1.9 billion in Restitutions, $20.6 million in Recoveries,
$80.7 million in Fines, and $62.7 million in Seizures. The chart below is
reflective of the number of pending cases from FY 2002 through FY 2006.
Fiscal Year 2002 - 931 pending cases
Fiscal Year 2003 - 937 pending cases
Fiscal Year 2004 - 987 pending cases
Fiscal Year 2005 - 1,139 pending cases
Fiscal Year 2006 - 1,165 pending cases
III. Significant Cases
INTERNATIONAL MANAGEMENT ASSOCIATES (ATLANTA):
In May 2006, Kirk Sean Wright, the founder and Chief Executive Officer of
International Management Associates (IMA), was charged with 22 counts of
mail fraud and three counts of Securities Fraud relating to his improper
operation of IMA. IMA is a high-yield hedge fund managing more than $184
million in assets, including those of a group of current and former NFL
players. The FBI investigation began when it learned that the athletes
had been requesting disbursements from their investment accounts for several
months without receiving any money. It is alleged that Wright had misappropriated
the assets of these and other IMA investors. The loss associated with this
fraud is estimated to be more than $150 million.
In June 2006, Wright was arrested by the FBI on charges relating to this
case. As of December 1, 2006, no trial date has been set. This case was a
joint effort by the FBI, SEC, DOJ, and IRS.
BRITISH PETROLEUM; (CHICAGO):
In February 2004, British Petroleum (BP) began a scheme to manipulate the
propane markets by purchasing propane and then conducting a "short
squeeze." The short squeeze was an attempt to pressure "short" sellers
of propane to purchase propane to cover their positions. In June 2006,
a BP commodities trader pled guilty to one count of conspiracy to manipulate
the price of a commodity and admitted to conspiring with others to manipulate
the price of propane during February 2004. This investigation has been
conducted jointly by the FBI, the Commodities Futures Trading Commission,
DOJ, U.S. Attorney's Office and the U.S. Postal Inspection Service. As
of December 1, 2006, a sentencing date has not been set.
HEALTH CARE FRAUD
I. General Overview
The FBI's mission in the area of Health Care Fraud is to oversee the FBI's
Health Care Fraud initiatives by providing national guidance and assistance
to support Health Care Fraud investigations targeting individuals and organizations
who are defrauding the public and private health care systems. The FBI, along
with its federal, state, and local law enforcement partners, the Centers
for Medicare and Medicaid Services (CMS), and other government and privately-sponsored
program participants, work closely together to address vulnerabilities, fraud,
All health care programs are subject to fraud, however, Medicare and Medicaid
programs are the most visible. Estimates of fraudulent billings to health
care programs, both public and private, are estimated between 3 and 10 percent
of total health care expenditures. The fraud schemes are not specific to
any area, but are found throughout the entire country. The schemes target
large health care programs, public and private, as well as beneficiaries.
Certain schemes tend to be worked more often in certain geographical areas,
and certain ethnic or national groups tend to also employ the same fraud
schemes. The fraud schemes have, over time, become more sophisticated and
complex, and are now being perpetrated by more organized crime groups.
Health Care Fraud is expected to continue to rise as people live longer.
This increase will produce a greater demand for Medicare benefits. As a result,
it is expected that the utilization of long and short term care facilities
such as skilled nursing, assisted living, and hospice services will expand
substantially in the future. Additionally, fraudulent billings and medically
unnecessary services billed to health care insurers are prevalent throughout
the country. These activities are becoming increasingly complex and can be
perpetrated by corporate-driven schemes and systematic abuse by providers.
The most recent CMS statistical estimates project the total health care
expenditures for FY 2006 will total $2.16 trillion, representing 16.5 percent
of the Gross Domestic Product. By the year 2012, CMS estimates total health
care spending to exceed $3.3 trillion.
With health care expenditures rising at over twice the rate of inflation,
it is especially important to coordinate all investigative efforts to combat
fraud within the health care system. The FBI is the primary investigative
agency in the fight against Health Care Fraud, and has jurisdiction over
both the federal and private insurance programs. With more than $1 trillion
being spent in the private sector on health care and its related services,
the FBI's efforts are crucial to the success of the overall program. The
FBI leverages its resources in both the private and public arenas through
investigative partnerships with agencies such as the U.S. Department of Health
and Human Services-Office of Inspector General (HHS-OIG), the Food and Drug
Administration (FDA), Drug Enforcement Agency (DEA), Defense Criminal Investigative
Service, Office of Personnel Management, Internal Revenue Service (IRS),
and various state and local agencies. On the private side, the FBI is actively
involved with national groups, such as the National Health Care Anti-Fraud
Association (NHCAA), the National Insurance Crime Bureau (NICB), the Blue
Cross and Blue Shield Association (BCBSA), the American Association of Retired
Persons, and the Coalition Against Insurance Fraud, as well as many other
professional and grass-roots efforts to expose and investigate fraud within
In furtherance of the FBI's efforts to combat Health Care Fraud in the U.S.,
the FBI participates in various initiatives with federal, state, and local
agencies. At the Headquarters level, the FBI participates in a Senior Level
Working Group which includes the CMS, DOJ, HHS-OIG, and other agencies to
identify and assess health care industry vulnerabilities and make recommendations
to protect the industry and the public through a coordinated effort. At the
Headquarters level, the FBI is also involved in bi-weekly coordination meetings
at the DOJ which includes various DOJ components involved in the fight against
Health Care Fraud. National level liaison is also maintained with the DEA,
FDA, Bureau of Immigration and Customs Enforcement, BCBSA, and other partners.
Throughout the country, FBI field offices participate in Health Care Fraud
Working Groups which involve law enforcement agencies, prosecutors, regulatory
agencies and health insurance industry professionals to identify the various
crime problems involving Health Care Fraud. The FBI develops national and
local initiatives when large scale fraud is detected, which may involve participation
by several FBI field offices and other law enforcement agencies.
Over the years, FBI national initiatives have addressed frauds involving
medical transportation, durable medical equipment, hospital cost reporting,
outpatient surgery centers, pharmaceutical fraud, and a variety of other
specialized investigations. FBI offices also establish state and local initiatives
to meet the needs of the community. Throughout the country, various field
offices have conducted their own initiatives targeting clinic, pharmacy,
medical equipment, home health agency, cosmetic surgery center, and other
frauds which are of great concern within a community. The FBI participates
in task forces whenever possible to address specific crime problems or groups
of individuals. In order to meet the needs of the private insurance industry,
the FBI works very closely with the NHCAA to identify crime trends and provide
training to industry and law enforcement agency personnel. Most of the insurance
companies utilize an internal Special Investigations Unit and work closely
with the FBI and our law enforcement partners.
Health Care Fraud investigations are among the highest priority investigations
within the FBI's White Collar Crime Program, ranking behind only Public Corruption
and Corporate Fraud. National initiatives include the Internet Pharmacy Fraud
Initiative, the Auto Accident Insurance Fraud Initiative, and the Outpatient
Surgery Center Initiative. Furthermore, numerous FBI field offices throughout
the U.S. have proactively addressed significant crime problems through coordinated
initiatives, task forces, and undercover operations to identify and pursue
investigations against the most egregious offenders which may include organized
criminal activity and criminal enterprises. Organized criminal activity has
been identified in the operation of medical clinics, independent diagnostic
testing facilities, durable medical equipment companies and other health
care facilities. The FBI is committed to addressing this criminal activity
through disruption, dismantlement, and prosecution of criminal organizations.
One of the most significant trends observed in recent Health Care Fraud
cases includes the willingness of medical professionals to risk patient harm
in their schemes. FBI investigations in several offices are focusing on subjects
who conduct unnecessary surgeries, prescribe dangerous drugs without medical
necessity, and engage in abusive or sub-standard care practices. Recent trends
also suggest that advances in technology and electronic medical data have
caused Health Care Fraud schemes to evolve. The FBI has developed a significant
amount of expertise in investigating technical schemes involving medical
data theft and other fraud schemes facilitated through the use of computers.
Of course, fraud schemes continue to consist of traditional schemes that
involve fraudulent billing such as billing for services not rendered and
upcoding of charges for services provided.
Cases initiated within the scope of the Internet Pharmacy Fraud Initiative
focus on Internet websites and individuals selling illegal prescription drugs
and controlled substances. The overall goal of the Internet Pharmacy Fraud
Initiative is to identify fraudulent Internet pharmacies and target physicians
who are willing to write prescriptions for financial gain outside of the
doctor/patient relationship and with no legitimate medical purpose. Also
in the scope of this initiative are investigations involving the sale of
counterfeit and diverted pharmaceuticals on the Internet.
