OCTOBER 1, 2006 - SEPTEMBER
30, 2007
TABLE OF CONTENTS
Financial Crimes
Corporate Fraud
Securities and Commodities Fraud
Health Care Fraud
Mortgage Fraud
Insurance Fraud
Mass Marketing Fraud
Asset Forfeiture/Money Laundering
Acronyms
Financial Crimes
The 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, securities and commodities
fraud, health care fraud, financial institution fraud, mortgage fraud,
insurance fraud, mass marketing fraud, and money laundering. These are
the identified priority crime problem areas of the Financial Crimes Section
(FCS) of the FBI.
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 three units: the Economic
Crimes Unit - I, Economic Crimes Unit - II (formerly Financial Institution
Fraud and Asset Forfeiture/Money Laundering Units), and the Health Care
Fraud Unit.
The Economic Crimes Unit - I 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 Economic Crimes Unit - II as it relates to Financial
Institution Fraud is to identify, target, disrupt, and dismantle criminal
organizations and individuals engaged in fraud schemes that 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 ECU - II mission as it relates to Asset Forfeiture/Money Laundering
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 assist in the disruption and/or dismantlement of
criminal enterprises.
Economic Crimes Unit - II 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 Asset Forfeiture/Money Laundering, it does
have a separate mission: 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, the Director, and the Criminal Investigative Division,
the following national priorities for the White Collar Crime Program
(WCCP) 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 WCCP,
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.
Corporate Fraud
I. General Overview
As the lead agency investigating corporate fraud, the FBI has focused
its efforts on cases that 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 involving subprime mortgage lending companies. A subprime lender is a business that lends to borrowers who do not qualify for loans
from mainstream lenders. The subprime market has grown from two percent of mortgages
in 1998 to 20 percent of mortgages in 2006. Currently, the total value of subprime loans outstanding is estimated at $1.3 trillion, while total mortgage loans
outstanding is $4.5 trillion.
As the housing market declines, subprime lenders have been forced
to buy back a number of non-performing loans. Many of these subprime
lenders have relied on a continuous increase in real estate values to
allow the borrowers to refinance or sell their properties before going
into default. However, based on the sales slowdown in the housing market,
loan defaults have increased, and the secondary market for sub prime loans
has dwindled. As a result, subprime lenders' publicly traded stocks
have dramatically decreased in value, resulting in financial difficulties
and bankruptcies.
As publicly traded subprime lenders have suffered financial difficulties due
to rising defaults, analyses of company financials have identified instances
of false accounting entries, and fraudulently inflated assets and revenues.
Investigations have determined that many of these bankrupt subprime lenders
manipulated their reported loan portfolio risks and used various accounting
schemes to inflate their
financial reports. In addition, before these sub prime lenders' stocks
rapidly declined in value, executives with insider information sold their
equity positions and profited illegally. The FBI is working with the
U.S. Department of Justice (DOJ), the U.S. Securities and Exchange Commission
(SEC), and other U.S. regulatory agencies to identify possible subprime
lenders engaged in corporate fraud and iInsider trading.
In addition to the subprime mortgage issue, corporate fraud matters
involving the backdating of executive stock options continue to be an
issue of concern. 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 options exercise date (the date the option can be
converted to stock) to avoid paying income tax. As of the end of Fiscal Year 2007, the FBI was investigating over 70 cases involving the manipulation
of executive stock options.
Corporate fraud remains the highest priority of the Financial Crimes
Section, and the FBI is committed to dealing with this significant crime
problem. As of the end of Fiscal Year 2007, 529 corporate fraud cases
were being pursued by FBI field offices throughout the U.S., several
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 entries;
(b) Bogus trades designed to inflate profit or hide losses; and,
(c) False transactions designed to evade regulatory oversight.
(2) Self-dealing by corporate insiders, including:
(a) Insider trading;
(b) Kickbacks;
(c) Backdating of executive stock options;
(d) Misuse of corporate property for personal gain; and,
(e) Individual tax violations related to self-dealing.
(3) Obstruction of justice designed to conceal any of the above-noted types
of criminal conduct, particularly when the obstruction impedes the inquiries
of the 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, Financial
Industry Regulation Authority, Internal Revenue Service (IRS), Department
of Labor, Federal Energy Regulatory Commission, Commodity Futures Trading
Commission, and U.S. Postal Inspection Service (USPIS). As reflected
in the statistical accomplishments of the President's Corporate Fraud
Task Force, founded in 2002, which includes the above-mentioned agencies,
the cooperative and multi-agency investigative approach has resulted
in highly successful prosecutions.
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 Dun & Bradstreet have been able to provide significant
background information on subject individuals and/or subject companies
to further investigative efforts.
II. Overall Accomplishments
Through FY 2007, cases pursued by the FBI resulted in 183 indictments
and 173 convictions of corporate criminals. Numerous cases are pending
plea agreements and trials. During Fiscal Year 2007, the FBI secured
$12.6 billion in restitution orders and $38.6 million in fines from corporate
criminals. The chart below reflects corporate fraud pending cases from
Fiscal Year 2003 through Fiscal Year 2007 as follows: Fiscal Year 2003 - 279 cases; Fiscal Year 2004 - 332;
Fiscal Year 2005 - 423; Fiscal Year 2006 - 486; and Fiscal Year 2008 - 529 cases.
III. Significant Cases
BROCADE COMMUNICATIONS SYSTEMS, INC. (SAN FRANCISCO): Brocade Communications
Systems, Inc. (Brocade), a technology company based in San Jose, California,
routinely used stock options to compensate its employees. In July 2006,
former Chief Executive Officer (CEO) Gregory L. Reyes and former Vice-President
of Human Resources Stephanie Jensen were charged in connection with a
scheme to backdate stock option grants. The two executives made fraudulent
entries into Brocade's financial books and records, made false statements
to auditors, and filed false financial statements with the SEC in furtherance
of the scheme. After internal auditors restated earnings for the years
1999 through 2004, it was estimated that the cost to Brocade exceeded
$400 million. On August 7, 2007, a jury convicted Reyes of ten counts
of conspiracy and securities fraud. Reyes was the first person to be
tried on charges related to stock options backdating and was sentenced
to 21 months in prison. On December 5, 2007, a jury convicted Jensen
of conspiracy to commit securities fraud and falsifying corporate records.
Jensen is currently awaiting sentencing.
