Two Plead Guilty in International $200 Million Credit Card Fraud Conspiracy
A New York man admitted his role in one of the largest credit card fraud schemes ever charged by the Justice Department following the guilty plea of another conspirator, New Jersey US Attorney Paul J. Fishman announced.
Qaiser Khan of Valley Stream, New York, pleaded guilty September 17 to an information charging him with one count of conspiracy to commit bank fraud. Shafique Ahmed of Floral Park, New York, pleaded guilty on September 11 to an information charging conspiracy to commit bank fraud.
According to documents filed in this case and statements made in court, Khan and Ahmed were originally charged in February 2013 as part of a conspiracy to fabricate more than 7,000 false identities to obtain tens of thousands of credit cards. Members of the conspiracy doctored credit reports to pump up the spending and borrowing power associated with the cards. They then borrowed or spent as much as they could, based on the phony credit history, but did not repay the debts – causing more than $200 million in confirmed losses to businesses and financial institutions.
The scheme involved a three-step process in which the defendants would make up a false identity by creating fraudulent identification documents and a fraudulent credit profile with the major credit bureaus; pump up the credit of the false identity by providing false information about that identity's creditworthiness to those credit bureaus; and finally, run up large loans.
The scope of the criminal fraud enterprise required Khan, Ahmed, and their conspirators to construct an elaborate network of false identities. Across the country, the conspirators maintained more than 1,800 "drop addresses", including houses, apartments, and post office boxes, which they used as the mailing addresses of the false identities.
Khan and Ahmed admitted they helped obtain credit cards in the name of third parties – many of which were fictional – then directed the credit cards to be mailed to addresses controlled by members of the conspiracy. They also admitted they knew the cards would be used fraudulently at businesses.
The charges to which Khan and Ahmed pleaded guilty carry a maximum potential penalty of thirty years in prison and a $1 million fine, or twice the gain or loss caused by the offense.
The defendants are both scheduled for sentencing as follows: Khan on January 6, 2014, and Ahmed on October 30, 2013.
Source: US Attorney's Office – New Jersey
Justice Department Prevails in "STARS" Tax Shelter Case; Court Imposes over $100 Million in Penalties
On September 20, the Court of Federal Claims in Washington, DC, ruled that a subsidiary of the BB&T Corporation was not entitled to $660 million in tax benefits that BB&T claimed based on its participation in an abusive tax shelter known as Structured Trust Advantaged Repackaged Securities (STARS). Judge Thomas C. Wheeler, who delivered the opinion of the Court, imposed $112 million in penalties.
Barclays Bank PLC and KPMG LLP jointly developed and marketed the STARS transaction to subvert the foreign tax credit rules and generate illicit tax benefits to be shared among the transaction's participants.
BB&T additionally employed Sidley & Austin LLP to provide tax advice supporting the transaction. After hearing evidence during a month-long trial in March, Judge Wheeler ruled for the United States "on all grounds", determining that BB&T, Barclays, KPMG, and Sidley Austin's conduct with regard to STARS was "nothing short of reprehensible", and that the considerable effort put into the transaction was a "waste of human potential."
Source: US Department of Justice
Massachusetts Man Indicted for Tax Fraud
The Justice Department and the IRS announced that a federal grand jury in Providence, Rhode Island, returned a five-count indictment September 18 charging John Fall of Milton, Massachusetts, with one count of corruptly endeavoring to obstruct and impede the IRS, one count of tax evasion, and three counts of aiding and assisting in the preparation and filing of false corporate and individual tax returns.
According to the indictment, Fall was a real estate consultant who bought, sold, and brokered real estate. Fall also participated in handling the financial affairs of his wife and her businesses, including her dental practice, Comfort Dental Inc., as well as Broad Street Investments. The indictment alleges that between 1999 and 2010, Fall used numerous nominees and business names to conceal his business and financial transactions.
Fall also used multiple bank accounts, including commingled or "warehouse" bank accounts, in at least four states throughout the country, all in order to conceal his financial transactions as well as certain financial transactions of Comfort Dental and Broad Street Investments. To further disguise business and financial transactions, court documents allege that Fall used fake names and aliases to conceal his ownership and control over his nominee entities.