The Auto Accident Insurance Fraud Initiative was launched in 2005 to address
fraud schemes including organized staged accident rings and related fraudulent
claims schemes. Further, the initiative targets a trend of increasingly aggressive
participants in staged accident schemes who present a growing danger to others
on the road. This crime problem is a threat to innocent drivers, the financial
stability of the insurance industry, and the cost of auto insurance the public.
Utilizing undercover investigations and other sophisticated techniques, the
FBI has enhanced its commitment to addressing organized auto accident insurance
fraud and continues to work closely with our NICB and private insurance partners
to address this growing crime problem.
The Medicare Prescription Drug Program (Part D), implemented on January
1, 2006, has become an increasing focus and concern for the FBI. Prior to
the implementation date, FBI Headquarters personnel regularly met with representatives
from CMS and DOJ to share information and review fraud and abuse occurring
during the enrollment period. After the implementation date, the FBI established
a working group for Part D which includes representatives from CMS, DOJ,
HHS-OIG, FDA, DEA, U.S. Postal Inspection Services (USPIS), and the Federal
Trade Commission. This working group shares and discusses information which
can be used by each agency in future investigations of fraud related to this
program. The FBI has worked with CMS to obtain regional training for field
office personnel of the various agencies represented in this working group.
The FBI is also working through CMS to maintain dialogue with the Medicare
Drug Integrity Contractors (MEDICs) who have been tasked by CMS to identify,
review, and analyze cases of suspected fraud and abuse in the Part D Program.
During the past year, the FBI continued to identify and analyze industry
fraud trends through input from private and public health care program experts.
Present areas of concern include durable medical equipment, hospital fraud,
physician fraud, home health agencies, beneficiary-sharing, chiropractic,
pain management and associated drug diversion, physical therapists, prescription
drugs, multi-disciplinary fraud, and identity theft which involve physician
identifiers used to fraudulently bill government and private insurance programs.
As part of our national strategy to address Health Care Fraud, the FBI cooperates
with the DOJ and the various U.S. Attorney's Offices throughout the country
to pursue offenders through parallel criminal and civil remedies. These cases
typically target large scale medical providers, such as hospitals and corporations,
who engage in criminal activity and commit fraud against the Government which
undermines the credibility of the health care system. As a result, a great
deal of emphasis is placed on recovering the illegal proceeds through seizure
and forfeiture proceedings as well as substantial civil settlements. Upon
the successful conviction of Health Care Fraud offenders, the FBI provides
assistance to various regulatory and state agencies which may seek exclusion
of convicted medical providers from further participation in the Medicare
and Medicaid health care systems.
The FBI and the health care industry continue to expand their technology
and intelligence assessments through the use of sophisticated data mining
techniques to identify patterns of fraud, systemic weaknesses, and aberrant
II. Overall Accomplishments
Through FY 2006, 2,423 cases investigated by the FBI resulted in 588 indictments
and 534 convictions of Health Care Fraud criminals. Numerous cases are pending
plea agreements and trials. The following notable statistical accomplishments
are reflective in FY 2006 for Health Care Fraud: $373 million in Restitutions,
$1.6 billion in Recoveries, $172.9 million in Fines, and $24.3 million in
Seizures. The chart below is reflective of the number of pending cases from
FY 2002 through FY 2006.
Fiscal Year 2002 - 2,418 pending cases
Fiscal Year 2003 - 2,262 pending cases
Fiscal Year 2004 - 2,568 pending cases
Fiscal Year 2005 - 2,547 pending cases
Fiscal Year 2006 - 2,423 pending cases
III. Significant Cases
JORGE A. MARTINEZ, M.D. (CLEVELAND):
This investigation resulted in the first known prosecution involving a criminal
charge of Health Care Fraud resulting in death. The case focused on the
illegal distribution of pharmaceutical narcotics and billing for unnecessary
medical procedures. The investigation revealed that Dr. Martinez provided
excessive narcotic prescriptions, including OxyContin, to patients in exchange
for the patients enduring unnecessary nerve block injections. Dr. Martinez’ actions
directly resulted in the death of two of his patients. From 1998 until
his arrest in 2004, Martinez submitted more than $59 million in claims
to Medicare, Medicaid, and the Ohio Bureau of Worker's Compensation. In
January 2006, a jury found Martinez guilty of 56 criminal counts, including
distribution of controlled substances, mail fraud, wire fraud, Health Care
Fraud, and Health Care Fraud resulting in death. Martinez was later sentenced
to life in prison. This investigation was conducted jointly with the HHS-OIG,
Ohio Bureau of Workers Compensation, DEA Diversion, AdvanceMed, Ohio Department
of Job and Family Services, Anthem Blue Cross Blue Shield and Medical Mutual
BANSAL ORGANIZATION (PHILADELPHIA):
This investigation was conducted jointly with the DEA and IRS and was focused
on a Philadelphia-based Internet pharmacy drug distributor which was smuggling
drugs into the U.S. from India and selling them over the Internet. The criminal
organization shipped several thousand packages per week to individuals around
the country. In April 2005, 24 individuals were indicted on charges of distributing
controlled substances, importing controlled substances, involvement in a
continuing criminal enterprise, introducing misbranded drugs into interstate
commerce, and participating in money laundering. Over $8 million has been
seized to date as a result of the charges. As of December 1, 2006, 12 suspects
have plead guilty, three have been convicted at trial, four are in foreign
custody, and five remain fugitives. This investigation was worked jointly
with the DEA, IRS, ICE, USPIS, and the Lower Merion Police Department.
Health Care Fraud is carried out by many segments of the health care system
using various methods. Some of the most prevalent schemes include:
Billing for Services not Rendered – These schemes can have several
meanings and could include any of the following:
· No medical service of any kind was rendered.
· The service was not rendered as described in the claim for payment.
· The service was previously billed and the claim had been paid.
Upcoding of Services – This type of scheme involves a billing practice
where the health care provider submits a bill using a procedure code that
yields a higher payment than the code for the service that was truly rendered.
The upcoding of services varies according to the provider type. Examples
of service upcoding include:
· A routine, follow-up doctor's office visit being billed as an initial
or comprehensive office visit.
· Group therapy being billed as individual therapy.
· Unilateral procedures being billed as bilateral procedures.
· 30-minute sessions being billed as 50+ minute sessions.
Upcoding of Items – A medical supplier is upcoding when, for example,
the supplier delivers to the patient a basic, manually propelled wheelchair,
but bills the patient's health insurance plan for a more expensive motorized
version of the wheelchair.
Duplicate Claims – A duplicate claim usually involves a certain item
or service for which two claims are filed. In this scheme, an exact copy
of the claim is not filed a second time; rather, the provider usually changes
a portion (most often the date of service) of the claim so that the health
insurer will not realize that the claim is a duplicate. In other words, the
exact claim is not filed twice, but one service is billed two times in an
attempt to be paid twice for one service.
Unbundling – This is the practice of submitting bills in a fragmented
fashion in order to maximize the reimbursement for various tests or procedures
that are required to be billed together at a reduced cost. For example, clinical
laboratory tests may be ordered individually or in a “panel” (i.e.
a lipid panel, an arthritis panel, a hepatitis panel). Billing tests within
each panel as though they were done individually on subsequent days is an
example of unbundling.
Excessive Services – These schemes typically involve the provision
of medical services or items which are in excess of the patient’s actual
needs. Examples of excessive services include:
· A medical supply company delivering and billing for 30 wound care
kits per week for a
nursing home patient who only requires a change of dressings once per day.
· Daily medical office visits conducted and billed for when monthly
office visits would be
more than adequate.
Medically Unnecessary Services – A service is medically unnecessary
and may give rise to a fraudulent scheme when the service is not justified
by the patient's medical condition or diagnosis. For example, a claim for
payment for an electrocardiogram (EKG) test may be fraudulent if the patient
has no conditions, complaints, or factors which would necessitate the test.
Kickbacks – A health care provider or other person engages in an illegal
kickback scheme when he or she offers, solicits, pays or accepts money or
something of value in exchange for the referral of a patient for health care
services that may be paid for by Medicare or Medicaid. A laboratory owner
and doctor each violate the Anti-Kickback statute when the laboratory owner
pays the doctor $50 for each Medicare patient the doctor sends to the laboratory
for testing. Although kickbacks are often paid in cash based on a percentage
of the amount paid by Medicare or Medicaid for a service, kickbacks may take
other forms such as jewelry, free paid vacations, or other valuable items.
HEALTH CARE FRAUD
Health Care Fraud is not a victimless crime. It increases healthcare costs
for everyone. It is as dangerous as identity theft. Fraud has left many thousands
of people injured. Participation in Health Care Fraud is a crime.