QWEST COMMUNICATIONS (DENVER): Qwest Communications (Qwest) is a Fortune
500 company and one of the largest providers of telecommunications services
in the U.S. In 2000 and 2001, the company reported sales revenues of
$16 billion and $19 billion, respectively, in its published financial
statements. In 2002, Qwest issued a press release that acknowledged
the company had improperly recorded $1.1 billion in revenue since 1999,
and the FBI opened a criminal investigation. Five executives
were indicted and either pled guilty or were convicted of securities
fraud or insider trading. This included the former CEO Joseph Nacchio,
who was convicted of insider trading on April 19, 2007. He was sentenced
to six years in prison, ordered to forfeit $52 million gained as a
result of his illegal stock sales, and fined $19 million.
HOLLINGER INTERNATIONAL, INC. (CHICAGO): Hollinger International (Hollinger)
is an international newspaper holding company and owner of the Chicago
Sun Times and The Daily Telegraph newspapers. This case was initiated
based on allegations that $32 million in non-competition payments were
made to CEO and Chairman of the Board Conrad Black and three other corporate
executives in conjunction with newspaper sales without proper authority.
It was also alleged that newspaper circulation numbers were overstated
for the purpose of misleading advertising companies and causing them
to pay more in advertising fees. In November 2005, Black and three others
were indicted on 15 counts of racketeering, mail and wire fraud, money
laundering, obstruction of justice, and tax fraud. On July 13, 2007, Black
and the three other co-defendants were convicted after a four-month jury
trial. On December 10, 2007, Black was sentenced to 78 months imprisonment.
BRITISH PETROLEUM, INC. (ANCHORAGE): On October 25, 2007, British Petroleum
(BP) and several of its subsidiaries agreed to pay $373 million in fines
and restitution for environmental violations stemming from a fatal explosion
at a Texas refinery that occurred in March 2005 and from leaks of crude oil
from pipelines in Alaska in March 2006, as well as for conspiring to manipulate
the price of propane.
The settlement included the following:
• BP Products North America, Inc. (BPPNA) agreed to plead guilty to an
information charging it with one felony count of violating the Clean
Air Act. BPPNA also agreed to pay a $50 million fine and will be subject
to three years probation. This settlement results from a catastrophic
explosion at the BPPNA Texas City refinery on March 23, 2005 that caused
the deaths of 15 contract employees. BP admitted that several procedures
required under the Clean Air Act for ensuring the mechanical integrity
and a safe startup of the raffinate splitter had either not been established
or were being ignored.
• BP Exploration Alaska (BPXA) agreed to plead guilty to one count of violating
the Clean Water Act. BPXA also agreed to pay $20 million in fines and
will be subject to three years probation. This settlement results from
a March 2, 2006 oil spill of at least 200,000 gallons at the BPXA facility
on the North Slope of Alaska. The spill occurred as a result of corrosion
in the pipeline used to transfer oil. The investigation revealed that financial
reports
to the public relating to money spent by BPXA on the corrosion program
were falsified and inflated. This allowed BPXA managers to claim that
corrosion goals were met, entitling them to bonuses of cash, options,
gifts, and trips.
• BP America (BPA) entered into a deferred prosecution agreement
related to a charge of conspiracy to violate the Commodity Exchange Act
and to commit mail and wire fraud related to the manipulation of the
Texas Eastern Transport (TET) propane market in February 2004. BPA also
agreed to pay civil and criminal penalties totaling $250 million and
restitution of approximately $53 million.
In addition to the settlement, four employees of BPA were indicted
for conspiring to manipulate and corner the TET propane market and to
sell TET propane at an artificially inflated index price in violation
of federal mail and wire fraud statutes, along with substantive violations
of the Commodity Exchange Act and wire fraud.
MERCURY FINANCE, INC. (CHICAGO): Mercury Finance Company (Mercury)
was a subprime lender whose corporate officers intentionally misstated
the company's financial records. Mercury executives falsely reported
a 1996 profit of more than $120 million instead of a loss of $30 million.
Executives provided materially false financial statements to more than
20 financial institutions, enabling Mercury to obtain more than $1.5
billion in loan commitments and lines of credit. When the fraud was discovered,
Mercury's stock price dropped significantly, costing shareholders nearly
$2 billion in market value. In addition, lenders lost over $40 million
in loans extended to the company. Lawrence Borowiak, former Accounting
Manager, was sentenced to 12 months in prison and ordered to pay $585,000
in restitution after
pleading guilty to insider trading charges. Former Treasurer Bradley
Vallem pled guilty to wire and bank fraud and was sentenced to 20 months
in prison. In October 2006, former Chief Executive Officer John Brincat,
Sr., pled guilty to wire fraud and making a false statement to a bank.
On May 23, 2007, Brincat was sentenced to 10 years imprisonment.
XUJIA WANG, VICE PRESIDENT OF FINANCE - MORGAN STANLEY (NEW YORK):
This investigation was initiated on the basis of regulatory reporting
related to suspicious options trading activity in Genesis Healthcare
Corporation (GHC) immediately preceding the acquisition of GHC by private
equity firms. Through her employment as Vice President of Finance for
Morgan Stanley, Xujia Wang obtained material non-public information on
GHC and other acquisitions, which she and her husband, Ruopian Chen,
used to execute illicit trades in an account held in the name of a family
member. On September 5, 2007, Wang and Chen pleaded guilty to charges
of securities fraud and conspiracy to commit securities fraud for their
roles in this insider trading scheme that resulted in illicit trading
profits in excess of $600,000. On December 4, 2007, Wang and Chen were
each sentenced to 18 months imprisonment and required to forfeit $611,248.
Securities and Commodities Fraud
I. General Overview
The continuing integration of global capital markets has created unprecedented
opportunities for U.S. businesses to access capital and investors to
diversify their portfolios. Whether through college savings plans or
retirement accounts, larger numbers of Americans are choosing to invest
in the securities and commodities markets. In line with these trends,
the Securities and Exchange Commission estimates that two-thirds
of U.S. investors in 2007 owned securities of non-U.S. companies, representing
a 30 percent increase in foreign company investment in just the last
five years. With this increased opportunity, however, has come a commensurate
increase in the risk for fraud. As such, the combating of securities
and commodities frauds remains a priority for the FBI's White Collar
Crime Program.
The losses associated with these types of fraud range from the macroeconomic
level (i.e., erosion of investor confidence in the U.S. capital markets),
to the corporate (i.e., reduction in the economic health of corporations/industries
due to decreased market capitalization) and to the intensely personal
(i.e., devastation of retirement and investment portfolios). The victims
of these frauds similarly range from the likes of government entities to corporations, financial institutions, pension funds, all the way down
to the individual investor. To add insult to injury, the costs associated
with these sophisticated frauds are further compounded by the administrative,
investigative, and legal expenses incurred in the pursuit of redress for
harmed investors.
