BizRadio and Daniel Frishberg – Are we watching the slow decline of a legitimate business enterprise or implosion of a business scam?

Is this a business enterprises going south or just a Texas flim flam?  Read on cause something doesn’t pass the smell test…

Loren Steffy, with the Houston Chronicle wrote an article on his business blog (dated February 5, 2010) related to BizRadio being allowed to return to the air.  Before, I read that article, I was alerted by another media contact that BizRadio, Daniel Frishberg and Albert Kaleta and his investment firm, Kaleta Capital Management, sold $10 million in promissory notes, telling investors the money would be loaned to small businesses at 12 percent to 14 percent interest. Instead, the SEC said, it went to the money-losing radio network and an affilated investment advisory firm, Daniel Frishberg Financial Services, also known as DFFS Capital Management.

Those articles caught my attention since I was twice contacted by BizRadio representatives, once in 2007 and then again in 2009, to have a show on business ethics on their station.  Both times something just didn’t seem right.  The first time I was invited to the BizRadio office in Dallas and told that my work was just the type of programming that fit the BizRadio format.  Of course, they were not interested in “my work” for their programming content unless I was prepared to pay a tidy sum of money to be on the air.  Pay to play as I call it.  At the time they were on (what I recall and my memory might be inaccurate) 1360 AM in Dallas.  Certainly the station was not one of the higher ranked stations when it came to aribtron ratings.

At the time it appeared that all they were interested in was me paying them money to bring my content to their station.  NOT INTERESTED.

Then, in either late 2008 or early 2009, I was contacted by another representative for BizRadio – again in a pay to play enticement.  When I asked for specific data regarding the stations signal, arbitron ratings, etc. mysteriously the interest in my show disappeared and no calls or emails were returned.  Again, something smelled fishy…but I paid it no attention, after all, in 2009 radio stations all over the country were hurting for revenue.

THEN COMES THE SEC

Loren Steffy with the Houston Chronicle broke the following article:

BizRadio Network’s slogan ringing a little hollow

I began to take notice.  Interestingly enough, it didn’t take long to begin to piece together what appears to be an interesting business enterprise or business scam – right now I can’t for sure tell which…but scam seems to gaining the upper hand thus far.

According to my sources the following seems to hold validity when it comes to the major players:  ALBERT KALETA; DANIEL FRISHBERG; RON CRIDER; and REHAN SIDDIQI

1. According to the Houston Chronicle article:

Albert Kaleta and his investment firm, Kaleta Capital Management, sold $10 million in promissory notes, telling investors the money would be loaned to small businesses at 12 percent to 14 percent interest. Instead, the SEC said, it went to the money-losing radio network and an affilated investment advisory firm, Daniel Frishberg Financial Services, also known as DFFS Capital Management.

Kaleta and Dan Frishberg, who appears on BizRadio as “The Money Man,” were among the network’s founders. Kaleta also was part owner and chief compliance officer for DFFS.

2.  My sources tell me that Kaleta was a master at raising money.  In many cases, I was told, that when an investor would invest with Kaleta, he would suggest to them that they also “loan” money to, what ultimately, was BizRadio and that those funds would pay a return of 11+%.  Therefore, if an investor invested $1 million, he/she might also “loan” $100,000 for the express benefit of getting that high rate of return.  However, I am also told that with BizRadio losing some $300,000 per month (I have not been able to confirm that number), the only way the investor interest could be paid was from more investment funds pouring in.  THAT’S A PONZI SCHEME, just ask Bernie Madoff.

3.  Kaleta signed an SEC consent order neither admitting nor denying wrongdoing and agreeing not to violate securities laws in the future. His firm also agreed to have a court-appointed receiver take over its operations.  From what I am told, Kaleta also lost his Securities license as part of his agreement.  (At the time of this writing I am trying to get confirmation from the SEC on the license revocation).  It appears that Kaleta took one for the team.

4.   The Chronicle article states: “Neither BizRadio, nor Frishberg’s firm was accused of wrongdoing, but they were named as “equitable relief defendants,” meaning they must repay the money.”  At the time of the initial Chronicle article BizRadio was on the air…but that soon changed.

5.  On or around October 2009, Ron Crider was brought on board to be BizRadio’s CEO (or so it seemed).  Crider was not paid as an employee, but according to sources was introduced by Frishberg at BizRadio shareholder meeting(s) as BizRadios CEO or co-CEO.  Likewise, Crider had business cards that indicated he was CEO for BizRadio.  As Crider came on it would appear that the SEC was hot and heavy in their investigation and negotiations to shut down Kaleta – which had a clear effect on the operations of BizRadio.  BizRadio’s web site listed Crider as President of Broadcast Operations (see below).