Keeping America's health system free from fraud requires active participation
from each of us. The large number of patients, treatments and complex billing
practices attract criminals skilled in victimizing innocent people by committing
What is Health Care Fraud?
· Altered or fabricated medical bills and other documents.
· Excessive or unnecessary treatments.
· Billing schemes, such as:
· charging for a service more expensive than the one provided.
for services that were not provided.
· duplicate charges.
· False or exaggerated medical disability.
· Collecting on multiple policies for the same illness or injury.
Tips to protect yourself against Health Care Fraud
· Protect your health insurance information card like a credit card.
· Beware of free services--is it too good to be true?
· Review your medical bills after receiving healthcare services--Check
that the dates and services are correct to ensure you get what you paid for.
If you suspect Health Care Fraud, contact your local FBI field office.
I. General Overview
The increased reliance by both financial institutions and non-financial
institution lenders on third-party brokers has created opportunities for
organized fraud groups, particularly where mortgage industry professionals
Combating significant fraud in this area is a priority, because mortgage
lending and the housing market have a significant overall effect on the nation's
economy. All Mortgage Fraud programs were recently consolidated within the
Financial Institution Fraud Unit, even where the targeted lender is not a
financial institution. This consolidation provides a more effective and efficient
management over Mortgage Fraud investigations, the ability to identify and
respond more rapidly to emerging Mortgage Fraud problems and a clearer picture
of the overall Mortgage Fraud problem.
Each Mortgage Fraud scheme contains some type of "material misstatement,
misrepresentation, or omission relating to the property or potential mortgage
relied on by an underwriter or lender to fund, purchase or insure a loan." The
Mortgage Bankers Association projects $2.37 trillion in mortgage loans will
be made during 2006. The FBI compiles data on Mortgage Fraud through Suspicious
Activity Reports (SARs) filed by federally-insured financial institutions
and Department of Housing and Urban Development Office of Inspector General
(HUD-OIG) reports. The FBI also receives complaints from the mortgage industry
A significant portion of the mortgage industry is void of any mandatory
fraud reporting. In addition, as initial mortgage products are repackaged
and sold on secondary markets, the sale of the mortgages, in many cases conceal
or distort the fraud, causing it not to be reported. Therefore, the true
level of Mortgage Fraud is largely unknown. The mortgage industry itself
does not provide estimates on total industry fraud. However, based on various
industry reports and FBI analysis, Mortgage Fraud is pervasive and growing.
The FBI investigates Mortgage Fraud in two distinct areas: Fraud for Profit
and Fraud for Housing. Fraud for Profit is sometimes referred to as "Industry
Insider Fraud" and the motive is to revolve equity, falsely inflate
the value of the property, or issue loans based on fictitious properties. Based on existing investigations and Mortgage Fraud
reporting, 80 percent of all reported fraud losses involve collaboration
or collusion by industry insiders.
Fraud for Housing represents illegal actions perpetrated solely by the borrower. The
simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses.
This type of fraud is typified by a borrower who makes misrepresentations
regarding his income or employment history to qualify for a loan.
The defrauding of mortgage lenders should not be compared to predatory lending
practices which primarily affect borrowers. Predatory lending typically effects
senior citizens, lower income and challenged credit borrowers. Predatory
lending forces borrowers to pay exorbitant loan origination/settlement fees,
sub-prime or higher interest rates and in some cases, unreasonable service
fees. These practices often result in the borrower defaulting on his mortgage
payment and undergoing foreclosure or forced refinancing.
Although there are many Mortgage Fraud schemes, the FBI is focusing its
efforts on those perpetrated by industry insiders. The FBI is engaged with
the mortgage industry primarily in identifying fraud trends and educating
the public. Some of the current rising Mortgage Fraud trends include: equity
skimming, property flipping, and mortgage related identity theft. Equity
skimming is a tried and true method of committing Mortgage Fraud. Today's
common equity skimming schemes involve the use of corporate shell companies,
corporate identity theft, and the use or threat of bankruptcy/foreclosure
to dupe homeowners and investors. Property flipping is nothing new; however,
once again law enforcement is faced with an educated criminal element that
is using identity theft, straw borrowers and shell companies, along with
industry insiders to conceal their methods and override lender controls.
Property flipping is best described as purchasing properties and artificially
inflating their value through false appraisals. The artificially valued properties
are then repurchased several times for a higher price by associates of the "flipper." After
three or four sham sales, the properties are foreclosed on by victim lenders.
Often flipped properties are ultimately repurchased for 50 to 100 percent
of their original value.
Since 1999, the FBI has been actively investigating Mortgage Fraud in various
cities across the U.S. The FBI also focuses on fostering relationships and
partnerships with the mortgage industry to promote Mortgage Fraud awareness.
To raise awareness of this issue and provide easy accessibility to investigative
personnel, the FBI has provided points-of-contact to relevant groups including
the Mortgage Bankers Association (MBA), the Mortgage Asset Research Institute,
the Mortgage Insurance Companies of America, Fannie Mae, Freddie Mac, and
The FBI has also been working to establish broader SAR reporting requirements
for mortgage lenders who do have adequate protection under the current safe
harbor provisions. The FBI is collaborating with the mortgage industry and
Financial Crimes Enforcement Network (FinCEN) to create a more productive
reporting requirement for Mortgage Fraud. The FBI has also been working with
the FinCEN to promote an efficient and effective method of identifying and
reporting fraudulent mortgage activity affecting non-federally insured mortgage
The FBI works closely with individual lenders, as well as national associations
such as the MBA, the Appraisal Institute, the National Association of Mortgage
Brokers, and the National Notary Association, to define and combat the Mortgage
In addition, on a case-by-case basis, the FBI receives close cooperation
from lenders. An example of this is the usage of Real Estate Owned properties
inventories to facilitate Mortgage Fraud undercover operations (UCO). In
December 2003, the FBI initiated an UCO to address the massive amount of
Mortgage Fraud in the Jacksonville area. On September 16, 2004, as a result
of this investigation, seven search warrants were executed and two arrests
were made. Mortgage broker J.R. Parker and closing attorney Dale Beardsley,
were arrested, charging them with bank fraud for their role in this scheme.
On or about October 2005, Parker and Beardsley were convicted of conspiracy,
mail fraud, and wire fraud. In addition,
seizures in the case included two homes valued at over $1million each, six
luxury cars and a money judgment in the amount of $14 million. This UCO was
made possible by the close cooperation of a local financial institution.
This type of cooperation happens around the country and is a key component
in the FBI's approach to this growing crime problem.
Regional analysis of suspicious activity reports (SARS) indicating Mortgage
Fraud violations indicates the West region of the U.S. led the nation with
35.9 percent of Mortgage Fraud-related SARs filed during FY 2006. The Central,
Southeast, and Northeast regions had 24.7, 22.6 and 16.9 percent respectively
of Mortgage Fraud related SAR filings. However, FBI pending cases indicated
that the Central region had the majority of Mortgage Fraud cases with 33.3
percent during 2006. The West, Southeast, and Northeast had 26.7, 27.2 and
12.8 percentages respectively. FBI pending cases by region are consistent
with Mortgage Asset Research Institute (MARI) reporting which indicated that
five of the top ten Mortgage Fraud affected states in 2006 were located in
the Central region.
The chart below is reflective of the Number of Violations of Mortgage Related
Fraud SARs (Number of SARs received)
Fiscal Year 2002 - 5,623
Fiscal Year 2003 - 6,936
Fiscal Year 2004 - 17,127
Fiscal Year 2005 - 21,994
Fiscal Year 2006 - 35,617
Commercial Loan Fraud:
Fiscal Year 2002 - 1,764
Fiscal Year 2003 - 1,850
Fiscal Year 2004 - 1,724
Fiscal Year 2005 - 2,126
Fiscal Year 2006 - 2,409
Fiscal Year 2002 - 3,711
Fiscal Year 2003 - 4,569
Fiscal Year 2004 - 6,784
Fiscal Year 2005 - 11,611
Fiscal Year 2006 - 21,203
The chart below is reflective of Dollar Losses Reported in
Mortgage Related Fraud SARs (Dollar Losses Reported in Millions)
In Mortgage Fraud:
Fiscal Year 2002 - $293
Fiscal Year 2003 - $225
Fiscal Year 2004 - $429
Fiscal Year 2005 - $1,014
Fiscal Year 2006 - $946
In Commercial Loan Fraud:
Fiscal Year 2002 - $1,010
Fiscal Year 2003 - $1,060
Fiscal Year 2004 - $1,163
Fiscal Year 2005 - $711
Fiscal Year 2006 - $540
In False Statement:
Fiscal Year 2002 - $469
Fiscal Year 2003 - $388
Fiscal Year 2004 - $458
Fiscal Year 2005 - $998
Fiscal Year 2006 - $1,402
Mapping data from FY 2005 SARs, FBI pending Mortgage Fraud cases, Federal
Housing Authority (FHA)-insured loans defaulting between October 1, 2003
and September 30, 2001 and 2005 MARI data, reveals the top 16 states for
Mortgage Fraud activity. The map below shows states documented by three
or four sources include California, Colorado, Florida, Georgia, Illinois,
Michigan, and Texas. The map below shows states documented by two sources
include North Carolina, Ohio, Utah, and Missouri, and states documented by
one source include: Arizona, Indiana, Louisiana, New York, and South Carolina.