Now more than ever, the well-being of the global economy rests on the
diligent enforcement of laws and regulations designed to ensure the fair
and orderly operation of the capital markets. The FBI is not only cognizant
of this critical requirement, but is uniquely positioned to help meet
the U.S. government's criminal investigative responsibilities in this
area.
As of the end of Fiscal Year 2007, the FBI was investigating 1,217 cases of
securities and commodities fraud and had as many as 155 special agents
assigned to addressing this crime problem. Following are brief descriptions
of some of the most prevalent types of fraud being encountered today:
Market Manipulation: These schemes, commonly referred to as "pump and
dumps," are effected by creating artificial buying pressure for a targeted
security, generally a low-trading volume issuer in the over-the-counter securities
market, that is largely controlled by the fraud perpetrators. This artificially
increased trading volume has the effect of artificially increasing the price
of the targeted security (i.e., the pump), which is rapidly sold off into the
inflated market for the security by the fraud perpetrators (i.e., the dump);
resulting in illicit gains to the perpetrators and losses to innocent third
party investors. Typically, the increased trading volume is generated by inducing
unwitting investors to purchase shares of the targeted security through false
or deceptive sales practices and/or public information releases.
A modern variation on these schemes involves largely foreign-based
computer criminals gaining unauthorized access and intruding into the
online brokerage accounts of unsuspecting victims in the U.S. These intruded
victim accounts are then utilized to engage in coordinated online purchases
of the targeted security to effect the pump portion of a manipulation,
while the fraud perpetrators sell their pre-existing holdings in the
targeted security into the inflated market to complete the dump.
High Yield Investment Fraud: High yield investment fraud schemes may
take many forms but are all characterized by offers of low or no risk
investments that guarantee unusually high rates of return. Most common
among this type of fraud are the following schemes:
The Ponzi Scheme -
Named after its early 20th century creator, Charles Ponzi, these schemes
use money collected from new 'investors' (i.e.,
victims), rather than profits from the purported underlying business
venture, to pay the high rates of return promised to earlier victims.
This arrangement gives victims the impression that there is a legitimate,
money-making enterprise behind the perpetrator's story when, in reality,
victim monies are the only source of funding.
The Pyramid Scheme - As in Ponzi schemes, the money collected from newer
victims of the fraud is paid to earlier victims to provide a veneer of
legitimacy. In pyramid schemes, however, the victims themselves are induced
to recruit further victims through the payment of recruitment commissions.
Prime Bank Scheme - Victims are induced to invest in financial instruments,
allegedly issued by well-known institutions, which offer risk-free opportunities
for high rates of return; the benefits are allegedly the result of
the perpetrator's access to a secret worldwide exchange ordinarily open
only to the world's largest financial institutions.
Advance Fee Fraud: This category of fraud encompasses a broad variety
of schemes that are designed to induce their victims into remitting
up-front payments in exchange
for the promise of goods, services, and/or prizes. In the securities and
commodities fraud
context, victims are informed that in order to participate in a promising
investment opportunity, they must first pay various taxes and/or fees.
Advance fee fraud schemes are further discussed in the mass marketing
fraud section of this report.
Hedge Fund Fraud: Hedge Funds are private investment partnerships that
have historically accepted only high-net worth clients willing to meet
significant minimum investment thresholds. The industry as a whole has
been largely unregulated but has become increasingly relevant to middle
class investors through their exposure to hedge fund activities via ancillary
investments (e.g., pension funds). The relative lack of regulatory scrutiny
has made the industry vulnerable to fraud by fund managers, to include:
overstatement/misappropriation of fund assets; overcharging for fund
management fees; insider trading; market timing; and late trading.
Commodities Fraud: These schemes typically involve the deceptive or
fraudulent sale of commodities investments. In such instances, false
or deceptive sales practices are used to solicit victim funds for commodities
transactions that either never occur or are inconsistent with the original
sales pitches. Alternatively, commodities market participants may attempt
to illegally manipulate the market for a commodity by
fraudulently reporting price information or cornering the market to artificially
increase the price of the targeted commodity.
Foreign Exchange Fraud: These schemes are characterized by the use
of false or deceptive sales practices, alleging high rates of return
for minimal risk to induce victims to invest in the foreign currency
exchange market. In such instances, the touted transactions either never
occur, are inconsistent with the original sales pitches, or are executed for
the sole purpose of generating excessive trading commissions in breach
of fiduciary responsibilities to the victim client. Alternatively, individual
corrupt currency traders employed by large financial institutions may
attempt to manipulate foreign currency exchange prices in an effort to
generate illicit trading profits for their own enrichment.
Broker Embezzlement: These schemes involve illicit and unauthorized
actions by brokers to steal directly from their clients. Such schemes
may be facilitated by the forging of client documents, by the doctoring account
statements, or by unauthorized trading/funds transfer activities or other conduct
in breach of the broker's fiduciary responsibilities to the victim client.
Late-Day Trading: These schemes involve the illicit purchase and sale
of securities after regular market hours. Such trading is restricted
in order to prevent individuals from profiting on market moving information
which is released after the close of regular trading. Unscrupulous traders
attempt to illegally exploit such opportunities by buying or selling
securities at the market close price, secure in the knowledge that the
market moving information will generate illicit profits at the opening
of trading on the following day.
II. Overall Accomplishments
As of the end of Fiscal Year 2007, the FBI was investigating 1,217 cases of securities
and commodities fraud and had already recorded 320 indictments and 289
convictions. Additional notable accomplishments in Fiscal Year 2007 include: $1.7
billion in restitution orders; $24 million in recoveries; and $202.7
million in fines. The chart below reflects securities and commodities
fraud pending cases from Fiscal Year 2003 through Fiscal Year 2007 as follows: Fiscal Year 2003
- 937 cases; Fiscal Year 2004 - 987cases; Fiscal Year 2005 - 1,139 cases; Fiscal Year 2006 - 1,165
cases; and Fiscal Year 2007 - 1,217 cases.
III. Significant Cases
PINNACLE DEVELOPMENT PARTNERS LLC (ATLANTA): This investigation centered
on investor solicitations by Pinnacle Development Partners LLC (Pinnacle)
and its principals who represented having raised $60 million from over
2,000 investors in 33 states through a nationwide campaign that promised
a 25 percent return in 60 days through investment in foreclosed properties.
In October 2006, the SEC filed parallel civil fraud charges against Pinnacle
and its founder, Gene O'Neal, for the operation of a Ponzi scheme. Pinnacle's
assets were frozen, and the company consented to a court-appointed receiver
to review its assets.
Subsequently, on July 3, 2007, the FBI's criminal inquiry resulted in O'Neal's
guilty pleas to one count each of wire and mail fraud for his principal role
in this multi-million
dollar real estate investment scheme. On September 17, 2007, O'Neal was
sentenced to 144 months incarceration and $22 million in restitution.