The indictment alleges that Fall filed false returns for 1998 and 1999, and he failed to file any return for the years 2000 through 2010. The IRS audited Fall for the 1998 through 2000, assessing him taxes collectively totaling approximately $72,000. According to the indictment, Fall committed tax evasion by attempting to thwart IRS collection of these taxes by using multiple nominees, business names, and fake names and aliases to disguise financial transactions and title assets, by using commingled bank accounts, by making extensive use of cash, and by causing to be filed false and fraudulent documents in federal court disclaiming ownership and control over funds sought by the IRS to pay the taxes he owed.
The indictment further alleges that Fall caused tax returns that were filed by Comfort Dental for the years 2005 through 2007 as well as his wife's individual tax returns for 2005 and 2006 to be false. Fall caused his wife's businesses to make payments to his various entities which were falsely recorded as deductible business expenses. According to court documents, Fall also caused his wife's individual tax return to reflect a capital loss for tax year 2006 when, according to the indictment, she received a capital gain on the sale of property.
When Comfort Dental and Fall's wife were audited between 2008 and 2009, the indictment alleges that Fall attempted to obstruct the audit by encouraging his wife's accountant not to provide the IRS with information requested through a summons, and by providing false and fraudulent information and documentation to the IRS concerning the nature of the payments by Comfort Dental and Broad Street Investments to his various entities. Fall also attempted to obstruct his wife's compliance with an IRS summons.
The tax evasion charge carries a maximum sentence of five years imprisonment and a $250,000 fine. The IRS obstruction charge and the aiding and abetting of false returns charges each carry a maximum sentence of three years imprisonment and a $250,000 fine.
Source: US Department of Justice
Idaho Residents Convicted of Conspiracy, Obstruction of Justice, Wire Fraud, and Tax Fraud
Elaine Martin of Meridian, Idaho, the former president and majority stockholder of MarCon, Inc., was convicted by a federal jury in Boise September 19 of twenty-two criminal counts, including four counts of filing false individual and corporate tax returns, two counts of conspiracy to defraud the United States, five counts of wire fraud, five counts of mail fraud, one count of false statement, three counts of interstate transportation of property taken by fraud, one count of conspiracy to obstruct justice, and one count of obstruction of justice.
Martin's codefendant, Darrell Swigert, of Boise, a minority shareholder in Marcon, was found guilty of two counts of obstruction of justice and one count of conspiracy to obstruct justice. Sentencing for both defendants has been set for December 9.
During the twenty-six-day trial, the jury heard evidence that as early as 2000, Martin submitted false and fraudulent applications to have her construction company, Marcon, admitted and/or remain in two different federally funded programs, the US Small Business Administration (SBA) 8(a) Program and the Department of Transportation Disadvantaged Business Enterprise (DBE) Program. Both programs are designed to help economically and socially disadvantaged businesses compete in the marketplace. To be admitted into the program, the owner/shareholder who qualifies as socially disadvantaged must also demonstrate economic disadvantage, in part by having a personal net worth below a certain statutory cap.
According to evidence presented at trial, Martin took steps to artificially lower her personal net worth, such as acquiring, holding and transferring assets into the names of nominees in order to appear to be economically disadvantaged. This allowed Martin's construction firm, MarCon, to qualify for the DBE and SBA 8(a) programs. Martin also caused false and fraudulent tax returns to be filed for herself and Marcon, Inc., which did not report all of the income received by Martin or the company. The false returns were submitted in support of Marcon's applications to the SBA 8(a) Program and DBE Programs for Idaho and Utah, along with false personal financial statements. The government presented evidence that Martin omitted, deleted, altered, and mis-categorized entries in Marcon's financial books and records. Martin also concealed her role or relationship in other business entities that dealt with Marcon, Inc.
The jury heard evidence that Marcon received more than $2.5 million in government contracts based on the company's fraudulently obtained SBA 8(a) status, and that Marcon received more than $15 million in government contracts based on the company's fraudulently obtained DBE status in the states of Idaho and Utah.