II. Overall Accomplishments
Through FY 2006, 818 cases investigated by the
FBI resulted in 263 indictments and 204 convictions of Mortgage Fraud criminals.
The following notable statistical accomplishments are reflective in FY
2006 for Mortgage Fraud: $388.9 million in Restitutions, $1.4 million in
Recoveries, and $231 million in Fines. The chart below is reflective of
the number of pending cases from FY 2003 through FY 2006.
Fiscal Year 2003 - 436
Fiscal Year 2004 - 534
Fiscal Year 2005 - 721
Fiscal Year 2006 - 818
III. Significant Cases
Amerifunding was a Mortgage Brokerage owned and operated by Gerald Small
in Colorado, which maintained two "warehouse" lines of credits,
each at a large federally-insured financial institution in the U.S. In
order to support a lavish lifestyle, Small created fictitious loans to
live off of the lines of credit. The borrower information, name, and social
security number, were invented. Eventually, one of the creditors asked
for verification of identification thereby defeating the "invention" process.
To deal with this, Small placed an advertisement for a $100,000+ Account
Representative position at his company. Applicants eagerly completed applications
inclusive of names, social security numbers and copies of driver's licenses
which Small wasted no time in utilizing for more fictitious loans. Investigation
determined that Small had kited over $200 million in fraudulent mortgage
loans and used the stolen identities of 47 job applicants to obtain mortgage
funding for fictitious home loans, or "air loans" totaling over
$21.5 million during a 24-month period.
Gerald Small engaged with others in a massive Kiting and Mortgage Fraud
scheme in Colorado resulting in the conviction of six individuals, the seizure
of almost $20 million in cash and assets, the restitution of two private
jet aircraft, and losses to federally- insured financial institutions of
approximately $35 million.
MIDTOWNE RESTORATION LLC (KANSAS CITY):
Brent Michael Barber led the Mortgage Fraud ring holding himself and company
Midtowne Restoration LLC as a real estate investment company. "Straw
Buyers" were solicited in schemes where they were paid $2,000 for
use of their identity and credit profiles to obtain mortgage financing
for properties predominately in low income areas of Kansas City, Missouri.
In other schemes, investors were recruited for properties which were represented
to be refurbished and appraised at amounts far in excess of their true
value. The investors were assured by Barber that renters would be found
to service the mortgage and maintenance costs of the properties so there
would be no risk.
On February 23, 2006, Barber pled guilty to 104 counts contained in two
federal indictments, and was convicted by a jury for a fraud covered by a
third federal indictment.
Also convicted in the schemes were eight individuals which involved about
300 fraudulent mortgage loans worth approximately $19.6 million and caused
losses to federally-insured financial institutions of approximately $11.8
million. On October 27, 2006, Barber was sentenced to 12 years and 7 months
federal incarceration, and ordered to pay restitution in the amount of $11,206,419.
MORTGAGE FRAUD INDICATORS
· Inflated Appraisals
· Exclusive use of one appraiser
· Increased Commissions/Bonuses - Brokers and Appraisers
· Bonuses paid (outside or at settlement) for fee-based services
· Higher than customary fees
· Falsifications on Loan Applications
· Buyers told/explained how to falsify the mortgage application
· Requested to sign blank application
· Fake Supporting Loan Documentation
· Requested to sign blank employee or bank forms
· Requested to sign other types of blank forms
· Purchase Loans Disguised as Refinance
· Purchase loans that are disguised as refinances
less documentation/lender scrutiny
· Investors-Short Term Investments with Guaranteed Re-Purchase
· Investors used to flip property prices for fixed percentage
· Multiple "Holding Companies" utilized to increase property
COMMON MORTGAGE FRAUD SCHEMES
Property Flipping - Property is purchased, falsely appraised at a higher
value, and then quickly sold. What makes property illegal is that the appraisal
information is fraudulent. The schemes typically involve one or more of the
following: fraudulent appraisals, doctored loan documentation, inflating
buyer income, etc. Kickbacks to buyers, investors, property/loan brokers,
appraisers, and title company employees are common in this scheme. A home
worth $20,000 may be appraised for $80,000 or higher in this type of scheme.
Silent Second - The buyer of a property borrows the down payment from the
seller through the issuance of a non-disclosed second mortgage. The primary
lender believes the borrower has invested his own money in the down payment,
when in fact, it is borrowed. The second mortgage may not be recorded to
further conceal its status from the primary lender.
Nominee Loans/Straw Buyers - The identity of the borrower is concealed through
the use of a nominee who allows the borrower to use the nominee's name and
credit history to apply for a loan.
Fictitious/Stolen Identity - A fictitious/stolen identity may be used on
the loan application. The applicant may be involved in an identity theft
scheme: the applicant's name, personal identifying information, and credit
history are used without the true person's knowledge.
Inflated Appraisals - An appraiser acts in collusion with a borrower and
provides a misleading appraisal report to the lender. The report inaccurately
states an inflated property value.
Foreclosure Schemes - The perpetrator identifies homeowners who are at risk
of defaulting on loans or whose houses are already in foreclosure. Perpetrators
mislead the homeowners into believing that they can save their homes in exchange
for a transfer of the deed and up-front fees. The perpetrator profits from
these schemes by remortgaging the property or pocketing fees paid by the
Equity Skimming - An investor may use a straw buyer, false income documents,
and false credit reports, to obtain a mortgage loan in the straw buyer's
name. Subsequent to closing, the straw buyer signs the property over to the
investor in a quit claim deed which relinquishes all rights to the property
and provides no guaranty to title. The investor does not make any mortgage
payments and rents the property until foreclosure takes place several months
Air Loans - This is a non-existent property loan where there is usually
no collateral. An example of an air loan would be where a broker invents
borrowers and properties, establishes accounts for payments, and maintains
custodial accounts for escrows. They may set up an office with a bank of
telephones, each one used as the employer, appraiser, credit agency, etc.,
for verification purposes.
Mortgage Fraud Prevention Measures
General Fraud Tips
Mortgage Fraud is a growing problem throughout the U.S. People want to believe
their homes are worth more than they are, and with housing booms going on
throughout the U.S., there are people who try to capitalize on the situation
and make an easy profit.
Tips to protect you from becoming a victim of Mortgage Fraud:
Get referrals for real estate and mortgage professionals. Check the licenses
of the industry professionals with state, county, or city regulatory agencies.
· If it sounds too good to be true, it probably is. An outrageous
promise of extraordinary profit in a short period of time signals a problem.
· Be wary of strangers and unsolicited contacts, as well as high-pressure
· Look at written information to include recent comparable sales
in the area, and other documents such as tax assessments to verify the value
of the property.
· Understand what you are signing and agreeing to--If you do not
· Re-read the documents, or seek assistance from an attorney.
· Make sure the name on your application matches the name on your
· Review the title history to determine if the property has been
sold multiple times within a short period--It could mean that this property
has been "flipped" and the value falsely inflated.
· Know and understand the terms of your mortgage--Check your information
against the information in the loan documents to ensure they are accurate
· Never sign any loan documents that contain blanks--This leaves
you vulnerable to fraud.
· Check out the tips on the Mortgage Bankers Association's (MBA)
website at for additional advice on avoiding Mortgage Fraud.
Mortgage Debt Elimination Schemes
· Be aware of e-mails or web-based advertisements that promote the
elimination of mortgage loans, credit card, and other debts while requesting
an up-front fee to prepare documents to satisfy the debt. The documents are
typically entitled Declaration of Voidance, Bond for Discharge of Debt, Bill
of Exchange, Due Bill, Redemption Certificate, or other similar variations.
These documents do not achieve what they purport.
· There is no magic cure-all to relieve you of debts you incurred.
· Borrowers may end up paying thousands of dollars in fees without
the elimination or reduction of any debt.
Foreclosure Fraud Schemes:
Perpetrators mislead the homeowners into believing that they can save their
homes in exchange for a transfer of the deed, usually in the form of a Quit-Claim
Deed, and up-front fees. The perpetrator profits from these schemes by re-mortgaging
the property or pocketing fees paid by the homeowner without preventing the
foreclosure. The victim suffers the loss of the property as well as the up-front
· Be aware of offers to "save" homeowners who are at risk
of defaulting on loans or whose houses are already in foreclosure.