This investigation was worked in cooperation between the FBI, USPIS,
and the SEC.
ALBERT EUGENE PARISH JR. (COLUMBIA): This investigation centered on
the activities of Albert Eugene Parish Jr., a former economics professor
at Charleston Southern University, and his investment advisory company,
Parish Economics LLC, which defrauded hundreds of investors across the
U.S. of millions of dollars. In furtherance of the fraud, Parish falsified
client account statements and other documents which grossly misrepresented
the assets and profitability of various investment funds under his control.
On May 9, 2007, Parish was indicted by a federal grand jury for his
operation of an investment scheme which drew in excess of $50 million
in investor funds. Ultimately, on October 5, 2007, Parish pleaded guilty
to two counts of mail fraud and one count of making false statements
to the SEC, which conducted a parallel civil regulatory inquiry into
his investment
advisory activities. A sentencing date in this matter has yet to be determined.
This investigation was worked in cooperation between the FBI, the South Carolina
State Law Enforcement Division, the South Carolina Attorney General's Office,
and the SEC.
SAMUEL CURRIN (CHARLOTTE): This investigation centered on the activities
of Samuel T. Currin, a former U.S. Attorney for the Eastern District
of North Carolina, and co-conspirators who engaged in a securities fraud
scheme involving manipulative trading and money laundering activities.
Specifically, the subjects of this investigation created and released
to the public false financial information relative to multiple publically
traded entities whose share prices they sought to artificially inflate
by inducing innocent investors to create buying pressure through false
and fraudulent means. The subjects, in a classic pump and dump scheme,
profited by their deception by selling their own pre-existing positions
in the targeted securities into the inflated market. Currin's personal
involvement in the fraudulent manipulation of multiple securities resulted
in investor losses in excess of $30 million.
The FBI's criminal inquiry subsequently resulted in Currin's October
4, 2006 guilty pleas to charges of obstruction of justice, money laundering
conspiracy, and obstruction due to administration of the IRS. On September
4, 2007, Currin was sentenced to 70 months incarceration. This investigation
was worked in cooperation between the FBI and the IRS.
Health Care Fraud
I. General Overview
The FBI's mission in this area 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, and abuse.
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 Fiscal Year 2007 will total $2.26 trillion, representing
16.2 percent of the Gross Domestic Product (GDP). By the year 2016, CMS
estimates total health care spending to exceed $4.14 trillion, representing
19.6 percent of the GDP.
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-Criminal Investigative Division, 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 the system.
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 that 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, whom work closely with the FBI and our law enforcement partners.
Health care fraud investigations are among the highest priority investigations
within the FBI's WCCP, 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 through which individuals sell 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 to
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, as well as
to 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
(FTC). This working group shares and discusses information that 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 that
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 that 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
billing activity.
In 2005, the Financial Crimes Section developed the Electronic Bank Records
Initiative (EBRI). The EBRI was implemented to identify and develop a process
for obtaining electronic (digital format) records from financial institutions.
Historically, financial institutions have provided paper copies of records
to law enforcement when they receive a subpoena from the government. These
records are generally maintained by the banks in an electronic format. The
time it takes the financial institution to make the copies of the records
and for the investigative agencies to return the paper copies back to an
electronic format for financial analysis creates a severe negative effect
on the timeliness, effectiveness, and efficiency of investigations. In an
effort to increase the efficiency of the process, a subpoena attachment was
developed by the DOJ, FBI, and the Internal Revenue Service-Criminal Investigative
Division (IRS-CI) for the production of electronic records instead of paper
copies. The development included significant coordination with the financial
institutions and their associations. The subpoena attachment was not based
upon new or expanded laws, regulations, or rules. The attachment is merely
meant to standardize and clarify the requests for electronic records according
to the current Federal Rules of Criminal and Civil Procedure. In general
terms, if a financial institution maintains records electronically, the requesting
agency would be seeking to obtain the records electronically. In addition,
the scope of the records requested has not changed due to the subpoena attachment,
with the exception of seeking the records electronically.
The subpoena attachment was disseminated to FBI offices and IRS offices and throughout the DOJ in November 2007. The goal of the DOJ, FBI, and
IRS-CI is to inform and prepare financial institutions and their respective
agencies for the use and response to the subpoena attachment. This includes
working with financial institutions during the transition period in coordinating
the requests and associated responses to subpoenas. In addition, it is
anticipated that the EBRI will greatly increase the efficiency of the
financial records production process and provide significant costs savings
to both the government and private industry.
II. Overall Accomplishments
Through Fiscal Year 2007, 2,493 cases investigated by the FBI resulted in 839
indictments and 635 convictions of health care fraud criminals. It should
be noted that numerous cases are pending plea agreements and trials.
The following notable statistical accomplishments are reflective in Fiscal Year
2007 for health care fraud: $1.12 billion in restitutions, $4.4 million
in recoveries, $34 million in fines, and 308 seizures valued at $61.2
million. The chart below reflects health care fraud pending cases from
Fiscal Year 2003 through Fiscal Year 2007 as follows: Fiscal Year 2003 - 2,262 cases; Fiscal Year 2004 -
2,568 cases; Fiscal Year 2005 - 2,547 cases; Fiscal Year 2006 - 2,423 cases; and Fiscal Year 2007
- 2,493 cases.
III. Significant Cases
MEDICARE STRIKE FORCE (MIAMI): A multi-agency team of federal, state,
and local investigators designed to investigate Medicare fraud was established
in Southern Florida during March 2007. The strike force combats fraud
by reviewing real time Medicare billing data and acting promptly to
make arrests and prosecutions. The strike force teams include a federal
prosecutor and agents from FBI, Health and Human Services-Office of
Inspector General, and local law enforcement agencies. To date, the strike
force has arrested 120 subjects and obtained 111 indictments. Of those
arrested, 83 have been convicted to date. The remaining are pending adjudication.
Recoveries include a 2004 Phantom Rolls Royce, jewelry, and other assets
currently in negotiation.
AFFPOWER (SAN DIEGO): In July 2007, a 313 count indictment charged 18
individuals with operating an online pharmaceutical distribution network
known as AFFPOWER throughout the United States and abroad. Defendants
included three physicians; two pharmacists and one pharmacy operator;
an administrator and manager; two recruiters of physicians and pharmacies;
a credit card processor; and eight affiliate website operators. From
August 2004 through June 2006, the AFFPOWER enterprise allegedly received
over one million Internet orders for controlled and non-controlled prescription
pharmaceuticals from customers in all 50 states and generated in excess
of $126 million in gross revenue. The defendants were charged
variously with racketeering and conspiracy to commit racketeering; distribution
and dispensing of controlled substances and conspiracy to distribute
and dispense controlled substances; mail and wire fraud; conspiracy
to commit mail and wire fraud; conspiracy to commit money laundering;
and conspiracy to dispense and dispensing of misbranded drugs with
the intent to defraud and mislead. The investigation was worked jointly
with ICE, FDA, IRS, USPIS, and state and local agencies.
