99 Years in Prison for investor fraud Ponzi Scheme. Texas convicts Edward S. Digges Jr. Better watch out if you defraud folks in Texas is the message!

February 22, 2010

Well…I’ve been writing about a lot of, what seem to be, Texas investor shenanigans and then I see that a Texas District Court and jury find that they’ve had enough.  I suppose we could all agree that a 99 year prison sentence does seem to send that message.

Edward S. Digges Jr. was sentenced last week to 99 years in state prison for orchestrating a multistate, fraudulent investment scheme that involved the lease of credit card and debit card terminals.

The jury’s sentence came after a four-week trial that resulted in the Feb. 4 conviction of Digges for aggregated securities fraud. The Texas State Securities Board and the Collin County district attorney’s office prosecuted Digges, a former Maryland lawyer who was convicted of federal mail fraud in 1990.

I have to say that some folks do not learn.  That is unfortunate as EVERY CHOICE HAS A CONSEQUENCE.  It seems that as humans we might take the wrong path and pay the price, but if we take that same path again…the price GETS BIGGER.  Digges, now some 20 years later, is finding out just how significant the consequence is of his actions.  Just he picked on the wrong state.  They say things are bigger in Texas…and having lived there…it does seem to be true.  In this case I know it’s true!

Digges controlled an entity called the Millennium Terminal Investment Program. It offered securities that were purportedly based on the revenue generated by point-of-sale terminals that merchants use to process credit and debit transactions. Digges raised at least $10 million from about 130 Texas investors, the majority of whom were elderly.

“Edward Digges has a long history of defrauding some of our most vulnerable citizens, and this sentence ensures he will never again do so,” Texas Securities Commissioner Denise Voigt Crawford said. “The conviction will not return money to investors, however. This case highlights the importance of checking the background of any financial professional you choose to do business with, and the importance of obtaining full disclosure before investing.”

To attract Texas investors, Digges employed a sales force made up largely of insurance agents. Investors were told they would receive a monthly payment of $50 for each terminal they purchased – equivalent to a 12% annual return. Millennium also said investors could sell the terminals back to the company after five years, recouping their initial investment in the equipment and the 12% annual returns for five years. The company said it had established a reserve fund to ensure these payments to investors.

HOW TO CREATE AND SPOT A FRAUD…  When an investment adviser promises something that isn’t real and seems too good to be true – like a 12% annual return – then run for the hills cause there is likely a fraud taking place.  This reminds me of the series of articles that I’ve written about BizRadio and Daniel Frishberg.  While there is no accusation of fraud, there sure seem to be similarities.  Investors promised something that they now find, not only didn’t happen but can’t happen.   See articles here and here.  The PROMISE of something extraordinary is the first part of a scam in the works.

According to evidence presented in the case, no such reserve fund existed, and the Millennium program was in financial turmoil. The terminals were not producing enough revenue to pay investors, and the program operated at a loss from the start – a fact concealed from investors. The majority of lease payments made to investors came from other investors, not from money generated by placement of the terminals. Company principals also used investors’ money to pay their personal expenses.

Digges also concealed his background and the degree of control he exercised over Millennium. He failed to disclose he spent two years in federal prison following his mail fraud conviction in 1990; the conviction stemmed from a scheme to overbill clients at his law firm. Nor did Digges tell investors that he had a civil judgment against him for $3.6 million in a suit related to the overbilling scheme.

In addition, Digges has a long list of federal and state regulatory sanctions imposed against him for selling investments in the Millennium program. The Texas State Securities Board began investigating Digges in mid-2005 after newspaper advertisements for the Millennium program appeared in newspapers marketed to senior citizens.

Now don’t take this the wrong way, but 99 years for a $10 million scam – well, I wouldn’t want to be a white-collar criminal in Texas.

SPOTTING A FRAUD:  This Ponzi scheme, just like all the rest, have a foundation of three things:  PROMISE, ILLUSION and TRUST.  If a person (generally a TRUSTED person) PROMISES you something that most people wish they could get (a great INVESTMENT return) and support the whole idea by an ILLUSION (fake statements – flashy lifestyle – media hype, etc.) then you have all the makings for a FRAUD.  If you’ve invested in such a “thing” you’ve likely invested in a FRAUD.  You, as I put it, fell into the PIT.