6.  BizRadio apparently owned 1110 KTEK AM which was the subject of a possible lease/sale.  Seems that BizRadio paid a tidy sum of money for the station, but found that it didn’t serve their needs as well as other potential stations with a better listener reach.  As best I can tell, BizRadio seemed to switch stations often (why – I’m not sure, but it seems that it is either seeking a better signal, financial issues or both).

7.  Crider, ostensibily acting as CEO, negotiated with Rehan Siddiqi to lease 1110 KTEK AM with an option to purchase for some $3.5 million.  Note: my sources tell me that John Saunders was the broker who sold Daniel Frishberg 1110 KTEK for 7.7 million.   Later, Saunders (so I’m told) offered Dan
2.5 Million Dollars for the station (which in today’s economy might be reasonalbe).  Either way, the acceptance of the Siddiqi offer would appear to be reasonable if one were seeking a new station or cash or both.

8.  The Chronicle article states: “Asia Vision had been airing its programming on 1110 AM, which is owned by a BizRadio affiliate. Siddiqi paid $180,000 to various BizRadio-related entities to lease the station for six months after BizRadio moved to 1180 AM.”  Now, perhaps I’m lost but, if BizRadio accepted Siddiqi’s payment of $180,000 from allowed him to broadcast on 1110, then how can Frishberg say that the contract was invalid?  Either Frishberg (as CEO) doesn’t have a handle on the operation of his business or Crider did have authority to execute the contract and Frishberg was willing to accept Siddiqi’s funds…  Right now Crider testifying on behalf of Siddiqi seems to be at odds with Frishberg over the truth.  But there’s more…

9.  Seems that BizRadio lost their right to broadcast on 1180 AM.  Why?  Money!  Sources tell me that Frishberg failed to provide a letter of credit to the folks at 1180 AM and failed the first of February to pay their $75,000 per month lease…hence they were (supposedly) kicked off.  Likewise, I am told that BIZ
Radio had lost it’s Dallas affiliate as a direct result of the Houston Chronicle November 18 article.  Senator Dan Patritck the owner of the Dallas station  wanted to distance himself from Biz Radio, Dan Frishberg and Al Kalieta.

WHAT COMES NEXT?

• BizRadio is back on the air, but something still doesn’t smell right.  Why did BizRadio broadcast on 1180 AM in January and accept Siddiqi’s money for 1110 AM and then completely reverse course?
• Why did Frishberg claim that Crider had no authority to execute an agreement with Siddiqi when in fact Crider was listed as President of Broadcast Operations for BizRadio?

• Frishberg states today in an email I received the following:

An unauthorized but related party, Ron Crider, the same person in the Colorado newspaper story below, held himself out, falsely, to be the Chief Executive of BizRadio, and to be authorized to make deals and contracts for the sale of major assets. Our records show that he was not even an employee of our company, never received a paycheck from our company. Though a merger with his company was discussed and considered, it was never consummated.

• What?  How could Crider be unauthorized and yet listed as President of Broadcast Operations?  Something doesn’t smell right!
• Frishberg futher states in his email:

It now appears that there was no real intention to merge, but that this was all part of a carefully crafted plan to wrongfully take a valuable asset, our Houston radio station, for far less than its real value, harming our company and its investors. This is even more onerous now, because BizRadio has more debt than it should, and it is very important that we use our equity in such assets to reduce the company’s debt and make our lenders whole. That is what BizRadio is determined to do and we went to court Friday, to protect our ability to do this.

• The truth is, at least, partially stated, BizRadio is apparently a money losing operation with too much debt.  But, I suspect the reason the deal with Siddiqi went south is that Frishberg found himself off the air due to his precarious financial situation and debt repayment requirement from the SEC.  I doubt, however, that Frishberg, in the current economy can sell 1110 AM for more than the offer from Siddiqi.  If, however, Frishberg is correct in his statement, he will list the station for sale, liquidate it to the highest bidder and pay off the investors loans thereby complying with the expectation of the SEC.
• Frishberg goes on to say in his email:

They put in the contract an option to purchase the station for $3.5 million. NOTE THAT WE BOUGHT THE STATION TWO YEARS AGO FOR MORE THAN $7 MILLION.