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 on the claim, so that
the health insurer will not realize 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 a 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 PREVENTION
MEASURES
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 fraud.
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
--charging 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, such as your "explanation of bill," after
receiving healthcare services. Check to ensure the dates and services
are correct to ensure you get what you paid for.
•
If you suspect Health Care Fraud, call 1-877-327-2583. For more information,
visit the web site at http://www.bcbs.com/antifraud.
Mortgage Fraud
I. General Overview
The potential impact of mortgage fraud on financial institutions and
the stock market is clear. If fraudulent practices become systemic within
the mortgage industry and mortgage fraud is allowed to become unrestrained,
it will ultimately place financial institutions at risk and have adverse
effects on the stock market. Investors may lose faith and require higher
returns from mortgage backed securities. This may result in higher interest
rates and fees paid by borrowers and limit the amount of investment funds
available for mortgage loans.
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
are involved.
Combating significant mortgage industry fraud is a priority, because
mortgage lending and the housing market have a significant overall effect
on the nation's economy. All retail mortgage fraud investigations are
managed within the Economic Crimes Unit II.
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
FBI compiles data on mortgage fraud through Suspicious Activity Reports (SARs)
filed by federally-insured financial institutions and the Department of Housing
and Urban Development-Office of Inspector General (HUD-OIG) reports. The FBI
also receives complaints from the mortgage industry at large.
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. However, based on
various industry reports and FBI analysis, mortgage fraud is pervasive
and growing. For example, SARs in Fiscal Year 2005 were over 35,000; Fiscal Year 2006 were
over 46,000; and the 1st Quarter of Fiscal Year 2007 were 14,916, which extrapolates
to 60,000 SARs.
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 that 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, subprime 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, 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 (MARI), the Mortgage Insurance Companies
of America, Fannie Mae, Freddie Mac, and others.
The FBI initiates many of its mortgage fraud cases through the review of SARs.
In fact, due to the vast amounts of intelligence contained in SARs, the FBI
has developed a number of new analytical tools to further exploit this intelligence.
The benefits have not only enhanced the mortgage fraud program, but all other
FBI investigative and intelligence programs as well. The FBI works closely
with FinCEN in sharing analytical strategies and trend data that both agencies
develop from SARs.
The FBI also 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 fraud problem. 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 from lender inventories to
facilitate mortgage fraud undercover operations.
SAR Identified Mortgage Assignment Fraud
A SAR and follow up liaison contacts with the filing bank initiated
an investigation into the fraudulent sale of purported investments in
mortgage assignments. The SAR noted unusual and large wire transfer deposits
into the subject’s accounts and unusual withdrawal activity.
Further investigation revealed that the subject solicited and received
$3.4 million from investors/victims for investments in mortgage assignments.
The investigation also showed the subject used this money for personal
use and benefit, for such things as trips, a home, motorcycles, and lulling
payments to victims. Two bank accounts totaling over $60,000 and a motorcycle
were seized and forfeited during the investigation.
After pleading guilty to charges of wire fraud and money laundering,
the subject was sentenced to 46 months imprisonment and ordered to pay
restitution to victims in the amount of over $2.6 million.
During this investigation, an additional SAR was filed by a second bank for
accounts opened by the subject. This SAR enhanced this investigation by identifying
additional accounts utilized in the scheme.
Regional analysis of SARS indicating mortgage fraud violations indicates
that the Western region of the U.S. led the nation with 37 percent of mortgage fraud related SARs filed during Fiscal Year 2007. Southeastern, North Central,
Northeastern, and South Central regions had 23, 19, 12, and nine percent
respectively of mortgage fraud related SAR filings. However, FBI pending
cases indicated that the North Central region had the majority of mortgage fraud cases ( 29 percent) during 2007. The Western, Southeastern, South Central,
and Northeastern had
24, 21, 17, and nine percentages respectively. FBI pending cases by region
are consistent with MARI reporting which indicated that five of the
top ten mortgage fraud affected states in 2006 were located in the
Central region.
Mapping data from Fiscal Year 2007 SARs, FBI pending mortgage fraud cases, HUD-OIG, FinCEN, 2006 MARI, Federal National Mortgage
Association (Fannie Mae), Realty
Trac Inc., and Radian Guaranty Inc., reveal that the top 10 states for
mortgage fraud activity during 2006 are: California, Florida, Georgia,
Illinois, Indiana,
Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected
by mortgage fraud include: Arizona, Colorado, Maryland, Minnesota, Missouri,
Nevada, North Carolina, Tennessee, and Virginia. (See
map below).
II. Overall Accomplishments
Through Fiscal Year 2007, 1,204 cases resulted in 321 indictments and 260 convictions
of mortgage fraud criminals. The following notable statistical accomplishments
are reflective in Fiscal Year 2007 for mortgage fraud: $595.9 million in restitutions,
$21.8 million in recoveries, and $1.7 in fines. The chart below reflects
mortgage fraud pending cases from Fiscal Year 2003 through Fiscal Year 2007 as follows:
Fiscal Year 2003 - 436 cases; Fiscal Year 2004 - 534 cases; Fiscal Year 2005 - 721 cases; Fiscal Year 2006
- 818 cases; and Fiscal Year 2007 - 1,204 cases.
III. Significant Cases
RAYMOND JOSEPH COSTANZO, JR.(ATLANTA): From late 2004 to early 2006,
Raymond Joseph Costanzo, Jr., an attorney, participated in closing millions
of dollars in fraudulently inflated mortgage loans for unqualified straw
borrowers. These straw borrowers were paid as much as $600,000 from fraudulently
obtained loan proceeds through shell companies. Costanzo himself obtained
mortgage loans totaling over $1.5 million by providing the lender with
false qualifying information and falsified down payments. Costanzo received
$250,000 in scheme proceeds from this transaction and arranged for disbursements
of fraudulently obtained loan proceeds to co-conspirators from this and
other loans. On February 1, 2008, Costanzo was sentenced to three years,
five months in prison to be followed by four years supervised release and ordered to pay $7,843,184 in restitution. On October 17, 2006, Costanzo
pleaded guilty to these charges and surrendered his license to
practice law.