· Seek a qualified Credit Counselor or attorney to assist.
Predatory Lending Schemes
· Before purchasing a home, research information about prices of
homes in the neighborhood.
· Shop for a lender and compare costs. Beware of lenders who tell
you that they are your only chance of getting a loan or owning your own home.
· Beware of "No Money Down" loans--This is a gimmick used
to entice consumers to purchase property that they likely cannot afford or
are not qualified to purchase. Be wary of mortgage professional who falsely
alter information to qualify the consumer for the loan.
· Do not let anyone convince you to borrow more money than you can
afford to repay.
· Do not let anyone persuade you into making a false statement such
as overstating your income, the source of your down payment, or the nature
and length of your employment.
· Never sign a blank document or a document containing blanks.
· Read and carefully review all loan documents signed at closing
or prior to closing for accuracy, completeness, and omissions.
· Be aware of cost or loan terms at closing that are not what you
· Do not sign anything you do not understand.
· Be suspicious if the cost of a home improvement goes up if you
accept the contractor's financing.
· If it sounds too good to be true--it probably is!
I. General Overview
Identity theft involves the misuse of another individual's personal identifying
information for fraudulent purposes. It is almost always committed to facilitate
other crimes, such as credit card fraud, mortgage fraud, and check fraud.
Personal identifying information, such as name, Social Security number, date
of birth and bank account number is extremely valuable to an identity thief.
With relatively little effort, an identity thief can use this information
to take over existing credit accounts, create new accounts in the victim's
name or even evade law enforcement after the commission of a violent crime.
Identity thieves also sell personal information online to the highest bidder,
often resulting in the stolen information being used by a number of different
perpetrators. Identity theft can be very difficult for consumers to deal
with, as they often do not know they have been defrauded until they are denied
credit or receive a call from a creditor seeking payment for a debt incurred
in their name.
Although not a new crime, identity theft has evolved into a serious and
pervasive threat to consumers and the financial services industry alike.
Estimates vary on the true impact of the problem, but law enforcement and
consumer advocacy groups agree that financial institutions lose billions
of dollars each year to identity theft and consumers face additional hardships,
ranging from financial loss to time spent trying to undo the harm caused
to their credit records and other aspects of their lives. Identity theft
also puts significant demands on law enforcement, as federal, state, and
local law enforcement agencies and prosecutors grapple with venue issues
and limited resources, which can complicate their efforts to effectively
deal with the problem.
A survey conducted by the Federal Trade Commission (FTC) in 2006 estimated
that 8.3 million American consumers, or 3.7 percent of the adult population,
became victims of identity theft in 2005. Most of the financial losses are
suffered by credit issuers and banks, as victims are rarely held responsible
for fraudulent debts incurred in their name; however, victims often bear
the responsibility of contacting their banks and credit issuers after an
identity theft has occurred. The same FTC survey determined that victim consumers
spent over 200 million hours in 2005 attempting to recover from identity
Law enforcement agencies across the country have formed task forces and
working groups to address the identity theft problem. The FBI currently participates
in 21 task forces and working groups dedicated to identity theft and over
80 other financial crimes task forces. In cities such as Detroit, Chicago,
Los Angeles, and Salt Lake City, identity fraud task forces are realizing
significant success. For example, in FY 2005 the Detroit Metropolitan Identity
Fraud Task Force accumulated the following statistical accomplishments: 23
search warrants, 23 arrest warrants, 37 arrests, 11 indictments, 29 convictions,
69 fraud cells identified, and 23 identity fraud organizations dismantled.
In addition, the FBI has dedicated significant analytical resources to combating
the identity theft problem and is working with the President's Identity Theft
Task Force and other agencies such as the FTC to develop a system that will
analyze large streams of identity theft data and refer the results to law
enforcement agencies in order to proactively target organized groups of identity
Although the total number of FBI identity theft-related cases has decreased
from 1,678 in FY 2005 to 1,255 in FY 2006, our field offices have been aggressively
pursuing identity theft charges in many of our investigations, ranging from
traditional bank fraud cases to counterterrorism cases. To effectively utilize
our resources, investigations typically focus on organized groups of identity
thieves and criminal enterprises which are the most difficult to investigate
and often involve a substantial number of victims. The FBI and other government
agencies have initiated consumer education programs which have made consumers
more aware of the perils of leaving personal information unprotected. The
financial services industry is also doing its part to make its financial
products less susceptible to fraud.
II. Overall Accomplishments
Through FY 2006, 1255 cases investigated by the FBI resulted in 457 indictments
and 405 convictions of Identity Theft criminals. The following notable statistical
accomplishments are reflective in FY 2006 for Identity Theft Fraud across
all FBI Programs: $156.5 million in Restitutions, $4.3 million in Recoveries,
and $1.2 million in Fines. The chart below is reflective of the number of
pending cases from FY 2003 through FY 2006.
Fiscal Year 2003 - 1,582
Fiscal Year 2004 - 1,574
Fiscal Year 2005 - 1,678
Fiscal Year 2006 - 1,255
III. Significant Cases
OLATUNJI OLUWATOSIN (LOS ANGELES):
On February 10, 2006, Olatunji Oluwatosin, a Nigerian national residing in
North Hollywood, California was sentenced to 10 years in prison and ordered
to pay restitution of $6.5 million for his role in a scheme that potentially
compromised the identities of over 165,000 people nationwide. Oluwatosin,
doing business as Pacific Collections, gained access to a consumer database
and obtained personal information on numerous consumers. He then used the
information to establish at least 10 fraudulent business accounts, which
allowed him and his associates to access the personal information of numerous
consumers. Some of the information was used to take over existing credit
card accounts or establish new accounts in the victims' names. This case
was investigated by the Southern California High Tech Task Force Identity
Theft Detail, including the FBI and the Los Angeles County Sheriff's Department.
HAROLD MCCOY; ET AL (PHILADELPHIA):
On June 16, 2006, Harold McCoy was sentenced to 162 months in prison following
a guilty plea to charges of bank fraud, identity theft, and conspiracy
for his role in a scheme to defraud numerous American Red Cross (ARC) blood
donors in the Philadelphia area. McCoy obtained the names and personal
identifying information of numerous blood donors from an employee of ARC.
He and his co-conspirators, Karynn Long and Danielle Baker, then used the
stolen information to obtain instant credit loans, bank loans, and to cash
counterfeit checks, causing approximately $800,000 in losses to various
financial institutions. This crime jeopardized the Philadelphia area blood
supply and damaged ARC's trusted relationship with the public, as many
people stopped donating blood and two corporate donation centers ceased
their blood drives when the media reported the crime. For their roles in
this scheme, Long pled guilty to bank fraud and conspiracy and was sentenced
to 18 months in prison; Baker pled guilty to identity theft and conspiracy
and was sentenced to 24 months in prison. All three defendants were ordered
to pay restitution in the amount of $270,555.
Indications of Identity Theft
The following occurrences are some of the indications of identity theft:
· Charges occurring on your accounts that you did not authorize.
· If your credit is denied due to poor credit ratings, despite good
· If you are contacted by creditors regarding amounts owed for goods
or services that you never obtained or authorized.
· If your credit card and bank statements are not received in the
mail as expected.
· If a new or renewed credit card is not received.
Identity Theft/Fraud Prevention Measures
U.S. citizens need to be aware of measures that can be taken to either prevent
or minimize their chances of becoming a victim of fraud. Some of these measures
are as follows:
· Never give personal information via telephone, mail or the Internet, unless you initiated the contact.
· Store personal information in a safe place.
· Shred credit card receipts and/or old statements before discarding in a garbage can--If you do not have a shredder, then use scissors.
· Protect PINs and passwords.
· Carry only the minimum amount of identifying information.
· Remove your name from mailing lists for pre-approved credit
lines and tele-marketers.
· Order and closely review biannual copies of your credit report
each national credit reporting agency (Equifax, Experian, and Trans Union).
· Request DMV to assign an alternate driver’s license number
if it currently features your
Social Security account number.
· Ensure that your PIN numbers cannot be observed by anyone while
utilizing an ATM or public telephone.
· Close all unused credit card or bank accounts.
· Contact your creditor or service provider if expected bills do
· Check account statements carefully.
· Guard your mail from theft.
· BE AWARE!
If You are a Victim of Identity Theft
· These steps are among those that should be completed by persons
who believe they have been the victim of an identity theft:
· Contact the fraud departments of the three major credit bureaus
to place fraud alerts on your credit file in order to reduce your risk of
· Obtain and review a current copy of your credit report to determine
whether any unknown fraud has occurred--(You will need to more closely monitor
your credit going forward as some identity thefts can continue for extended
periods of time).