• Dan…the fact that you paid more than $7 million for the station two years ago when the cash was flowing from (perhaps) unsuspecting investors or lenders does not mean that you paid a fair price and, two years ago, the economy was booming.  Now, in the midst of the greatest economic recession we’ve seen since the great depression, most investors would easily conclude that the value of the station is worth well less than what you paid two years ago.  Dan…you’re the self proclaimed “Money Man” – surely you know that many business assets have decreased in value…like AIG, GM, Chrysler – even Toyota.
• Finally, another part of Frishberg’s email states:

It was not disclosed until recently, that the purchaser did not have the means to make such a purchase, and was relying on financing from Crider, who recently failed to live up to financing commitments to BizRadio this month. IT WAS NEVER DISCLOSED THAT CRIDER WHO WAS SUPPOSED TO BE REPRESENTING BIZRADIO WAS INVOLVED ON THE PURCHASER SIDE AS WELL. WHAT A CONFLICT OF INTEREST – UNDISCLOSED!

• Now…this is most interesting to me.  My sources tell me that Crider was involved with attempts at financing for the sale of the radio station.  Crider, on behalf of BizRadio, (I am told) was negotiating for a $1+ million loan for BizRadio (apparently since the former loan/investment sources would be drying up) and that the sale to Siddiqi for $3.5 Million was the collateral for the loan.  The lender (somehow related to Crider) decided at the last minute to back out which left BizRadio without the resources to continue on 1180 AM (a more powerful station).  Now, Frishberg states above that he was unaware of Crider’s connection to the lender.  Perhaps that is true, but it doesn’t change the fact that BizRadio’s precarious financial condition is the root cause of all that is currently taking place.

THERE’S MORE TO THIS STORY…

I suspect that when Frishberg points strongly a finger at Crider…he forgets that three fingers are pointing back at him.  Are we watching the slow decline of a legitimate business or the implosion of a business scam?

YOUR COMMENTS ARE WELCOME

BizRadio and its CEO, Daniel Frishberg, Continue the Saga into Court

Reported in the Houston Chronicle today…A state district judge signed a temporary restraining order against BizRadio and its CEO, Daniel Frishberg.

The TRO came at the request of Rehan Siddiqi, whose Asia Vision broadcasts Pakistani, Indian and South Asian programming. At the beginning of the year, Siddiqi and BizRadio essentially changed places on the AM dial. BizRadio moved to the higher-powered 1180 AM, while Siddiqi moved to 1110 AM, which BizRadio owns.

QUESTION:  Considering much of BizRadio’s funding came from the investors who apparently didn’t know they were investing in the BizRadio operation, how is it that BizRadio owns a station?  And, is that station an asset that would need to be liquidated in order to repay the loans that BizRadio and Daniel Frishberg has an obligation to repay?

Siddiqi paid BizRadio $180,000 to lease 1110 AM for six months, with an option to buy the station for $3.5 million. The deal was negotiated by Ronald Crider, who signed the documents as the co-president of BizRadio’s parent company. Siddiqi also produced a receipt for the money, included in the documents he filed with the court, that was signed by Albert Kaleta, president of the BizRadio Network.

NOTE: Albert Kaleta and KCM, without admitting or denying the complaint’s allegations, have consented to permanent injunctions against future violations of the antifraud provisions, as well as an order appointing a receiver. The Court will determine the amount of disgorgement and civil penalty that will be assessed against Kaleta and KCM.

Named as “equitable relief defendants,” BizRadio and Daniel Frishberg Financial Services, also known as DFFS Capital Management share a responsibility to repay the money.

Monday night at about 10 p.m., Siddiqi got an email from Frishberg saying that Asia Vision was to stop broadcasting on 1110 AM immediately because it had failed to consummate the terms of the deal, according to a copy of the message included in court records. At 7 a.m. Tuesday morning, BizRadio’s programming replaced Siddiqi’s, and Siddiqi went to court to get the restraining order.

Frishberg, who broadcasts as “The Money Man,” claims Crider was never an employee of BizRadio or any of its affiliates and was never authorized to enter into the deal with Siddiqi. He claims Crider and Siddiqi conspired to get control of 1110 AM by paying far less than the station was worth.

I DON’T GET IT:  Albert Kaleta signs the documents and Frishberg is ” The Money Man” – so how is it now he finds that the deal should be undone.  Seems that either he’s being pinched to repay money that he’s co-responsible for or he’s not “The Money Man” he represents himself to be.  Either way, something doesn’t smell right.  Whatever the outcome, these events certainly cast a long shadow on BizRadio, Daniel Frishberg and the credibility of his operation.

The full article from the Houston Chronicle is here.

YOUR COMMENTS ARE WELCOME…

Albert Fase Kaleta sued by the SEC for Madoff like investment – BizRadio and and Daniel Frishberg relief defendants

Where did the money go?  And, what attracted investors to invest?