The government presented evidence that in order to impede an IRS audit of MarCon and criminal investigation into Martin, Martin and Swigert conspired to obstruct justice by fabricating documents and making false statements that sought to conceal the true nature, source, and extent of property belonging to Martin.
The government is seeking $9,237,722.10 in forfeiture from Martin, which represents the proceeds obtained as a result of the criminal conduct.
The charge of making and subscribing a false return is punishable by up to three years in prison and up to three years of supervised release. The charge of conspiracy is punishable by up to five years in prison and up to three years of supervised release. Wire fraud is punishable by up to twenty years in prison and up to five years of supervised release. The charge of making a false statement is punishable by up to two years in prison and up to one year of supervised release. The charge of mail fraud is punishable by up to twenty years in prison and up to five years of supervised release. Each charge of interstate transportation of property taken by fraud is punishable by up to ten years in prison and up to three years of supervised release. The charges of conspiracy to obstruct justice and obstruction of justice are each punishable by up to five years in prison and up to three years of supervised release. The aforementioned charges are each punishable by a maximum fine of $250,000, per count.
Source: US Attorney's Office – Idaho
Former Philadelphia Traffic Court Judge Pleads Guilty to Scheme That Defrauded Pennsylvania of State Grant Funds
Former Philadelphia Traffic Court Judge Robert Mulgrew of Philadelphia pleaded guilty September 19 to mail fraud and conspiracy to commit mail fraud in connection with a scheme to defraud the Pennsylvania Department of Community and Economic Development (DCED). Mulgrew also pleaded guilty to filing a false tax return.
Mulgrew and codefendant Lorraine Dispaldo, who previously pleaded guilty, engaged in a scheme to fraudulently receive and misuse Pennsylvania state grant funds awarded to nonprofit groups. Between 1996 and 2008, the DCED awarded hundreds of thousands of dollars in grants to two community groups with which Mulgrew and Dispaldo were associated. DCED awarded more than $450,000 in grants to the Friends of Dickinson Square (FDS) with the understanding that the grants were to be used to purchase equipment and materials for the maintenance of Dickinson Square Park in Philadelphia and surrounding neighborhood revitalization.
Mulgrew, the vice president of FDS, signed the FDS grant contracts with DCED. DCED also awarded approximately $397,000 in grants to the Community to Police Communications (CPC) with the understanding that the grants were to be used to purchase communications equipment for the police and to purchase materials to secure vacant lots and buildings for the protection of the police. Dispaldo signed the CPC grant contracts with DCED.
The defendants misrepresented their intentions to DCED, and, contrary to their agreement to spend grant funds solely to purchase equipment and materials for neighborhood revitalization and improved communications with the police, the defendants used thousands of grant dollars to pay Mulgrew's relatives and associates. They represented that they were paying for work done on behalf of FDS and CPC. After distributing grant funds to relatives and associates, the defendants supplied false and misleading information to DCED to conceal the actual amount of grant funds that they paid to the relatives and associates contrary to the express purposes of the grant.
Mulgrew and Dispaldo spent thousands of dollars of grant funds for their own personal uses. Mulgrew improperly reimbursed himself from FDS funds for thousands of dollars of expenditures which he claimed were incurred by FDS when they were not and for his expenditures for items not authorized under the terms of the FDS grants. Mulgrew and Dispaldo supplied DCED with false documents to conceal their own use of grant funds and other improper uses of the funds.
Mulgrew did not report the additional income from the fraud scheme on his tax return and claimed false business deductions which improperly reduced his tax liability.
Mulgrew faces a maximum possible sentence of twenty-three years in prison, five years supervised release, restitution to the IRS, and restitution to the Commonwealth of Pennsylvania. Dispaldo, who pleaded guilty in April, is scheduled for sentencing on November 25.
Source: US Attorney's Office – Pennsylvania
Alabama State Employee Sentenced for Providing Names in Identity Theft Scheme
Lea'Tice Phillips of Montgomery County, Alabama, was sentenced September 23 to serve ninety-four months in prison, the Justice Department and the US Attorney for the Middle District of Alabama announced. Phillips was also ordered to pay restitution of $567,631. Phillips had pleaded guilty to one count of wire fraud and one count of aggravated identity theft on May 30 for her role in a stolen identity refund fraud scheme.