· Contact the account issuer(s) where fraudulent accounts have been
opened or where your accounts have been taken over--Ask for the fraud/security
department and notify them both via telephone and in writing.
· Close all tampered or fraudulent accounts.
· Ask about the existence of secondary cards.
· Contact your local police department and file a police report.
· Notify the police department in the community where the identity
theft occurred, if it is different from your own.
· Obtain copies of any police reports filed.
· Keep a detailed log of who you talked to and when, including their
title, phone number, and other contact information.
· Contact the Federal Trade Commission's Identity Theft Clearinghouse
and file an identity theft complaint at Those complaints are utilized by
law enforcement agencies, including the FBI, that investigate identity theft.
You can also obtain additional information at that website regarding your
rights as a victim.
· Online identity thefts can also be reported at www.IC3.gov.
I. General Overview
Insurance fraud continues to be an investigative priority for the FBI's
Financial Crimes Section, due in large part to the insurance industry’s
significant status in the U.S. economy. The U.S. insurance industry consists
of thousands of companies and collects nearly $1 trillion in premiums each
year. The size of the industry, unfortunately, makes it a prime target for
criminal activity; the Coalition Against Insurance Fraud (CAIF) estimates
that the cost of fraud in the industry is as high as $80 billion each year.
This cost is passed on to consumers in the form of higher premiums. In fact,
the National Insurance Crime Bureau (NICB) calculates that insurance fraud
raises the yearly cost of premiums by $300 for the average household.
The FBI is attempting to identify the most prevalent schemes and the top
echelon criminals defrauding the insurance industry in an effort to reduce
this type of fraud. The FBI works closely with the National Association of
Insurance Commissioners, NICB, CAIF, as well as state fraud bureaus, state
insurance regulators, and other federal agencies to combat insurance fraud.
In addition, the FBI is a member of the International Association of Insurance
Fraud Agencies, an international non-profit organization whose mission is
to maintain an international presence to address insurance and insurance-related
financial crimes on a global basis. Currently, the FBI is focusing a majority
of its resources relating to insurance fraud on the following schemes:
Hurricane Katrina Insurance Fraud - In late August 2005, Hurricane Katrina
made landfall along America's Gulf Coast, severely damaging the region and
causing approximately $100 billion in damages. According to the CAIF, Katrina
generated approximately 1.6 million insurance claims totaling $34.4 billion
in insured losses. The destruction caused by the storm has resulted in a
marked increase in insurance fraud in the area. Of the more than 80 billion
government dollars appropriated for reconstruction efforts in the region,
it is estimated that insurance fraud accounts for between $4 and $6 billion.
Insurance fraud related to the 2005 hurricane season has taken on a variety
of forms. Policy holders, for example, have been tempted to exaggerate or
falsify claims in the wake of Katrina. According to the Louisiana State Police,
many policy holders without flood insurance are submitting fire or stolen
property claims for items that were actually damaged by flood waters. Additionally,
some policyholders are "double dipping"--that is, holding multiple
policies with different carriers, claiming the same damage expenses with both companies,
and eventually receiving two payments for what should have been one claim.
Other individuals are intentionally damaging their own property in order
to increase repair cost estimates, ultimately increasing the payments they
receive from insurers.
Other fraud stemming from Hurricane Katrina is perpetrated by unscrupulous
contractors. In one common scheme, contractors are convincing victims that
a deposit is required before a job can be initiated. After receiving the
deposit money, however, the contractors fail to complete, or even begin,
the agreed upon repair work. Another fraudulent scheme used by corrupt contractors
is "bid-rigging." In bid-rigging, contractors raise the cost of
a construction job by conspiring in the bidding process. The homeowner is
quoted two inflated bids and one lower (but still inflated) bid. The work
is completed by the lowest bidder and kickbacks are paid to the other firms
and the homeowner.
Insurance-Related Corporate Fraud - Although Corporate Fraud is not unique
to any particular industry, there has been a recent trend involving insurance
companies caught in the web of these schemes. The temptations for fraud within
the corporate industry can be greater during periods of financial downturns.
Insurance companies hold customer premiums which are forbidden from operational
use by the company. However, when funding is needed, unscrupulous executives
invade the premium accounts in order to pay corporate expenses. This leads
to financial statement fraud because the company is required to "cover
its tracks" to conceal the improper utilization of customer premium
Premium Diversion/Unauthorized Entities - The most common type of fraud
involves insurance agents and brokers diverting policyholder premiums for
their own benefit. Additionally, there is a growing number of unauthorized
and unregistered entities engaged in the sale of insurance-related products.
As the insurance industry becomes open to foreign players, regulation becomes
more difficult. Additionally, exponentially rising insurance costs in certain
areas (i.e., terrorism insurance, directors'/officers' insurance, and corporations),
increases the possibility for this type of fraud. The schemes typically involve
entities which utilize a myriad of sophisticated schemes for verification
of submitted fraudulent financial statements to the state insurance regulatory
body in order to hide the true nature of the fictitious assets listed in
the statements. This generates large insurance premiums solely to be diverted.
Viatical Settlement Fraud - A viatical settlement is a discounted, pre-death
sale of an existing life insurance policy on the life of a person known to
have a terminal condition. The parties to a viatical settlement include the
insured party, insurance agent/broker, insurance company, viatical company/broker,
and the investor. Viatical settlement fraud occurs when misrepresentations
are made on the insurance policy applications, in effect, hiding the fact
that the party applying for a policy has already been diagnosed with a terminal
condition. On the investor end, the fraud occurs when misrepresentations
are made to the investors by the viatical companies about life expectancies
of insured parties and guaranteed high rates of return.
With the cooperation of the insurance industry, through referrals from industry
liaison and other law enforcement agencies, the FBI continues to target the
individuals and organizations committing insurance fraud. The FBI continues
to initiate and conduct traditional investigations as well as utilize sophisticated
techniques, to include undercover investigations, to apprehend the fraudsters.
Workers Compensation Fraud - The Professional Employer Organization (PEO)
industry operates chiefly to provide workers compensation insurance coverage
to small businesses by pooling businesses together to obtain reasonable rates.
Workers compensation insurance accounts for as much as 46 percent of a small
business owners' general operating expenses. Due to this, small business
owners have an incentive to shop workers compensation insurance on a regular
basis. This has made it ripe for entities who purport to provide workers
compensation insurance to enter the marketplace, offer reduced premium rates
and misappropriate funds without providing insurance. The focus of these
investigations is on allegations that numerous entities within the PEO industry
are selling unauthorized and non-admitted workers compensation coverage to
businesses across the U.S. This insurance fraud scheme has left injured and
deceased victims without workers compensation coverage to pay their medical
II. Overall Accomplishments
During FY 2006, 233 cases investigated by the FBI resulted in 53 indictments
and 54 convictions of Insurance Fraud criminals. The number of cases and subsequent
arrest and conviction statistics will likely rise in the near future as more
fraud is uncovered in the wake of Hurricane Katrina. The following notable statistical
accomplishments are reflective in FY 2006 for Insurance Fraud: $30 million in
Restitutions and $3 million in Seizures. The chart below is reflective of the
number of pending cases from FY 2002 through FY 2006.
Fiscal Year 2002 - 413
Fiscal Year 2003 - 326
Fiscal Year 2004 - 289
Fiscal Year 2005 - 270
Fiscal Year 2006 - 233
III. Significant Cases
HURRICANE KATRINA RELATED FRAUD (SACRAMENTO):
In the wake of Hurricane Katrina, The American Red Cross established a national
call center in Bakersfield, California to process and disburse relief funds
to victims of the disaster. After the Red Cross noticed a disproportionate
amount of disbursements in the immediate Bakersfield area when compared
to the rest of the state, an investigation was launched. It is estimated
that $500,000 was lost due to fraud conducted by workers at the call center.
As of December 1, 2006, a total of 73 individuals have been indicted in
the case, including 24 Red Cross contract employees, 61 subjects who have
pled guilty to various felony charges, including charges of wire fraud
and false statements and 25 subjects have been sentenced. A Hurricane Katrina
Fraud Task Force, consisting of FBI, DOJ, U.S. Attorneys' Offices, Office
of Inspector General, U.S. Secret Service, the Federal Trade Commission,
the Securities and Exchange Commission and various state and local law
enforcement agencies has been initiated to address frauds relating to the
MUTUAL BENEFITS CORPORATION (MIAMI):
Mutual Benefits Corporation (MBC) was a viatical settlement company offering
interests in insurance policies to investors worldwide. Over 28,000 investors
worldwide were defrauded of approximately $956 million by the principals
of MBC, who misrepresented the investment and failed to disclose prior
regulatory actions. Additionally, MBC falsified the life expectancies of
the insured and paid kickbacks to physicians for signing fraudulent documents
that were provided to investors. In October 2006, Peter Lombardi, former
MBC President, pled guilty to Securities Fraud. As a part of his plea agreement,
Lombardi has agreed to be responsible for $956 million in restitution to
the victim investors in this fraud. The SEC and IRS assisted in this investigation.