According to the SEC,  between December 2007 and August of 2009, Albert Kaleta and his investment firm, Kaleta Capital Management, sold $10 million in promissory notes, telling investors the money would be loaned to small businesses at 12 percent to 14 percent interest. Instead, the SEC said, it went to the money-losing radio network and an affilated investment advisory firm, Daniel Frishberg Financial Services, also known as DFFS Capital Management.

NOTE: Whenever you are promised an investment return that is better than most folks can normally get…you have a good chance of being scammed!  This is the first rule of avoiding a Ponzi scheme and while this may not technically qualify as a Ponzi scheme…if it were allowed to continue, it would likely have morphed into one.

On Nov. 13, 2009, the Commission sued Albert Fase Kaleta and his company, Kaleta Capital Management, Inc. (KCM), in the United States District Court in Houston, Texas. The Commission alleges that Kaleta and KCM defrauded investors in the offer and sale of KCM-issued promissory notes in an offering that raised $10 million from approximately 50 investors. The Commission also sued two other entities, Business Radio Network, L.P. d/b/a BizRadio (BizRadio) and Daniel Frishberg Financial Services, Inc. (d/b/a DFFS Capital Management, Inc.) (DFFS) as Relief Defendants solely for the purposes of equitable relief.

Kaleta and Dan Frishberg, who appears on BizRadio as “The Money Man,” were among the network’s founders. Kaleta also was part owner and chief compliance officer for DFFS.  There is little doubt that Kaleta and/or Frishberg didn’t know what they were doing.

NOTE:  When money that is “supposed” to go into ‘small businesses’ and instead is diverted…that would be a warning sign that a fraud is beginning.  Now, realistically, the victims wouldn’t know as most fund diversions are kept from the public eye.  In this case, it would seem that luck (if you can call it that) intervened through the worst recession we’ve experienced in years.  More than likely the purported investment scam would have continued if the economy was robust.

The Commission alleges that Kaleta lied to investors about the intended uses of offering proceeds. Among other things, the Commission contends that Kaleta took approximately $1.5 million of the offering proceeds to pay personal expenses.

NOTE:  Like most of the Ponzi schemes I’ve reported on…a common thread is the use of “investment funds” for personal expenses.  Hint…this doesn’t look or smell like it was legitimate.  Again, timing is everything.  Madoff was fortunate in that his fraud spanned many years but, like most, imploded when the economy took a nosedive.

Without admitting or denying the complaint’s allegations, Kaleta and KCM have consented to permanent injunctions against future violations of the antifraud provisions, as well as an order appointing a receiver. The Court will determine the amount of disgorgement and civil penalty that will be assessed against Kaleta and KCM.

Named as “equitable relief defendants,” BizRadio and Daniel Frishberg Financial Services, also known as DFFS Capital Management share a responsibility to repay the money.

According to the Houston Chronicle – “In order to reverse what injustice has taken place here, so that the victims of this fraud can be made whole, what we’re seeking is that the relief defendants relinquish their possession of assets to which they have no rightful claim,” said Timothy McCole,the SEC attorney handling the case.

Frishberg said he and Kaleta are no longer partners. His firm and BizRadio will repay the debt under the terms of the promissory notes, he said.

“We’re eager to have them hurry up and appoint a receiver and get it going,” he said.

QUESTIONS:

In a time when trust in financial professionals is at a low, I wonder what position Daniel Frishberg is taking here in early 2010 when it comes to the repayment of investors?

Are we finding transparency when it comes to the operation of BizRadio?

It seems that BizRadio often is jumping from station to station – especially in the Dallas, TX marketplace.  Is that a result of financial stress on the station since the flow of (what would appear to be) misappropriated investor funds has dried up?

COMMENTS ARE WELCOME!

The following is on the BizRadio web site:

We are off the air for the first time since 2005, but at our headquarters, we are as busy as we have ever been. We are using this time to make some major improvements in our operations that will benefit our audience and our investors.
We will be back on the air very soon, and we will make an important announcement about the future of BizRadio in the next week.
For the latest update, please continue to check back here at BizRadio.com

Oh what a tangled web we weave – SUSAN A. CURTIS, GARY J. STOCKING, and KEVIN W. CAFFREY charged with Bank Fraud

SUSAN A. CURTIS, 48, her husband GARY J. STOCKING, 43, both of Naugatuck, and CURTIS’ former husband, KEVIN W. CAFFREY, 45, of Wolcott, with one count of bank fraud and one count of conspiracy to commit bank fraud.