The only hope for investor relief is found in IRC Section 165.  There’s an article that I wrote here about that for folks who seek to find some way to get some of their lost investment back.  Check out the article.


Sujata Sachdeva’s Embezzlement from Koss – Is Koss At Fault?

January 21, 2010

Sujata Sachdeva – former vice president of finance and secretary allegedly embezzled nearly $31 million from the company through unauthorized purchases.  The result – well a domino effect that has caused Koss, the company is known for manufacturing headphones and audio-related equipment to halt it’s stock trading.  The ripple effect continues with restatement of financial statements for multiple years back and, of course, Sachdeva has been indicted.  Likewise, Koss has now fired Grant Thornton LLP, its independent auditors, and is now working to fix a mess that could leave the company near bankruptcy.  (You can bet that Grant Thornton’s errors and omissions carrier has been notified of a prospective claim).

The question here is – who is at fault or shares responsibility in this massive financial scandal.

Now, I can hear folks (as you read) saying, “Dummy, Sachdeva – obviously.  She’s the one who embezzled the money and spent it on a lavish lifestyle.”  And, frankly, to most that is obvious.  But, the larger question is – how does a person who made approximately $200,000 per year live a lifestyle like she lived and no one in the company stop and take notice asking – HOW DOES SHE DO THAT?

PERSONAL EXAMPLE: (Note: I am not proud of the following, but it serves as an excellent example and today I use my personal experience to help others with ethical choices and fraud prevention).

As a CPA, in the mid-’80’s, I embezzled money from clients trust funds.  The funds were used for a lavish lifestyle – expensive cars, expensive home, expensive clothes, etc.  Now, having inadequate internal controls, I saw a way to perpetrate my fraud and did so for a number of years.  Of course, every choice has a consequence and like, Bernie Madoff, there was a time when a card was pulled from the house of cards I built and they all came tumbling down.

People asked…once they found out I was a liar and thief, what did you do with the money.  Then, as if a veil had been lifted, they looked around and there it was – spent on my material surroundings.

The question that arose then was – how was it that my partners in the CPA firm who know my income – along with their – didn’t question how I was able to live such an extravagant lifestyle when they couldn’t afford to do the same?  Was it possible that the fraud could have been caught or stopped if simple questions had been asked?


According to published reports, it was American Express that helped catch Sachdeva’s activities. Amex noticed that Sachdeva was paying for large balances with wire transfers from a Koss account.  Dumb move, but most who create a fraud make dumb moves at some point.

BizJournals is reporting that two East Coast law firms are preparing class-action lawsuits against Koss for Sachdeva’s actions. Specifically, the problem at hand is the aforementioned accounting issues that date back to 2005. If the suits go through, Koss may find itself too weak to continue as a company and may be forced to liquidate in order to meet its obligations.

What liability does Koss have?  Are they responsible for sufficient internal controls to prevent an embezzlement such as this?  Will others be indicted as co-conspirators?  Should Senior Management (outside of Sachdeva) have questioned her lifestyle vs. her income?

It’s easy to blame Sachdeva – she allegedly did steal the money – but there is a greater question that faces Koss management – what should they have done or questioned to prevent such a multiyear theft?


Bank of America – Taking Advantage of Youth – Is that Ethical?

November 6, 2008

As my fingers rest on the keys of this keyboard, I have heard from colleagues that I should avoid writing on this subject – as Bank of America – might elect to be a client and wouldn’t appreciate negative publicity. My question back to them was – as an ethics speaker and author – don’t I have a responsibility to speak the truth?

“Yes” was their reply “but at what peril?”bank-of-america-logo

So…being honest I have debated for days whether to write or not. In the end…I have elected to as I feel that ethical choices – at times – may mean less money or less business – but in the end – doing the right thing will always pay off. If I am to discuss someone else’s ethics, I must stand behind mine.

THE STORY: My son, Alex, received his “check card” and bank account from deal ole dad (that would be me) sometime after he was 16 years old. Weekly I would place his allowance on it and tried to help him understand how to responsibly use this first intro into banking.

He kinda got the idea – in that he knew if he presented his card that if there were no funds it would not be accepted. Likewise, he knew that he could take the card to the ATM and check the balance anywhere. Simple – so he thought.