MASS MARKETING FRAUD
I. General Overview
Mass Marketing Fraud is a general term for frauds that exploit mass-communication
media, such as telemarketing fraud, Internet fraud, and identity theft. Since
the 1930's, mass marketing has been an accepted and productive way of increasing
a customer base. Advanced communications, including computers, speed dialing,
automatic dialing, and facsimile machines, along with modern conveniences
such as credit cards, electronic banking, and television have led to tremendous
growth in mass marketing. With the growth of legitimate mass marketing, however,
has come a substantial increase in fraudulent mass marketing.
Illegal mass marketers use three primary methods to identify potential victims.
First, they may contact individuals with whom they have had no prior contact
and attempt to scam these individuals. Second, they prompt prospective victims
to contact the mass marketing operation by sending them communications that
guarantee substantial awards or other benefits. Third, many mass marketers
purchase lists of people who are known to have been victims of prior fraud
schemes. These individuals are often receptive to investing in other schemes.
Mass Marketing frauds victimize millions of Americans each year and generate
losses in the hundreds of millions of dollars. The most common mass marketing
Advanced Fee Fraud - In these scams, victims are told that they have won
a lottery, received an inheritance or are otherwise entitled to a large sum
of money. Often times the victim is drawn into the con by applying for a
loan through a newspaper article or online advertisement placed by the con
artist. Victims are informed, that in order to receive the money to which
they are entitled, they must first send funds to cover taxes or processing
Foreign Lottery Fraud - In Foreign Lottery Fraud, the victim is notified
that he or she has won a lottery or sweepstakes but must first pay various
taxes and fees before receiving the prize. The subjects, posing as lottery
administrators, often send the victim a counterfeit check representing all
or a portion of the victim’s winnings, and require that the victim
send money back to cover the taxes and fees.
Overpayment Fraud (Forged/Altered Check Scam) - Overpayment Fraud often
occurs when a person advertises an item for sale in a newspaper or online.
The seller is contacted by an individual wishing to purchase the item. The
purchaser sends the seller a counterfeit check for an amount greater than the price of the item and asks the seller to
deposit the check and to return the remaining money or to send it to another
person (often a “shipper” or “agent” who works for
Nigerian Letter Scam (419 Fraud) - In Nigerian Letter Scams, an e-mail,
fax, or letter is sent to a victim claiming there are millions of dollars
either from an exiled head of state, political refugee, a pseudo-governmental
company or a deceased relative (inheritance) in an account in a foreign country.
The funds are supposedly in a security company and the victim is asked to
help get the funds to the U.S. The victim is asked to wire numerous fees
in conjunction with getting the funds released from the foreign country and
sent to the U.S. The victim is promised a percentage of these funds for his
assistance. In other cases, the victim is provided a check to pay the "fees" required,
which, after the victim pays the "fees," turns out to be fraudulent.
(419 Frauds are named after the Nigerian Penal Code Section 419.)
The perpetrators of mass marketing schemes generally reside outside of the
U.S., while their victims are predominantly elderly U.S. citizens. As a result,
the FBI is uniquely positioned to address this crime problem because of its
Legal Attache? Offices (Legats) located around the globe. Utilizing FBI Legats,
in partnership with other foreign and domestic law enforcement agencies,
the FBI has been involved in several initiatives to combat the growing problem
of International Mass Marketing Fraud, including Operation Global Con (Global
Con) which concluded in May 2006.
Global Con was an international initiative targeting Mass Marketing fraud
schemes that were international in scope and impact, involved criminal organizations
or involved significant losses. Global Con was developed by the Department
of Justice (DOJ) Fraud Section, in concert with the FBI, U.S. Postal Inspection
Service (USPIS), U.S. Immigration and Customs Enforcement (ICE), and the
Royal Canadian Mounted Police (RCMP). Several other foreign countries participated
in the initiative including Spain, the Netherlands, Nigeria, Costa Rica,
the United Kingdom, and Australia.
The initiative has been extremely successful in meeting its goals of prosecution,
interdiction, restitution, seizure of assets, and education of potential
victims. U.S. Attorney General Gonzales called the 14-month investigation
the largest enforcement operation of its kind. It resulted in 139 arrests
and 61 convictions in the U.S. and an additional 426 arrests in Canada, Costa
Rica, the Netherlands, and Spain. The FBI's involvement included 38 separate
cases which resulted in $16 million in forfeitures.
The FBI worked alongside the Federal Trade Commission (FTC) in the Global
Con initiative. During Global Con, the FTC filed 21 federal court cases against
143 defendants, helping to stop the criminals that cost U.S. citizens more
than $150 million. In one exemplary Global Con case, the FTC was able to
obtain a $13.9 million judgment against Venezuelan and Guatemalan telemarketing
In addition to foreign and domestic law enforcement agencies, the FBI has
also partnered with private entities like the American Association of Retired
Persons (AARP) in an effort to reduce telemarketing and mass-marketing fraud.
The AARP has helped limit these frauds by providing the FBI with members
to act as volunteer "victims" in its investigations. The AARP also
aids the FBI in its educational and awareness efforts by giving presentations
to the elderly regarding fraud matters.
II. Overall Accomplishments
Through FY 2006, 147 cases investigated by the FBI resulted in 13 indictments
and 44 convictions of Mass Marketing Fraud criminals. The FBI's involvement
in multi-agency initiatives like Global Con has helped make significant strides
in combating this fraud, as reflected in the FBI's notable statistical accomplishments
as follows: $268.8 million in Restitutions, $86.9 million in Fines and $12.4
million in Seizures. The chart below is reflective of the number of pending
cases from FY 2002 through FY 2006. Mass Marketing cases are decreasing because
of the prioritization of other white collar crime matters within the White
Collar Crime Program.
Fiscal Year 2002 - 351
Fiscal Year 2003 - 236
Fiscal Year 2004 - 192
Fiscal Year 2005 - 161
Fiscal Year 2006 - 147
III. Significant Cases
OPERATION LAST CHANCE (MEMPHIS):
Hundreds of thousands of U.S. citizens were victimized in this telemarketing
scheme which purported to sell foreign lottery chances. The perpetrators
collected an average of $5 million a week at times during this scheme and
laundered more than $27 million through one bank account to disguise its
Seventeen individuals residing in the U.S., Canada, Australia, Vanuatu,
and Costa Rica were indicted on numerous charges relating to the scheme.
In December 2002, the FBI arrested 15 individuals in the U.S., Canada, Australia,
and Costa Rica. More than $35 million located in bank accounts worldwide
and personal property attributed to the defendants having been restrained.
This includes the seizure of more than $700,000 by the Australian Tax Authority.
In 2005, ten individuals were convicted and $16 million was forfeited. Of
the ten individuals convicted, one was sentenced to six years incarceration,
one was convicted at trial and is awaiting sentencing, and eight received
PROJECT CORAL (BOSTON):
The perpetrators of this fraud were operating advance fee credit card and
U.S. Federal Grants schemes. Victims were led to believe that they would
receive a credit card or grant after paying the conspirators a relatively
small fee. After obtaining bank account information from the victims, payments
were withdrawn from their accounts via an automated clearing house but
no goods or services were ever provided. It is estimated that over an 18-month
period, the company defrauded over 100,000 victims for a total loss of
approximately $30 million.
In February 2005, 31 individuals were arrested, one being a former assistant
manager of the HSBC Bank of New York City. Approximately $200,000 (Canadian)
and $50,000 (US) was seized at this time. In September 2006, one of the main
subjects, Stephen Clark, pled guilty to two separate conspiracy counts stemming
from his role in the scheme; other subjects are currently awaiting trial.
Sentencing for Clark was scheduled for January 19, 2007. This investigation
was carried out by the Project COLT (Centre of Operations Linked to Telemarketing)
Task Force, consisting of members of the FBI, ICE, the Royal Canadian Mounted
Police (RCMP), and local law enforcement agencies.
WAYS TO PROTECT YOURSELF FROM MASS MARKETING FRAUD
Things you should do:
· Ask telemarketers for the name and address of their company and
a clear explanation of the offer they are making.
· Ask the caller to send you material in writing to study, including
the money back guarantee, before you make a purchase.
· Ask about the company's refund policies.