The indictment alleges that CURTIS was employed in the Property Services Division of Webster Bank with responsibilities that included negotiating and managing bank property leases where Webster Bank was a landlord or tenant.  The indictment further alleges that CURTIS, STOCKING and CAFFREY established two companies called New House, LLC and Equity Realty, LLC, which CURTIS falsely represented to Webster Bank’s Vendor Management Department were landlords, an exempted category for due diligence and annual review.

As part of the alleged scheme, CURTIS submitted paperwork to Webster Bank’s Accounts Payable Department in which she falsely represented that New House and Equity Realty were due a fee in approximately 109 real estate related transactions involving 67 properties.  As a result, Webster Bank made payments of approximately $5.04 million to New House and Equity Realty.  In addition, the indictment alleges that CURTIS caused a landlord, who was a lessor of property leased to Webster Bank, to send approximately $703,620 in lease improvement payments directly to CURTIS.  CURTIS and STOCKING are alleged to have altered the checks from the landlord to make them payable to Webster Bank c/o Equity Realty, and then deposited the checks to an Equity Realty account at another bank.

The indictment also alleges that CURTIS falsely represented to other landlords or their counsel, who were dealing with Webster Bank, that a $450,000 check for property improvements should be paid directly to Equity Realty c/o Webster Bank.  CURTIS and STOCKING then deposited the check into the Equity Realty bank account.

Finally, the indictment seeks the forfeiture of an interest up to an amount of $456,790.79 in real property in East Hampton, Connecticut, three automobiles, two Harley Davidson motorcycles, a Steinway piano, and $746,977.03.

If convicted, each of the defendants faces a maximum term of imprisonment of 30 years on each count.

Keep in mind…an indictment is not a conviction and all parties are considered innocent until proven guilty.

Prison for Real Estate Appraiser! Lila Rizk faces 3 years in prison and $46 Million in Restitution

Having been there (not proud of what I’m getting ready to say), but prison is no fun.  But, being ordered to pay $46 million in restitution – well…that’s a sentence that is impossible.

According to the US Attorney’s office, Lila Rizk, a former state-licensed real estate appraiser was sentenced to three years in federal prison and ordered to pay more than $46 million in restitution for her role in a massive mortgage fraud scheme that caused tens of millions of dollars in losses to federally insured banks.

Lila Rizk, 43, of Rancho Santa Margarita, received the three-year prison term after her conviction last summer on conspiracy, bank fraud and numerous loan fraud charges.

Rizk was sentenced by United States District Judge Dean D. Pregerson, who warned that other professional real estate appraisers should know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison.”

The evidence presented at Rizk’s trial last summer showed that she was part of a wide-ranging and sophisticated scheme that obtained inflated mortgage loans on homes in some of California’s most expensive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. Members of the conspiracy sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars more than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

The evidence presented at trial showed that Rizk profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scheme.

STOP – TAKE NOTE:  Crime doesn’t pay.  Rizk gained hundreds of thousands of dollars in fees – but now she’d ordered to pay $46 million in restitution.  OUCH!

Her appraisals typically valued the homes three times higher than what the homes really cost. In order to supposedly justify these inflated values, Rizk used “comps,” or comparable homes, that were far bigger, more luxurious, and in better neighborhoods than the homes she appraised. Once she had inflated a few dozen homes, she then used those homes as “comps” to supposedly justify inflated prices for homes later in the scheme.

Ten other real estate professionals have been convicted of federal charges related to the scheme. They are:

scheme leader Charles Elliott Fitzgerald, a developer formerly of Newbury Park and Beverly Hills, who previously was sentenced to 14 years in prison;

Mark Alan Abrams, of Los Angeles, a mortgage broker who along with Fitzgerald orchestrated the scheme, who is scheduled to be sentenced on April 12;

Nicole LaViolette, of Palm Springs, a loan processor, who is scheduled to be sentenced on June 14;

Jamieson Matykowski, of Laguna Niguel, who found houses for the scheme, is scheduled to be sentenced on March 29;

Timothy Holland, of Santa Ana, an escrow officer, who is scheduled to be sentenced on July 19;

Richard Maize, of Beverly Hills, a mortgage banker, who is scheduled to be sentenced on June 28;

Thomas R. Schiff, of Brentwood, a mortgage banker, who was previously sentenced to 6 months in prison;

L. Scott Robinson, of Dana Point, an appraiser, who is scheduled to be sentenced on April 2;

Kyle Grasso, formerly of Santa Monica, a real estate agent, who is scheduled to be sentenced on February 19; and

Joseph Babajian, of Los Angeles, a real estate agent, who is scheduled to be sentenced on February 22.