Quick Reality Check: What the bank shows as an available balance isn’t always THE available balance. You would think in this modern day of instant transactions that once you use the card the amount used would “immediately” be subtracted from your account. Most of us adults know – NOT SO. Young people don’t get that. Let me repeat – YOUNG PEOPLE DON’T GET THAT! They think that if you send a text (for example) and it arrives within seconds – then when you use your card the money is withdrawn in the same time. In their minds why would it not be?

Back to the story – So as Alex nears the end of his 17th year he overdraws his account. Seems that he didn’t know the balance in his account when he drove into the convenience store one weekend. He pumped gas and paid with his checkcard. A little later that day, he went to the Bank of America ATM and checked his balance. All seemed well. So he went to the movie, purchased some popcorn and a drink, later purchased a sandwich from Subway and got some gum from the convenience store. All purchases were made with his checkcard – against a balance he thought he had – afterall, the ATM told him his balance “after” he pumped his gas.

Adult readers know exactly where this is going. The gas purchase had not yet been removed from his account as it was done over the weekend…and all the other purchases exceeded the balance in his account. HE WAS OVERDRAWN.

Is that the ethical issue – Not a chance – that’s life. And at times life comes at you hard. For Alex the very real realization was that for each overdraft he owed $35. Yes – my son – you owe $35 for purchasing a $1.29 pack of gum. “That’s not right dad,” I remember him telling me. To which I replied, “Then take it up with the bank…you got yourself into this you can pay yourself out.”

HELP WITH AN INTERESTING TWIST: Up to this point the issue is my son screwed up. But, true to my suggestion he went to his local Bank of America branch to seek help. Oh, by this point he had turned 18.

He met with the Assistant Manager and told her his plight. She was kind in helping him (so it seemed) and “split the difference” on the overdraft charges – she forgave some and he paid the rest – then she suggested that he apply for a “STUDENT CREDIT CARD.” She told him that the credit card would provide him overdraft protection and keep him from having problems like he just had.

What do you think he did? He SIGNED UP! No questions asked…it just seemed like a good idea and (not knowing any better) he took her trusted advice. She did tell him that he would need to link it to his account when he got it. Reality check: Link it to an account when you’ve never had a card before doesn’t connect. That’s like telling a guy in his 20’s you need to have your PSA checked. They’ll look at you and say O.K., but not know what a PSA test is!

Reality Check: Likewise, she never told him that the suggestion she was offering was not “free.” Turns out that if the card is linked to the account it will advance funds to cover an overdraft (that’s what he was told). What he was not told was that there is a COST involved. Seems that Bank of America charges $10.00 per overdraft transfer. Hum…so let me get this straight – the $1.29 pack of gum which cost him $36.29 would now cost him $11.29. Great deal huh?

Back to the story… The card came in and he did exactly what he thought she told him to do. It said on the card – call this number to ACTIVATE your card. Well since it had been a week or so since he had been in the bank – he assumed that the instructions on the card were what she was talking about and so he did what he was told to do (or so he thought) and he activated the card.

BIG PROBLEM NOW: A month of so passes – no problems – then in July ’08 he overdrew his account again – and again it was the weekend nightmare. Minor purchases were made – 10 in fact – that each were overdrawn from his checkcard. POINT OF INTEREST: For any readers, if your children have checkcards – do they maintain a check register? My guess is NO! Most of them have never written a check in their lives and don’t connect with the “write it down and keep the balance” mentality of adults. The rest of this story – YOU GOT IT – HE WAS CHARGED $350.00 in overdraft fees.

He was devastated and I was furious. He went back to Bank of America and once again talked with the same Assist Manager who encouraged him to get the credit card (without full disclosure – that begs and ethical question). She told him that he was to “link” it. He thought by “activating it” he had. No…per this Assistant Manager it was his fault. There was nothing she could do to help him. Well, she could transfer the OVERDRAFT charges to his credit card and clear his checking account.

Faced with no acceptable option he elected to have the fees transferred over to his credit card. NOW LET ME GET THIS IN MY HEAD. A bank officer with Bank of America suggests a kid get a credit card to help with overdrafts. She doesn’t follow up to link the account of have it automatically link, she assumes that kids who have ZERO experience will know what to do. She doesn’t tell him that there are continued charges if he does overdraft. Oh, and she suggests the transfer of $350 of fees (profits to Bank of America) into a credit card where they will get MORE FEES. Sorry, but that just seems irresponsible, greedy and UNETHICAL.