According to the court documents, Phillips worked for an Alabama state agency and had access to state databases that contained forms of identification of individuals. Between October 2009 and April 2012, Phillips conspired with Antoinette Djonret and others to file false tax returns using stolen identities. On multiple occasions, Phillips accessed a state database to obtain identification that she then sent to Djonret using her state e-mail.
Djonret and others used the stolen identification to file false tax returns, mostly from Djonret's residence in Montgomery. Djonret and her coconspirators used an elaborate network of individuals to launder the tax refunds. They recruited individuals to purchase prepaid debit cards on their behalf. Fraudulently obtained tax refunds were directed to the prepaid debit cards that Djonret and her coconspirators used to obtain the proceeds. Some of the prepaid debit cards were in the name of Phillips.
In total, Djonret filed over 1,000 false tax returns that claimed over $1.7 million in fraudulent tax refunds. Antoinette Djonret was sentenced to serve twelve years in prison for her role in the conspiracy.
Source: US Attorney's Office – Alabama
California Tax Return Preparer Arrested for Tax Fraud
The owner and operator of an Oxnard tax preparation business, Lozano & Associates – Ayuda, was arrested September 24 for conspiring to defraud the IRS.
Rodrigo Paul Lozano, who also goes by "El Profe", was charged in an indictment returned by a federal grand jury on September 20. The single-count indictment charges Lozano with conspiracy to defraud the United States with respect to claims.
The indictment alleges that beginning on an unknown date and continuing until at least June 2012, Lozano conspired to defraud the United States by preparing and filing fraudulent income tax returns with the IRS containing false claims for income tax refunds.
According to the indictment, Lozano would instruct his employees to use fraudulent identification documents to prepare fraudulent federal income tax returns. The false returns were submitted to the IRS claiming fraudulent refunds under a program that permits qualified individuals to seek refunds based upon dependent children.
Lozano directed that the payment of refunds from fraudulent income tax returns be mailed to his residence, his business locations, or electronically deposited into a bank account in the name of his nominee. Lozano would direct his nominee to withdraw proceeds of income tax refunds in the form of cash and cashier's checks, oftentimes in amounts that Lozano believed would not trigger currency transaction reporting requirements for financial institutions, and pay such proceeds to Lozano. Lozano would use some of the fraudulent tax proceeds to pay coconspirators.
According to the indictment, working at the direction of Lozano, a coconspirator opened a bank account in Oxnard for the purpose of receiving electronic deposits of fraudulent income tax refunds to be paid for fraudulent income tax returns prepared under Lozano's direction. Between January 2011 and March 2011, Lozano caused approximately 218 electronic income tax refunds totaling more than $600,000 to be deposited to this account. Lozano obtained a portion of the funds through withdrawals, transfers, and cashier checks.
If convicted of the charges contained in the indictment, Lozano faces a statutory maximum sentence of ten years in federal prison and fines totaling $250,000.
Source: US Attorney's Office – California
Justice Department Sues to Stop Georgia Tax Return Preparer
The United States filed a complaint asking a federal court in Atlanta to enjoin Joan Leger and her company, The 1804 Tax Group Inc., doing business as Liberty Tax Service, from preparing federal income tax returns for others, the Justice Department announced September 24.
The complaint alleges that since 2009 Leger, who resides in Stone Mountain, Georgia, and the tax preparation businesses she owns have prepared almost 6,000 tax returns. According to the complaint, Leger understates her customers' tax liabilities and overstates their refunds by creating or inflating deductions, wages, income, expenses, or credits in order to maximize the earned income tax credit, in addition to wrongly claiming other credits and deductions. Leger's practices include fabricating losses for nonexistent businesses or businesses not owned and operated by the taxpayer, falsely claiming unreimbursed business expenses and falsely claiming the educational tax credit. In total, the government's complaint alleges that the loss to the US Treasury from Leger's activities may exceed $2 million.
Source: US Department of Justice