· Call the Better Business Bureau, your state Attorney General's
Office, or the local Consumer Protection Service in the state or city where
the company is located, and ask if any complaints have been made against
· Talk to family and friends, or call your lawyer, accountant, or
banker, and get their advice before you make any large purchase or investment.
· Request that your telephone number be removed from the telemarketing
list if you do not want to be called.
· Report suspicious telemarketing calls, junk mail solicitations,
or advertisements to the National Fraud Information Center at 1-800-876-7060.
Things you should NOT do:
· Do not pay for any prize or send money to improve your chances
of winning--it is illegal for someone to ask that you pay to enter a contest.
· Do not allow any caller to intimidate or bully you into buying
something "right now"--If the caller says, "You have to make
up your mind right now," or "We must have your money today," then
it's probably a scam.
· Do not give any caller your bank account number--They can use it
to withdraw money from your account at any time without your knowledge and/or
permission. • Do not give your credit card number to anyone over the
telephone unless you initiated the call.
· Never wire money or send money by an overnight delivery service
unless you initiated the transaction.
ASSET FORFEITURE/MONEY LAUNDERING
I. General Overview
The mission of the Asset Forfeiture/Money Laundering Unit (AF/MLU) is to
promote the strategic use of asset forfeiture and to ensure that field offices
employ the money laundering violation in all investigations, where appropriate,
to disrupt and/or dismantle criminal enterprises. Following the money and
then properly utilizing the asset forfeiture statutes will disrupt and dismantle
criminal and/or terrorist organizations.
The AF/MLU has successfully coordinated with the Counterterrorism Division
in a variety of training programs to instruct agents and task force officers
how to incorporate asset forfeiture and money laundering into terrorism investigations.
The Criminal Investigative Division serves as the Program Manager for both
the Asset Forfeiture Program and the Money Laundering Program, thus providing
support to all FBI Investigative Programs to include International and Domestic
The Department of Justice defines money laundering in the following manner:
"Money laundering is the process by which criminals conceal or disguise
the proceeds of their crimes or convert those proceeds into goods and services.
It allows criminals to infuse their illegal money into the stream of commerce,
thus corrupting financial institutions and the money supply and giving criminals
unwarranted economic power."
It can be further described as follows:
A process...(a series of actions) through which income of illegal origin
is concealed, disguised, or made to appear legitimate (Main objective); and
to evade detection, prosecution, seizure, and taxation.
Anyway you look at it, money laundering is the process by which criminal
proceeds are made to appear to come from a legitimate source. The FBI maintains
a proactive approach when investigating money laundering. It is two-pronged
Prong One - The investigation of the underlying criminal activity, in simple
terms, if there is no
criminal activity, or Specified Unlawful Activity that generates illicit
proceeds, then there can be
no money laundering.
Prong Two - A parallel financial investigation to uncover the financial
infrastructure of the criminal organization. Following the money and discerning
how the money flows in an
organization in order to conceal, disguise, or hide the proceeds.
The FBI's Asset Forfeiture Program is one of the most successful in all
of law enforcement. In the White Collar Crime Program (WCCP), the bulk of
the monies seized are returned to victims of the frauds that generated them.
This is unique to the FBI and some other agencies. Most people associate
the seizure and forfeiture of assets with narcotics trafficking. Although
the FBI does seize assets from drug dealers and other criminals, the WCCP
is the largest contributor to the FBI's forfeiture program.
II. Overall Accomplishments:
Through FY 2006, 473 cases investigated by the FBI resulted in 161 indictments
and 95 convictions of Money Laundering Fraud criminals. For FY 2006, the
following Money Laundering most notable accomplishments were achieved for
the White Collar Crime Program: $17 million in Restitutions and $3.3 million
in Recoveries. The chart below is reflective of the number of pending cases
from FY 2002 through FY 2006.
Fiscal Year 2002 - 571
Fiscal Year 2003 - 496
Fiscal Year 2004 - 509
Fiscal Year 2005 - 507
Fiscal Year 2006 - 473
III. Significant Cases
MARK S. CAMARATA, DBA STRATEGIC ASSET MANAGEMENT, INC; JOHN E. NICOLO;
ET AL (BUFFALO):
From approximately 1999 through 2005, a former Director of the Eastman Kodak
Company devised and executed a scheme to defraud the company of over $4 million.
The Director inflated payments to vendors in exchange for illegal kickbacks.
The perpetrators of the fraud included numerous independent property tax
assessors and a retired undersheriff of the county. In May 2005, Nicolo was
arrested on charges related to the fraud at Kodak. In addition, a search
warrant was issued for Nicolo's residence and seizure warrants were executed.
In total, more than $10 million in assets were seized, including three luxury
vehicles and six bank accounts.
Following Nicolo's arrest, additional investigation revealed that subject
Charles Schwab, a retired tax assessor from Greece, New York, was bribed
by Nicolo in efforts to reduce property assessments in that town. Schwab
subsequently surrendered to the FBI after being informed of the charges against
him. David Finnman, Mark Camarata's predecessor at Kodak, and Richard Ackerman,
a retired Undersheriff of Yates County, were also criminally charged for
their involvement in bribery schemes with Nicolo. Finnman voluntarily surrendered
to the FBI. Ackerman pled guilty to various charges.
On December 8, 2005, Schwab, Nicolo, and Finnman were indicted on 42 counts
related to the bribery of public officials. As of December 1, 2006, all are
awaiting trial which has not been scheduled.
SIMON KARERI; NENE FALL KARERI; BOLLY BA; ROBERT ASHLEY LEE; RIGGS BANK
Simon Kareri, former Riggs Bank Senior Vice President, and his wife, Ndeye
Nene Fall Kareri, embezzled funds from various bank accounts owned by the
country of Equatorial Guinea. The funds were then laundered through shell
companies established by Kareri's wife in the British Virgin Islands. The
investigation further revealed that Kareri accepted illegal kickbacks from
a contractor for inflating work contracts on behalf of the Benin Embassy
in Washington, D.C. In 2005, Kareri and his wife pled guilty to conspiracy,
bank fraud, and money laundering. On November 16, 2006, Nene Kareri was sentenced
to 75 days in prison and three years supervised release, and Simon Kareri
was sentenced to 27 months in prison and four years supervised release. The
FBI successfully seized more than $1.1 million in assets as a result. The
U.S. Attorney's Office declined to prosecute both Robert Ashley Lee, due
to lack of evidence and Bolly Ba, who was given immunity in exchange for
Tips and Information for Identifying Money Laundering
Know your risks and vulnerability to being used for laundering money:
· Maintain and test internal financial controls, policies, and operations.
· Know your customers and understand how their businesses operate.
· Recognize and report suspicious transactions, maintain professional
· Beware of large-scale cash transactions, the large or rapid movement
of funds, and an unrealistic net worth compared to reported income and/or
· Report unusual business activity that is not financially logical
or does not appear to have a legitimate economic purpose.
· Maintain good record keeping.
Educate and train employees to the symptoms of money laundering-- If a transaction
appears suspicious, ask questions.
AARP American Association of Retired Persons
AI Appraisal Institute
BCBSA Blue Cross and Blue Shield Association
BICE Bureau of Immigration and Customs Enforcement
CAIF Coalition Against Insurance Fraud
CFTC Commodities Futures Trading Commission
CMS Centers for Medicare and Medicaid Services
DCDAO DeKalb County District Attorney's Office
DBA Doing Business As
DEA Drug Enforcement Agency
DOJ Department of Justice
ESO Executive Stock Options
FAMUPD Florida A & M University Police Department
FDA Food and Drug Administration
FHA Federal Housing Authority
FIFU Financial Institution Fraud Unit
FTC Federal Trade Commission
FinCEN Financial Crimes Enforcement Network
FY Fiscal Year
HF Hedge Fund
HHS Health and Human Services
HIPAA Health Insurance Portability and Accountability Act
HUD Housing and Urban Development
ICE Immigration and Customs Enforcement
IIF Industry Insider Fraud
IPO Initial Public Offering
IRS Internal Revenue Service
LEGAT Legal Attache? Office
MARI Mortgage Asset Research Institute
MBA Mortgage Bankers Association
MEDIC Medicare Drug Integrity Contractor
MICA Mortgage Insurance Companies of America
NAIC National Association of Insurance Commissioners
NAMB National Association of Mortgage Brokers
NASD National Association of Securities Dealers
NHCAA National Health Care Anti-Fraud Association
NICB National Insurance Crime Bureau
NNA National Notary Association
OIG Office of Inspector General
PEO Professional Employer Organization
RCMP Royal Canadian Mounted Police
SAR Suspicious Activity Reports
SEC Securities and Exchange Commission
SMARt Suspicious Mortgage Activity Report Form
UCO Undercover Operation
USAO U.S. Attorney's Office
USPIS U.S. Postal Inspection Service