THE REST OF THE STORY: It’s early October ’08 and my son is now in college. He and I visit another Bank of America branch seeking help for this situation. We met with another Assistant Manager who appeared to want to help. We shared the story and she was appalled. She said that anytime she suggested that a kid get a card – she would follow up to make sure the card was linked. That made sense to me.

With a Masters in Accounting – I understood the numbers. While I didn’t like the fact that my son was maneuvered into a credit card that still cost him should he overdraft his account, I accepted that fact.

So what would be a fair outcome? I suggested that if the card had been linked properly in the first place he would have been charged $10 for each overdraft incident or $100.00. He was charged instead $350.00. It would seem the fair, just and ethical response would be a $250.00 credit on his card. SIMPLE.

Nope…not so…you see there’s profit involved and which branch would “suck up” that loss? The branch in his college town called the branch in his home town. One Assistant Manager talked to the other Assistant Manager. At least the one in his home town told the truth – the facts are as I’ve stated. But she was unwilling to take the charge – afterall it would be charged against her branch. (And apparently Bank of American needs all the money it can earn from what ever source including unsuspecting young people). Of course, the Assistant Manager in his college town…well, she was sympathetic but unwilling to take the charge either – afterall she or her branch didn’t create the problem.

QUESTIONS: Does a bank have a responsibility to fully disclose all charges and possible pitfalls when suggesting to young people that they subscribe to a product of theirs?

Is it right to suggest to a young person that they should obtain a credit card for a specific purpose without first disclosing that there are fees for the application of that purpose?

Is Bank of America so motivated by profit at the branch level that they would elect to look past the obvious ethical choice in order to keep $250.00 profit from an 18 year old who knew no better?

Perhaps the last question: Am I the one off base here?

Oh…per the Bank of America Web Site related to their Code of Business Ethics the following is stated: The code, in effect, explains what we mean when we say one of our core values is “doing the right thing.” Somehow I can’t think that charging unsuspecting newly turned 18 year olds is “the right thing” – but perhaps I am off base?

Your comments are encouraged and welcome!

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Credit Card Fraud Earns Julia N. Bell Prison and Substantial Restitution! Comments by Fraud Speaker Chuck Gallagher

May 7, 2008

Wow…every choice has a consequence.  Every presentation I make that statement is made.  And, sure enough it is true!

Take, for example, Julia N. Bell.  Seems that she went shopping, took vacations, and ate in restaurants.  She did what normal people do every day.  The only difference is that she did all of these things using the credit card of the company she worked for. 

Now, most would think that when the bill came it, such a simple fraud would be caught.  But alas…no.  Seems that Bell was the office manager.  So, not only did she use the card for her personal gain, but she paid the card from the company’s funds that she controlled.

Guess she thought as long as she controlled it…no one would notice.

Now in order for most white collar crimes to exist there has to be three things: (1) need; (2) opportunity and (3) rationalization.  While I can’t speak to #1 or #3 – the clear lack of internal controls allowed for #2 to work in Bell’s favor.  As a white collar crime and fraud speaker, more times than not it is #2 that has the greatest potential to either allow or prevent white collar crime.

In Bell’s case, she was sentenced in federal court for wire fraud.    United States District Judge Cameron McGowan Currie sentenced Bell to 21 months in prison and ordered her to pay more than $140,000.00 in restitution.

If you know Julia N. Bell, feel free to comment.  My guess is that she is a nice lady who got caught up in her own illusion.  Now she will find that nothing she bought will be worth the time she will spend in prison.

White Collar Crime Speaker – Chuck Gallagher – signing off…

Identity Theft – How Did They Get My Credit Card Number? Bobby Noy Soulinthong Sentenced to Prison for “Skimming”

May 2, 2008

Almost a year ago I was at the annual convention for members of the National Speakers Association. As a professional speaker, I attempt to make that each year. This year held something special for me – something unexpected. Upon return home to Dallas, Texas I found that I had become a victim of identity theft.

How? How could it be that my debit card was being used in San Francisco to make purchases at a wig shop. I’ll admit that while my hair is receding, I don’t need a wig. Fortunately, I was able to stop the process before it got out of hand. But the question still remained – HOW?

I later found out I was a victim of “skimming”. So what’s that you might ask?

