More than Fifty People Indicted in Massive Fraud Ring
A massive case of organized tax and bank fraud culminated September 26 with the unsealing of four federal grand jury indictments accusing fifty-five people of participating in one or more illicit schemes, including the theft of more than 2,000 identities that were used to claim more than $20 million in bogus IRS tax refunds. As a result the IRS paid out more than $7 million, even issuing payments in the names of dead people.
The charges are the result of a two-year-long investigation by federal and local authorities in San Diego and Los Angeles. Twenty-two defendants were arrested September 26 during sweeps in Los Angeles, San Diego, Las Vegas, and Maryland. Hundreds of federal, state, and local law enforcement officers participated in the takedown. Thirty-three defendants remain at large, including twenty-one who are believed to be out of the country.
During searches at twelve locations, authorities seized $13,000 in cash and four handguns, including three that were unregistered.
The various schemes are described in four separate indictments:
1. The largest indictment involving the identity theft and bogus tax refunds charges twenty-nine people and involved the alleged filing of about 2,000 fraudulent tax returns. The coconspirators filed two types of fraudulent returns: (1) those that claimed refunds from fabricated gambling winnings and losses, and (2) those based on made-up wages and withholdings. The returns sought $17 million in undeserved refunds.
This scheme involved the participation of scores of San Diego-based foreign nationals from former Soviet bloc countries, including Russia, Kazakhstan, and Turkmenistan, who were visiting San Diego using J-1 and F-1 visas. The visas allow foreigners to come to the United States for a short period of time to study, work, and travel.
However, instead of studying or working, the almost two dozen foreign nationals charged allegedly worked primarily as foot soldiers for criminal organizations operating in Los Angeles and elsewhere. Leaders of the identity theft ring, many of whom are Armenian nationals or Armenian-American, exploited the popular student visa program in part because the visa holders would not be here long. In fact, many have since returned to their countries.
The alleged leaders of the stolen identity fraud schemes were Arthur Grigorian, Ernest Soloian, and Hovhannes Harutyunyan. One of the defendants, Yvonne Mihailescu, used her position as an employee of Wells Fargo Bank to open bank accounts which were used to receive the fraudulent tax refunds and launder the proceeds, according to the indictment.
While here, they rented apartments in San Diego and elsewhere, opened post office boxes and bank accounts at the San Diego branches of Bank of America and Wells Fargo, and collected fraudulent tax refunds through the receipt of refund checks and direct deposits from the US Treasury. Some of the refund checks were mailed to apartments on University Avenue and El Cajon Boulevard in San Diego.
The indictment indicates that the coconspirators employed sophisticated methods to cover their tracks. For instance, they took steps to disguise their Internet Protocol (IP address) when filing tax returns electronically, making it difficult for law enforcement to determine the location. In addition, they used code language when communicating and referred to each other only by nicknames, such as "Anaconda" and "Blondie." They used prepaid cell phones which they changed on a regular basis.
2. A second indictment charges three people who are accused of filing more than 400 false returns using stolen identities which claimed more than $3 million in fraudulent refunds. Armen Eritsian and Hovhannes Harutyunyan are the alleged leaders of the scheme.
3. A third indictment charges eight people, led by Hovakim Sogomonian and Harout Gevorgyan, and describes an elaborate ruse in which defendants obtained bank account and other personal information about wealthy Wells Fargo customers and then sent imposters to branches to withdraw large sums of money. The imposters altered their appearances with haircuts and new clothes and prepared by role-playing. In all, they attempted to withdraw more than $3 million and succeeded in obtaining $551,842, the indictment said. The imposters instructed tellers to wire large sums of money to the account of a gold dealer, and then they picked up gold coins from the dealer and delivered them to the other defendants.
4. A fourth indictment charges eighteen defendants, led by Karen Galstian and Vahag Stepanyan, with a scheme to defraud Bank of America of more than $600,000 by writing bad checks. This scheme also utilized stolen identities to further the fraud.