FINAL NOTE:  You have to know that those who are awaiting prison must be quaking in their boots…as the restitution factor precludes the practicality of any reasonable life following prison.

YOUR COMMENTS ARE WELCOME!

John Richard Varner former President of Inland Empire Mortgage sentenced to 13 years in prison for Fraud costing nearly $30 Million in Losses at HUD

The former president of Mortgage One Corporation, John Richard Varner, 56, of Hesperia, was sentenced to 156 months in federal prison for defrauding the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining hundreds of federally insured loans and selling those mortgages to private lenders in a scheme that caused tens of millions of dollars in losses to the federal housing agency.  In addition to the prison sentence, Judge Phillips ordered Varner to pay $29,749,239 in restitution.

Last April, following a nearly four-week trial, a federal jury convicted Varner of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns. Varner was the fifteenth defendant convicted in relation to the scheme. Varner and co-defendant Richard Elroy Giddens, 69, of Riverside, were at the center of the fraud that was run out of Mortgage One Corporation, which was based in Hesperia, and M-1 Capital Corporation, which was based in Riverside and Rancho Cucamonga. Giddens, the former CEO of Mortgage One, pleaded guilty to the same charges Varner was convicted of at trial and in September 2009 was sentenced to 78 months in federal prison.

From 1997 until 2002, Mortgage One and M-1 Capital were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance on the loans from the Federal Housing Administration, which is an agency within HUD. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved Direct Endorsement Lenders. They obtained and kept Direct Endorsement Lender status by submitting false documents, including bogus audits, to HUD.

Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages or were only “straw buyers.” Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank, N.A. and Chase Manhattan Mortgage Corporation, using the same fraudulent documents.

As a result of the scheme, HUD lost $23,628,857 on 905 fraudulent loans, and a total of $29,638,011 when interest paid by HUD during the foreclosure and resale process is included.

Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.

In sentencing papers, prosecutors argued that Varner’s testimony at trial last year “consisted of a series of breathtaking lies that appeared designed to shift responsibility for defendant’s crimes to others and to mislead the jury about the true facts.” For example, Varner “denied knowingly approving fraudulent loan applications, despite testimony from numerous brokers that they discussed the fraud in the loan files and [Varner] indicated they should continue to submit the fraudulent loan files,” according to court documents that concluded Varner “gave blatantly false testimony.” At this afternoon’s sentencing hearing, Judge Phillips agreed with prosecutors, finding that Varner’s testimony “was knowingly untruthful on a number of points.”

Every choice has a consequence…and the consequence here, beyond the monetary losses are lives that are financially, ethically and morally destroyed.  Not only did Varner earn a bed in federal prison, but those connected with his scheme have suffered as well.

If you worked for Inland Empire Mortgage, Mortgage One or M-1 – here’s a question.  Did you see any evidence that something was not right when it came to the business at hand?

Your comments are welcome.

The Latex Glove Ponzi schemer pleads Guilty – Looks like Miguel Salazar is headed for Prison!

Now for those of you who follow this blog…I often report on, what appears to be the crime of the decade – the ponzi scheme.  In fact if you want to know more about them…here’s a link to a recent blog – The Anatomy of a Ponzi Scheme.

But back to business.  The concept of a Ponzi scheme is that the fraudster convinces the victim that he/she has some investment that’s a sure bet and will provide a better return than most folks receive on their investments.  Of course, most of the time there is no investment.  Rather, new investors funds are used to pay old investors returns…at least enough to cause them to keep their money invested and the scheme alive.

This version however is frankly, cute.  The Justice Department reports that a West Covina man has pleaded guilty to federal mail fraud charges for running a Ponzi scheme that took nearly $700,000 from victims who thought they were investing in latex gloves, which were portrayed as being in high demand following the 9/11 terrorist attacks.

Miguel Salazar, 36, pleaded guilty late yesterday to one count of mail fraud.  Salazar’s former partner, Carlos Flores, 43, of Lakewood, pleaded guilty to mail fraud in December.

Salazar and Flores operated SF Capital, which had mail drops in Alhambra and Glendale, and was described to investors as being in the business of factoring accounts receivable for latex gloves. Investors in SF Capital were typically told that the terrorist attacks of 9/11, concerns about infectious diseases, and other global issues had resulted in an extraordinarily high demand for latex gloves and that this enormous demand provided a secure investment vehicle for individuals and institutions. SF Capital investors were typically promised quarterly returns of 5 percent.