GHANDI BEN MORKA (DALLAS): Gandhi Ben Morka, a real estate appraiser
who was convicted at trial of several offenses related to his involvement
in a mortgage fraud scheme, was sentenced January 23, 2008, by U.S. District
Court for the Northern District of Texas, to 60 months in prison and
ordered to pay more than $2.3 million in restitution. Morka was arrested
in May 2007 and indicted along with seven others for various offenses
related to a mortgage fraud scheme to defraud Countrywide Home Loans,
doing business as America
Wholesale Lender (Countrywide). Morka conspired with co-defendants
to defraud Countrywide by locating single family residences in and
around the Dallas area and recruiting straw purchasers and borrowers
to purchase the targeted residences. Morka would prepare appraisals
on the properties, inflating the value to an amount far greater than
the fair market value. Then he and co-conspirators prepared and submitted
false and fraudulent loan applications in the names of the straw purchasers
to secure mortgage loans from Countrywide in amounts substantially
greater than the fair market value of the purchased property. Morka
and the co-conspirators paid the original owners of the properties
and distributed the remaining fraudulent proceeds obtained from the
loan proceeds among themselves. The scheme resulted in millions of
dollars of losses to Countrywide.
DARRYL L. COOPER (ATLANTA): On January, 11, 2008, Darryl L. Cooper
of Decatur, Georgia was sentenced to one year, six months in federal
prison, followed by three years of supervised release, for a scheme to
defraud mortgage lenders by creating fraudulent appraisals that reflected
completed construction.
Cooper was recruited by builder/co-conspirator Jeffrey Allen Teague
to prepare fraudulent appraisals reflecting photographs and $5 million
in appraisal valuations for 15 completed houses in the Greenleaf Subdivision
of Forsyth County, when Teague had not completed the construction of
these homes. A California lender relied on Cooper's fraudulent appraisals
that reflected completed construction to make $4.7 million in mortgage
loans secured by these properties, which in fact had no value at all.
U.S. Attorney David E. Nahmias said of the case, "This case highlights
the problems created by mortgage fraud in which the appraiser conspired
with the builder to misrepresent that construction on homes was complete,
compounded by out-of-state 'investors,' who sign for loans
without inspecting the properties. The partially built houses in this
case may be subject to condemnation, as the portions completed were not
built to code, leaving mortgage lenders with little security for their
loans, 'investors' with nothing to resell, and neighborhoods
full of vacant and uninhabitable houses."
Cooper pleaded guilty to a one-count criminal information on November
7, 2007, on a charge of mortgage fraud conspiracy and has been ordered
to pay $4,720,500 in restitution. Teague was sentenced on October 26,
2007, to 15 years, eight months in prison and ordered to pay $7,803,701
in restitution for his part in the fraud.
NELSON MILLER, FREEDOM FINANCIAL (LITTLE ROCK): The top ten executives of Freedom
Financial and Absolute Abstract and Title, at one time the largest mortgage
broker in the state of Arkansas, were charged criminally for their part in
devising, implementing, and carrying out various fraud schemes that involved
falsification of hundreds of loan files. The analysis of seized documents revealed
employees of Freedom Financial has
submitted Uniform Residential Loan Applications and supporting documents to lenders containing false and fraudulent information. This false
information in all its variations was submitted by the employees of
Freedom Financial to lenders to induce the lenders to fund loans or
make loans in larger amounts than would normally be given if there
had been truthful and complete disclosure. Seven of the nine defendants
in this case entered guilty pleas, and two of the defendants were convicted
on August 31, 2006, and January 28, 2008, respectively.
CHRISTOPHER CRAIG (SACRAMENTO): In May 2007, Christopher Craig of
Auburn, California pled guilty to bank fraud charges related to a foreclosure
scheme. Craig approached homeowners who were on the verge of foreclosure
and promised to loan them money. Instead, he created documents deeding
away their properties to straw buyers, then applied for home equity loans
from Washington Mutual Bank. Washington Mutual disbursed $1.2 million
in loan proceeds to Craig based on the false loan applications. Craig
was sentenced in the Eastern District of California to five years in
federal prison and ordered to pay $974,452 in restitution. Property
and cash was also seized for asset forfeiture from Craig including a
2007 GMC, Hummer SUV.
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
• Requires 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 values
COMMON MORTGAGE FRAUD SCHEMES
Property Flipping - Property is purchased, falsely appraised at a higher
value, and then quickly sold. What makes property flipping 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 homeowner. The three most used foreclosure
schemes are identified as: phantom help; bust-out; and the bait and wwitch.
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 later.
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 United States. People want
their home's equity to be greater than the mortgage loan on the home,
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
sales techniques.
• 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 and do not sign any blank
forms. If you do not understand, re-read the documents or seek assistance
from an attorney.
• Make sure the name on your application matches the name on your identification.
•
Review the title history of the home you are anticipating to purchase
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 personal information
against the information as listed on the loan documents to ensure it
is accurate and complete.
•
Never sign any loan documents that contain "blanks." This leaves
you vulnerable to fraud.
• Check out the tips on the MBA's website at http://www.StopMortgageFraud.com
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 easy method to relieve yourself of debts you have 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 remortgaging 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 fees.
• 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 agreed
to.
•
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!
Insurance Fraud
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 one trillion dollars 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 insurance fraud raises the yearly cost of premiums
by $300 for the average household.
The FBI continues 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:
Arson Fraud Related to Mortgage Industry Credit Crisis - Whether unable
or unwilling to meet their mortgage obligations, it is believed that
some number of distressed homeowners, property flippers, and/or other
real estate investors have resorted to committing arson to avoid real
estate foreclosure. The insurance policy holders for these properties
are then able to extract otherwise unattainable proceeds/profits through
the filing of false insurance claims. This inherently dangerous and illicit
means of collecting insurance proceeds and avoiding loan delinquency
is being prioritized as a focus of inquiry due to market forecasts calling
for increasing numbers of real estate foreclosures.
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 insurance fraud accounts for between
$4 and $6 billion. The Insurance Fraud Task Force (IFTF) was created
to investigate the spike in insurance fraud related to Katrina.
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 funds.
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.
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.
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 United States. This insurance
fraud scheme has left injured and deceased victims without workers
compensation coverage to pay their medical bills.
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.
II. Overall Accomplishments
During Fiscal Year 2007, 209 cases investigated by the FBI resulted in 39 indictments
and 47 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 Jackson Division has hosted the IFTF that continues to investigate
insurance fraud related to Katrina. The following notable statistical
accomplishments reflect Fiscal Year 2007 for insurance fraud: $27.2 million in
restitutions and $427,000 in fines. The chart below reflects insurance fraud pending cases from Fiscal Year 2003 through Fiscal Year 2007 as follows: Fiscal Year 2003
- 326 cases; Fiscal Year 2004 - 289 cases; Fiscal Year 2005 - 270 cases; Fiscal Year 2006 - 233
cases; and Fiscal Year 2007 - 209 cases.