Summary of charges
- Conspiracy, Title 18, U.S.C., Section 371: Maximum penalty: five years' imprisonment and $250,000 fine.
- Mail fraud, Title 18, U.S.C., Section 1341: Maximum penalty: twenty years' imprisonment and $250,000 fine.
- Wire fraud, Title 18, U.S.C., Section 1343: Maximum penalty: five years' imprisonment and $250,000 fine.
- Money laundering, Title 18, U.S.C. § 1956: Maximum penalty: five years' imprisonment and $250,000 fine.
- Aggravated identity theft, Title 18, U.S.C., Section 1028A: Maximum penalty: two years' imprisonment consecutive to underlying offense.
- Conspiracy to commit bank fraud, Title 18, U.S.C., Section 1349: Maximum penalty: thirty years' imprisonment and $1,000,000 fine.
- Criminal forfeiture, Title 18, U.S.C., Section 981(a)(1)(C) and Title 28, U.S.C., Section 2461(c): Maximum penalty: Forfeiture of proceeds.
Source: US Attorney's Office – California
Final Defendants Sentenced to Federal Prison for Participating in Identity Theft Scam
The final two defendants charged in relation to an identity theft scam that used identities stolen from the Los Angeles County Department of Public Social Services to file fraudulent tax returns were sentenced September 30 to federal prison.
Michael Williams of Palmdale, California, was sentenced to thirty-three months' imprisonment; Mike Niko of Los Angeles was sentenced to fifteen months' imprisonment. The defendants were further ordered by United States District Judge Dale S. Fischer to pay restitution to the government of $787,086 and $104,662, respectively.
The defendants previously sentenced in this case are:
- Thomas Marshall of Lancaster was sentenced in April to fifty-seven months in prison and ordered to pay restitution in the amount of $1,245,637.
- Mao Niko of Lynwood was sentenced in April to twenty-four months in prison and ordered to pay restitution in the amount of $285,102.
- Veronica Niko of Lancaster was sentenced in July to eighteen months in prison and ordered to pay restitution in the amount of $357,705.
According to documents filed with the court, from May 2008 through July 2010, codefendant Thomas Marshall, along with coconspirators Michael Williams, Veronica Niko, Mao Niko, and Mike Niko conspired to defraud the United States by using the personal identifying information of various individuals to file false tax returns claiming fraudulent tax refunds.
Veronica Niko stole names and Social Security numbers from the California Department of Public Social Services (DPSS) computer system. Marshall then gave the personal identifying information obtained from Veronica Niko and others to coconspirators to file fraudulent tax returns with the IRS. The fraudulent returns claimed the First Time Homebuyer Credit and/or Earned Income Credit, earning defendants as much as $8,000 per return, even though the individuals whose identities were used did not authorize or know about the filings.
Purporting to be tax preparers, Williams, Mao Niko, and Mike Niko established bank accounts for the purpose of receiving the refunds claimed on the false tax returns. The refunds received were used for their own personal benefit and as compensation for Marshall and other coconspirators.
All five defendants pleaded guilty to their various roles in the scheme. Defendants Marshall, Williams, Mao Niko, and Mike Niko pleaded guilty to conspiracy to submit false claims to the IRS. Defendant Veronica Niko pleaded guilty to one count of transfer/use of means of identification to commit an unlawful activity. In total, the US Treasury paid more than $1.245 million in refunds to the defendants in response to fraudulent returns filed as part of the scheme.
Source: US Attorney's Office – California
Federal Court Bars Missouri Man from Preparing Tax Returns for Others
The Justice Department announced September 26 that a federal district judge in Kansas City, Missouri, permanently barred Mark Steven Hall from preparing federal income tax returns for others. According to the court's civil injunction order filed in the US District Court for the Western District of Missouri, from 2006 to 2010 Hall worked as an employee or independent contractor for various accounting firms. Beginning in the 2010 tax season, Hall prepared federal tax returns from his home in Kansas City.