NOTE: Step one of any Ponzi scheme is a promise of a return on investment that is far greater than most investors would expect to receive!  The Ponzi schemer relies on the greed of the investor which turn them (the investors) into Victims.

Between 2002 and 2006, more than 30 individuals invested more than $1.3 million with SF Capital. Many individuals renewed or increased their investments after receiving payments from SF Capital that appeared to be interest or dividend payments.  However, SF Capital was not in the business of financing accounts receivable and the purported investment returns paid to investors were Ponzi payments that came from other investors. Flores and Salazar also used proceeds from the scheme for their personal benefit. For example, Salazar used investor money to pay more than $140,000 for luxury dugout seats at Dodger Stadium.

As a result of the scheme, victims lost nearly $700,000.

Salazar is scheduled to be sentenced by Judge Real on May 3. Flores is scheduled to be sentenced on February 22. Both men face statutory maximum sentences of 20 years in federal prison.

Medical Device Manufacturers (and Sellers) Take Note – Atricure to Pay U.S. $3.76 Million to Resolve Medicare Fraud Allegations

Quite interesting…  I had a discussion with a prospective client the other day who was sharing the need for firms – especially those in the Medical field – to operate ethically and know the rules when it comes to sales and ‘inducement’!  “It is clear,” he stated, “that firms need to take proactive actions to make sure that they not only operate within the law (as they understand it), but take affirmative actions to demonstrate their intent to operate in an ethical/legal environment.  As I was considering a fraud prevention presentation for this firm, then two days later this crosses my desk…

According to the Justice Department – Atricure Inc., a medical device manufacturer, has agreed to pay the United States $3.76 million to resolve civil claims in connection with the alleged promotion of its surgical ablation devices.  Surgical ablation devices use focused energy to create controlled lesions or scar tissue on a patient’s heart or other organs.

The settlement resolves allegations that the West Chester, Ohio-based company marketed its medical devices to treat atrial fibrillation (the most common cardiac arrhythmia or abnormal heart rhythm), a use that is not approved by the U.S. Food and Drug Administration (FDA). Atricure also allegedly promoted expensive heart surgery using the company’s devices when less invasive alternatives were appropriate, advised hospitals to up-code surgical procedures using the company’s devices to inflate Medicare reimbursement, and paid kickbacks to health care providers to use its devices. The United States asserted that by engaging in this conduct, Atricure knowingly violated the Food, Drug, and Cosmetic Act and caused the submission of false and fraudulent claims in violation of the False Claims Act.

The allegations were made against Atricure in a lawsuit filed under the qui tam or whistleblower provisions of the False Claims Act, which permit private citizens, called “relators,” to bring lawsuits on behalf of the United States and receive a portion of the proceeds of any settlement or judgment. The relator will receive a total of $625,000 as the statutory share of the current settlement.

NOTE: With opportunities for whistleblowers to gain personally from a settlement…it should be clear that challenges to operating actions come from many angles.  Some companies consider this a cost of doing business, but when the settlement hits (assuming there is no prosecution) the use of the equipment changes and people tend to run from issues that have a negative legal implication.

“The misuse of medical devices has the potential of exposing patients to dangerous procedures and taxpayers to payment of unwarranted claims against Medicare,” said Tim Johnson, United States Attorney for the Southern District of Texas. “This settlement demonstrates the government’s commitment to maintaining safe and affordable health care for its citizens.”

This settlement is part of the government’s emphasis on combating health care fraud. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover approximately $2.2 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 have topped $3 billion.

COMMENTS ARE WELCOME!

Gevork Kartashyan and Eliza Shubaralyan sentenced to Prison for Health Care Fraud – Comments by Ethics and Fraud Prevention Speaker Chuck Gallagher

The Health Care Fraud Prevention and Enforcement Action Team (HEAT) – a division of the Justice Department is at it again.  Their goal…to stop Medicare fraud…!  And, it looks like they are being effective.

Gevork Kartashyan and Eliza Shubaralyan, the owners and operators of a Los Angeles-area durable medical equipment (DME) company were sentenced to prison in connection with an approximately $1 million power wheelchair fraud scheme.  Each were sentenced to serve two years in prison and in addition, Kartashyan and Shubaralyan were ordered to serve three years of supervised release following their prison terms and to pay $400,000 in restitution, jointly and severally.