III. Significant Cases
MUTUAL BENEFITS CORPORATION (MIAMI): Mutual Benefits Corporation (MBC)
was a viatical settlement company offering interests in insurance policies
to investors worldwide. Over 30,000 investors worldwide were defrauded
of approximately one billion dollars 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 and received a 20-year sentence. In 2007,
six additional subjects were charged as part of the scheme, and five
have been convicted. Sentences for the additional subjects range between
one and 10 years. The SEC and IRS are assisting with 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, mass mailings, and the Internet. Since
the 1930s, mass marketing has been a widely accepted and exercised practice.
Advances in telecommunications and financial services technologies have
further served to spur growth in mass marketing, both for legitimate
business purposes, as well as for the perpetration of consumer frauds.
While these fraud schemes may take a wide variety of forms, they share
a common theme: the use of false and/or deceptive representations to
induce potential victims to make advance fee-type payments to fraud perpetrators.
Although there are no comprehensive statistics on the subject, it is
estimated that mass marketing frauds victimize millions of Americans
each year and generate losses in the hundreds of millions of dollars.
The following is a brief description of some of the key concepts and
schemes associated with the mass marketing/advance fee fraud crime problem.
Advance Fee Fraud - This category of fraud encompasses a broad variety
of schemes that are designed to induce their victims into remitting
up-front payments in exchange for the promise of goods, services, and/or
prizes. Some of the most prevalent schemes being encountered are the
following:
Nigerian Letter Fraud (419 Fraud) - Victims are contacted regarding
substantial sums of money held in foreign accounts and are requested
to pay various fees to secure their transfer to the U.S., in exchange
for a portion of the total proceeds. Alternatively, victims are asked
to act as a U.S. agent in securing the release of such funds and are
provided with counterfeit instruments that are to be cashed in order
to pay any required fees, only to discover they must reimburse their
financial institution for cashing a counterfeit instrument.
Foreign Lottery/Sweepstakes Fraud - Victims are informed they have
won a substantial prize in a foreign drawing, but must remit payment
for various taxes/fees to receive their winnings. Alternatively, victims
are provided with counterfeit instruments, representing a portion of
the winnings, which are to be cashed in order to pay the required fees,
only to discover they must reimburse their financial institution for
cashing a counterfeit instrument.
Overpayment Fraud - Victims who have advertised some item for sale
are contacted by buyers who remit counterfeit instruments, in excess
of the purchase price, for payment. The victims are told to cash the
payments, deduct any expenses, and return or forward the excess funds
to an individual identified by the buyer, only to discover they must
reimburse their financial institution for cashing a counterfeit instrument.
The predominantly transnational nature of the mass marketing fraud
crime problem presents significant impediments to effective investigation
by any single agency or national jurisdiction. Typically, victims will
reside in one or more countries, perpetrators will operate from another
and the financial/money services infrastructure of numerous additional
countries utilized for the rapid movement and laundering of funds. For
these reasons, the FBI is uniquely positioned to assist in the investigation
of these frauds through its network of Legal Attache offices located
in over 60 U.S. embassies around the world. By leveraging its global
presence and network of liaison contacts, the FBI has successfully cooperated
with other domestic and foreign law enforcement agencies to combat, disrupt,
and dismantle international mass marketing fraud groups.
Despite the best inter-agency enforcement efforts to combat mass farketing
fraud, the FBI remains cognizant of the fact that the only enduring remedy
for this crime problem lies in consumer education and fraud prevention
programs. Towards this end, the FBI has not only produced its own mass farketing
fraud prevention pamphlet but coordinates on other public
information efforts with the DOJ, FTC, and the USPIS. The FBI also supports
a consumer fraud prevention website in conjunction with the USPIS which
can be located on the web at: http://www.lookstoogoodtobetrue.gov.
II. Overall Accomplishments
As of the end of Fiscal Year 2007, the FBI was investigating 127 cases of mass farketing
fraud and had already recorded 12 indictments and 11 convictions.
Additional notable accomplishments in Fiscal Year 2007 include: $30.6 million
in restitution orders; $278,500 in recoveries; and $52,500 in fines.
The chart below reflects mass farketing
fraud pending cases from Fiscal Year 2003
through Fiscal Year 2007 as follows: Fiscal Year 2003 - 236 cases; Fiscal Year 2004 - 192 cases;
Fiscal Year 2005 - 161 cases; Fiscal Year 2006 - 147 cases; and Fiscal Year 2007 - 127 cases.
III. Significant Cases
AMERICAN FRAUD WATCH SERVICES (LOS ANGELES): This investigation centered
on the activities of a Canadian couple who operated two fraudulent telemarketing
schemes purporting to sell credit card protection services to thousands
of elderly victims across the United States. Doing business under the names American
Fraud Watch Services and Debt Service International, the subjects are
alleged to have charged as much as $299 per victim credit card for illegitimate
fraud protection services, with total fraud proceeds estimated to be
in excess of $10 million. At the request of the U.S. government, the
subjects were arrested in British Columbia, Canada, by officers of the
Royal Canadian Mounted Police (RCMP), and a formal extradition request
remains pending.
This investigation was worked in partnership with the Project Emptor
Task Force in British Columbia, Canada. The task force focuses on cross-border
mass marketing frauds and brings together the collective expertise and
experience of the following participating agencies: FBI, RCMP, U.S. Attorney's
Office in Los Angeles, USPIS, FTC, Canadian Border Services Agency, Canadian
Competition Bureau, and British Columbia Consumer Protection Authority.
PARKER LEASING AND FINANCE SERVICE (MIAMI): This investigation centered on
the activities of Robert Parker and Gary N. Parker who operated a purported
commercial equipment financing and leasing business called Parker Leasing
and Finance Service in Fort Lauderdale, Florida. The Parkers engaged in
making material misrepresentations to victims from around the world in order
to induce their victims to apply for commercial lease funding in an international
advance fee fraud scheme. The Parkers ultimately fleeced their victims for
approximately $4 million and were subsequently convicted of all charges,
to include mail and wire fraud, money laundering, and tax evasion, at the
conclusion of a jury trial on
May 17, 2007.
On July 19, 2007, Robert Parker was sentenced to 135 months incarceration
and $1.8 million in restitution; Gary N. Parker was sentenced to
240 months incarceration and $1.8 million in restitution. This investigation
was worked in cooperation between the FBI, IRS, and the Broward County
Sheriff's Office.