The court found that Hall understated his customers' tax liabilities by claiming false expenses and deductions. The court found that in some cases, Hall used a formula to claim charitable deductions without any regard to whether his customers had the necessary supporting documentation. In other instances, the court found that even where Hall's customers provided him with documentation of charitable donations, Hall inflated those customers' reported charitable contributions.
Similarly, the court found that although one customer provided Hall with all bank statements, invoices, ledgers, check stubs, and receipts for his small business, Hall did not use those documents in preparing the return.
The court reasoned that a permanent bar on all future tax preparation was warranted because without a permanent ban, Hall "would likely find other ways to manipulate the tax system for his customers." The court found that there was a high probability that Hall's customers received erroneous refunds due to his conduct.
Source: US Department of Justice
Six Charged in Ohio with Operating an Illegal Gambling Business and Other Related Offenses
The Justice Department and IRS announced September 26 that Reece Powers II, the former co-owner of R&J Partnership Ltd. doing business as Reece's Las Vegas Supply (RLVS), a gambling supplies store located in Dayton, Ohio, was charged with illegal gambling, tax fraud, and obstruction-of-justice-related offenses in an eight-count indictment. Other defendants charged in the indictment are Douglas A. Sanders, Jason S. Pulaski, Michael E. Gedeon, Jennifer Williams, and Walter F. Dyer.
The indictment, which was returned on September 24, was unsealed following the arrests of Powers, Pulaski, Gedeon, Williams, and Dyer. All six defendants were charged with one count each of conspiracy to operate an illegal gambling business and one count each of operating an illegal gambling business. Additionally, Powers was charged with one count of conspiracy to defraud the United States by impeding and impairing the lawful functions of the IRS, and one count of witness tampering. Furthermore, Pulaski, Gedeon, Williams, and Dyer were each charged with one count of obstruction of justice.
According to the indictment, between February 2004 and May 2011, Powers oversaw the recruitment of local charitable organizations to sponsor casino-like card games, such as Texas Hold'Em poker tournaments and live-action poker games (poker fundraisers), that were exempted from the general prohibition against games of chance under then-existing Ohio laws. The indictment alleges that Powers skimmed a portion of the money received from the poker fundraisers while providing false accountings of the money generated to the charitable organizations that they were meant to benefit. The indictment further alleges that Sanders, Pulaski, Gedeon, Williams, Dyer, and other coconspirators who worked as card dealers, cashiers, chip sellers, pit bosses, tournament directors, and managers, received compensation for their roles in conducting the poker fundraisers in violation of Ohio law, at Powers' direction. The indictment further alleges that each of the defendants claimed that they were uncompensated volunteers and that several of them deliberately misled investigators of the State of Ohio's Attorney General's Office and the IRS during the investigation.
According to the indictment, Powers further conspired with another individual to sell RLVS and its associated real estate so that it appeared as if the business was sold for an amount less than its actual sale price, in an effort by Powers to evade the payment of taxes. According to the indictment, Dyer, Pulaski, Gedeon, and Williams further committed obstruction of justice by testifying falsely before a federal grand jury investigating the poker scheme. Additionally, Powers is charged with tampering with a witness by allegedly instructing the witness to testify falsely to the federal grand jury.
If convicted, Powers faces a maximum sentence of thirty-five years in prison, a fine of $1,000,000, and five years of supervised release. If convicted, Pulaski, Gedeon, Williams, and Dyer each face a maximum sentence of twenty years in prison, a fine of $750,000, and three years of supervised release. If convicted, Sanders faces a maximum sentence of ten years in prison, a fine of $500,000, and three years of supervised release.
Source: US Department of Justice
New Jersey–Based Financial Advisor Sentenced to Twenty-Seven Months in Prison for Defrauding Elderly Investors
A Somerset County, New Jersey–based financial advisor was sentenced September 25 to twenty-seven months in prison for stealing $138,000 from two elderly investors and funding his lavish lifestyle with money he claimed to be investing in conservative securities and his business.