Kartashyan and Shubaralyan, who are married, were convicted at a July 2009 trial in federal court in Los Angeles. Kartashyan was found guilty of conspiracy to commit health care fraud and health care fraud, and Shubaralyan was found guilty of health care fraud. At trial, the evidence showed that Kartashyan and Shubaralyan, through their company CHH Medical Supply, billed Medicare $949,859 and were paid $597,750 as a result of the billing. According to evidence presented at trial, virtually all the billing was for medically unnecessary power wheelchairs and wheelchair accessories.

At trial, elderly Medicare beneficiaries testified about how they were recruited into the scheme. According to testimony, the beneficiaries were taken to Los Angeles-area medical clinics, where they turned over their Medicare numbers and other personal identifying information. Some beneficiaries testified that they were promised vitamins, diabetic shoes and other items that they never received, in return for providing their beneficiary numbers. According to evidence presented at trial, these clinics were in the business of generating fraudulent power wheelchair prescriptions that could be sold to DME company owners, who then billed Medicare for the wheelchairs. Many of the beneficiaries did not know they were getting a power wheelchair until it was delivered by CHH Medical Supply. All of the beneficiaries testified that they did not need or use the power wheelchairs.

Five physicians testified at trial that they never authorized or approved the power wheelchair prescriptions written under their names. Three of these physicians testified that they never worked at the clinics listed on the phony prescription pads.

According to testimony at trial, Kartashyan regularly purchased power wheelchair prescriptions. The evidence also showed that after the power wheelchairs were delivered, Kartashyan generated phony forms stating that the beneficiaries’ homes were appropriate for the use of a power wheelchair, even though no home assessment was conducted.

Since their inception in March 2007, Strike Force operations in seven districts have obtained indictments of more than 500 individuals who collectively have falsely billed the Medicare program for more than $1 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

ENOUGH SAID…any comments?

HEAT’S website can be found here.

Sujata “Sue” Sachdeva pleads not guilty by reason of a “Spending Disorder?”

With her attorney again signaling that he will mount a mental-illness defense, a former Koss Corp. executive pleaded not guilty Friday to accusations that she embezzled $31 million from her longtime employer.

Sujata “Sue” Sachdeva, 46, of Mequon, Wisconsin, pleaded not guilty yesterday to charges she embezzled as much as $31 million from Koss Corporation, a publicly traded head phone manufacturer where she had been employed as Vice President of Finance, Secretary, and Principal Accounting Officer. According to the indictment, Sachdeva authorized numerous massive wire transfers of funds from company bank accounts to pay for her American Express credit card bills and obtained cashier’s checks to pay for personal expenses, among other things. The scheme dates back to at least 2004, according to reports.

Michael F. Hart, her Attorney, said in a brief interview, “As this case proceeds . . . we intend to show that Ms. Sachdeva’s mental and emotional health played a significant role in her conduct.”

Asked whether that was the basis for Friday’s not guilty plea, Hart declined additional comment. Later, he issued a statement reiterating his remarks in the interview and added, “This is the beginning of an ongoing process, and our focus will be on the arguments we make in court. However, the issues of Ms. Sachdeva’s mental and emotional health are essential to this case.”

In court, Hart agreed to a new condition of release requested by prosecutors that prevents Sachdeva from disposing of assets that might be confiscated if she is convicted. According to the indictment, the government will attempt to seize her $800,000 Mequon home, her 2007 Mercedes Benz E350, a Hawaiian vacation timeshare and other assets if she is convicted.

The U.S. Marshals Service also is working to inventory approximately 22,000 items FBI agents gathered at the Sachdeva home and from local luxury stores and resale shops.

Several stores kept paid-for clothing in their storerooms for Sachdeva. She also sold thousands of dollars’ worth of merchandise through local resale shops, according to several retailers.  The government expects to sell the items, probably in an online auction, and return the proceeds to Koss.

Sachdeva also was ordered Friday to refrain from using alcohol and to submit to drug and alcohol testing.

If Sachdeva is convicted, she faces up to 120 years in prison plus fines, restitution and forfeiture of merchandise.

Her trial is scheduled for April 19th.

COMMENTARY:

I know there is a vast difference, but Sachdeva’s defense is a bit like the fellow who killed the abortion doctor – there is a justifiable reason?  Clearly stated…I am unaware that using a spending disorder as a defense has been successful in achieving a verdict of “not guilty”.   Certainly this case will be watched closely, as there are many white collar criminals who have either embezzled or created Ponzi schemes and lived lavish lifestyles who would welcome the opportunity to be found not guilty by reason of a “spending disorder.”  If this defense wins…I would suspect that Bernie Madoff would be regretting his guilty plea.

IF I were a betting man, I’d bet she’ll face time in prison…but?

YOUR COMMENTS WELCOME!