WAYS TO PROTECT YOURSELF FROM MASS MARKETING FRAUD
Things you should do:
• Insist on learning the full name, address, and contact information
for any company soliciting your business, personal information, or assistance.
• Insist that all solicitors send materials to you in writing so that you
are able to study the full details of the offer, as well as any guarantees, and/or
refund policies.
• Research all solicitors through the Better Business Bureau, state Attorney
General's Office, and/or consumer protection service in the state or city where
the company is located.
• Prior to making any significant financial decisions, consult a family
member, friend, your attorney, accountant, and/or other trusted advisor for an
objective opinion.
• To stop receiving telephone solicitations, instruct solicitors to delete
your contact information from all call lists and register with the FTC's "Do
Not Call" Registry.
• Report suspicious telemarketing calls, mail solicitations, or advertisements
to the FTC, at
1-877-FTC-HELP or, online at http://www.ftc.gov.
Things you should NOT to do:
• Do not make any payments to either secure a prize or improve
your chances of winning a prize.
• Do not be intimidated into making hasty financial decisions by high pressure
sales tactics.
• Do not provide anyone with your sensitive personal or financial information
unless:
a) it is to an entity whose legitimacy is personally known to you, and
b) you personally initiated the contact with the entity.
• Do not send funds via wire or electronic money transfer services unless:
a) it is to an entity whose legitimacy is personally known to you, and
b) you personally initiated the contact with the entity.
• Do not be lured by offers that are simply too good to be true...they
almost certainly are.
Asset Forfeiture/Money Laundering
I. General Overview
Another aspect of the Economic Crimes Unit II is the oversight of the
FBI's asset forfeiture and money laundering programs. The mission of
these programs 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 ECU - II 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 asset forfeiture program and the money laundering program provide
support to all FBI investigative programs, including international and domestic terrorism.
MONEY LAUNDERING
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, thereby 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 in nature:
Prong One - The investigation of the underlying criminal activity;
in
simple terms, if there is no criminal activity or Specified Unlawful Activity
(SUA) 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.
Asset Forfeiture
The FBI's asset forfeiture program is one of the most successful in
all of law enforcement. In the 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 Fiscal Year 2007, 548 cases investigated by the FBI resulted in 141 indictments
and 112 convictions of money laundering fraud criminals. For Fiscal Year 2007,
the following money laundering most notable accomplishments were achieved
for the WCCP: $66.9 million in restitutions, $2.6 million in recoveries,
and $11.4 million in fines. The chart below reflects money laundering fraud pending cases from Fiscal Year 2003 through Fiscal Year 2007 as follows: Fiscal Year 2003
- 496 cases; Fiscal Year 2004 - 509 cases; Fiscal Year 2005 - 507 cases; Fiscal Year 2006 - 473
cases; and Fiscal Year 2007 - 548 cases.
III. Significant Cases
RESERVE FOUNDATION TRUST (DENVER): On May 29, 2007, Norman Schmidt and
Charles Lewis were found guilty of conspiracy to commit mail fraud, wire
fraud, securities fraud, and money laundering. From April 1999 through
April 2003, Schmidt and Lewis developed a scheme to defraud investors
using a "high-yield investment program." Schmidt and Lewis,
with assistance from others, falsely stated that they would invest the
victims' money, promising rates of return from two percent to 400 percent
per month. To perpetuate the scheme, the defendants sent investors fraudulent
monthly statements, which falsely reflected the growth of and earnings
on their invested funds. To lure and reassure investors, the defendants
made false representations that the investments were safe because invested
funds could not be moved and that the investments were insured from loss
by various high profile insurance companies. Entities involved in the
scheme include the Reserve Foundation Trust, Smitty's Investments, Capital
Holdings, Monarch Capital Holdings, and Fast Track. The scheme unraveled
as the FBI and IRS conducted a detailed financial analysis of subpoenaed
bank and investment documents. This analysis revealed that the defendants
used investor funds for loan payments, personal expenses, acquisition
of unrelated businesses, and lavish personal items. Many of these items
were seized and forfeited, including the Redstone Castle, valued at $6.3
million, seven NASCAR race cars, two semi-trucks, two trailers, and $17
million from 66 bank accounts. A $24 million money judgement was also
ordered by the court. The proceeds will be distributed to up to 1,200
victims.
CASHTARICA (NEW YORK): On July 18, 2007, a felony Information was filed
in the Southern District of New York against NETeller PLC, an Internet-payment
business based in the Isle of Man. NETeller has admitted to criminal
wrongdoing and has agreed to forfeit $136 million in illegal proceeds
through a civil forfeiture action as part of an agreement to defer prosecution
of NETeller for its participation in a conspiracy to promote Internet
gambling businesses and to operate an unlicensed money transmitting
business. The information also contained a criminal forfeiture allegation
against all property involved in or derived from the criminal wrongdoing
in the amount of at least $1 billion. The investigation into this criminal
enterprise, conducted by the New York Division of the FBI, revealed that
Stephen Eric Lawrence and John David Lefebvre developed an Internet-payment
system that was used by NETeller and its predecessors to provide online
payment services to Internet gambling companies. Lawrence and Lefebvre
have pleaded guilty to charges that they conspired with others to operate
an unlicensed money transmitting business and to promote illegal gambling
by providing payment services to enable offshore Internet gambling businesses
to access customers in the United States. Lawrence and Lefebvre also
admitted to forfeiture allegations requiring them to personally forfeit
an additional $100 million, which they are expected to pay in full prior
to sentencing.
Acronyms
BCBSA Blue Cross and Blue Shield Association
BICE Bureau of Immigration and Customs Enforcement
CAIF Coalition Against Insurance Fraud
CEO Chief Executive Officer
CFTC Commodities Futures Trading Commission
CI Criminal Investigative
CMS Centers for Medicare and Medicaid Services
DEA Drug Enforcement Agency
DOJ Department of Justice
EBRI Electronic Bank Records Initiative
FDA Food and Drug Administration
FIFU Financial Institution Fraud Unit
FinCEN Financial Crimes Enforcement Network
FTC Federal Trade Commission
FSP Forfeiture Support Project
GDP Gross Domestic Product
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
IFTF Insurance Fraud Task Force
IRS Internal Revenue Service
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
NHCAA National Health Care Anti Fraud Association
NICB National Insurance Crime Bureau
OIG Office of Inspector General
PEO Professional Employer Organization
RCMP Royal Canadian Mounted Police
SAR Suspicious Activity Reports
SEC Securities and Exchange Commission
UCO Undercover Operation
USAO U.S. Attorney's Office
USPIS U.S. Postal Inspection Service
WCCP White Collar Crime Program
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