Ralph A. Saviano of Bridgewater, New Jersey, previously pleaded guilty before US District Judge Freda L. Wolfson in Trenton federal court to an information charging him with wire fraud.
According to documents filed in this case and statements made in court, Saviano, an investment advisor who had worked in the financial industry for more than forty years, targeted clients through his association with Centaurus Financial Inc., and later through Saviano Financial Group (SFG), from as early as July 2007 through October 2012.
During this time, Saviano had approximately 300 clients, many of whom were unsophisticated investors between the ages of sixty and eighty-five, whom he had known for many years and who trusted his financial experience and advice. Saviano admitted he targeted clients he knew were about to receive significant amounts of cash, such as maturing certificates of deposit (CDs), and proposed that they invest those funds in low-risk investments or in his business, SFG. Saviano said he would use these "business loans" solely for business expenses.
Saviano admitted that in May 2012, an eighty-five-year-old client gave him approximately $63,000 from a mature CD that she was told would be invested in two investment funds. Saviano accompanied the client to her bank to redeem the CD and instructed her make the proceeds from the CD payable to him. In June 2012, another of Saviano's clients – eighty years old and suffering from cancer – gave Saviano approximately $75,000 she inherited from a recently deceased relative, making the check payable to "cash" with the words "financial investment" in the memo field.
Instead of doing as he claimed, Saviano used the funds to repay prior "loans" from other clients in Ponzi-scheme fashion and to pay for various personal expenses, including: at least $33,000 for granite countertops and other home improvements; $18,000 in cash payments to himself and family members; $10,000 in personal mortgage and rent payments; and thousands more in jewelry, clothing, a family vacation to Aruba, and a theater donation.
At the plea hearing on June 5, Judge Wolfson entered a consent judgment and order of forfeiture in the amount of $699,926.51, which constitutes the proceeds Saviano obtained from his known investor victims as a result of his offense.
In addition to the prison term, Judge Wolfson sentenced Saviano to three years of supervised release and ordered restitution of $699,926.51.
In a parallel investigation, on September 6, the US Securities and Exchange Commission (SEC) issued an order instituting settled administrative proceedings against Saviano. In its order, the SEC barred Saviano from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. It also barred him from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
Source: US Attorney's Office – New Jersey
North Carolina Businessman Sentenced for Tax Fraud
William Robert Hupman Jr. of Mebane, North Carolina, was sentenced to serve seventeen months in prison followed by one year of supervised release for tax fraud, the Justice Department and the IRS announced September 30. Hupman was also ordered to pay restitution to the IRS of $103,420.
Hupman pleaded guilty on May 31 to corruptly endeavoring to obstruct or impede the due administration of the Internal Revenue laws. According to court documents and court proceedings, Hupman managed and controlled Security Concepts LLC (SC), a security alarm company based in Mebane, North Carolina. Instead of receiving a salary from SC, Hupman received income by using an SC debit card to pay his expenses. Despite receiving over $770,000 in such fees between 2007 and 2011, Hupman has not filed an individual income tax return since tax year 2006.
Court documents indicate that in addition to his failure to comply with his personal income tax responsibilities, Hupman also failed to comply with his employment tax responsibilities at SC. As the person who managed and controlled SC, Hupman was responsible for withholding employment taxes and paying them over to the IRS on a periodic basis. SC last paid over employment taxes and filed the required tax form for the third quarter of 2009, despite the fact that employment taxes were actually withheld from the wages of SC employees. Hupman did not pay employment taxes or file the required tax form for the fourth quarter of 2009 or any of the quarters in 2010 and 2011. He also has not paid the federal unemployment taxes owed or filed the required tax form for years 2009, 2010, or 2011. According to court documents and court proceedings, the criminal tax loss was $103,420.
Source: US Attorney's Office – North Carolina