Well, a Texas, man, Bobby Noy Soulinthong, 26, who pled guilty to his role in a credit card “skimming” scheme, was sentenced to 18 months in prison. Other defendants, charged in separate indictments but involved in the same scheme, have also pled guilty and have been sentenced. Dung Ba Nguyen, 28, of North Richland Hills, Texas, and Bryan Nanthathongthip, 24, of Dallas, were each sentenced earlier this year to 12 months in prison. All three defendants were ordered to pay restitution.

Nguyen admitted purchasing stolen credit card account information that had been “skimmed” from restaurant customers, and admitted having more than 100 credit card account numbers stored on his personal “thumb drive.” Soulinthong and Nanthathongthip admitted purchasing goods from GameStop and Target with counterfeit debit cards, which they knew had been electronically encoded with a stolen account number.

The account numbers were stolen by a method known as “skimming.” Individuals working at North Texas restaurants surreptitiously recorded account numbers and other account information from the magnetic strips on restaurant customers’ credit and debit cards with a small hand-held device known as a “skimmer.” After purchasing the stolen account information, Nguyen encoded it onto other credit cards. Soulinthong and Nanthathongthip used the re-encoded cards to purchase consumer goods that they could then re-sell. The restaurant customers whose credit card information had been stolen would receive the bills for those purchases.

According to credit.com – Skimming – Thieves use tiny hand-held credit card readers to collect the information on your credit card’s magnetic strip. Skimming is common in restaurants and stores where you turn over your credit card to pay. When a skimming device is full of hundreds of credit card numbers, these numbers can be sold or used to create fake credit cards. Skimming devices can also be placed over the normal card reader on an ATM to steal your data when you try to withdraw money.

As a white collar crime speaker, often I am asked questions about how to protect yourself against identity theft. Many of the methods used can be avoided, but “skimming” is tough to avoid. When you go to the restaurant, you give your card to pay your bill and, hence, are relying on the honesty of the restaurants employees. Should one of them have been Soulinthong you may have been a victim of identity theft.

If you’ve been a victim of identity theft and have any comments or helpful hints to avoid this dreaded form of white collar crime – FEEL FREE TO COMMENT.

White Collar Crime Speaker – Chuck Gallagher – signing off…

Fraud and Tax Evasion – Carol Irene Estep Sentenced to Prison! White Collar Crime in Virginia

March 21, 2008

Seven plus years in federal prison is no fun! Yet, for her fraudulent activities that is exactly what Carol Estep, age 54, of Hurley, Virginia got. “This defendant made one false statement after another, all in the name of greed,” U.S. Attorney John Brownlee said today. “In order to line her own pockets, Ms. Estep stole money from disabled individuals who were truly in need of financial assistance.”

As a white collar crime speaker, I often state that Every choice has a consequence. In the case of Estep her choices have significant consequences not only to herself but others she was associated with. Not only was a fraud committed by Estep – her son, Timothy Carl Ling, age 30, and Herman Scott Ling, age 67, her ex-husband were involved in the several frauds committed. Herman Scott Ling was sentenced to five years probation.


The charges to which Timothy Carl Ling, Estep, and Herman Scott Ling pleaded guilty to centered around numerous fraudulent schemes. These schemes included a mail fraud scheme in which the family defrauded the Virginia Consumer Services Fund and received money to which they were not entitled by falsely claiming that Timothy Carl Ling was a quadriplegic. The Virginia Consumer Services Fund and Clinch Independent Living Services, Inc., which provides funding and services to disabled individuals so that they may live a more independent life, purchased a specially equipped van and built ramps at Estep’s home based upon the pair’s fraudulent representations that Timothy Carl Ling was a quadriplegic. According to testimony presented at the sentencing hearing, the agencies spent more than 50 staff hours and more than $14,000.00 assisting Timothy Carl Ling and Estep, money and time that could have been used to help the 2,000 other individuals with disabilities serviced in Buchanan, Dickenson, Russell, and Tazewell Counties by these agencies.

Timothy Carl Ling had previously pleaded guilty to Social Security fraud in which he admitted that he was fabricating his quadriplegia in order to avoid being sent to prison for probation violations pending in Buchanan County, Virginia. I must admit in writing about many white collar crime issues, I haven’t run across someone that creative. Faking a medical condition to avoid prison is gutsy and, no doubt, will result in significant prison time when sentencing arises.

Additionally, Timothy Carl Ling and Estep perpetrated a credit card fraud scheme between the summer of 2005 and October 2006 in which they defrauded five separate credit card companies and incurred a loss to these companies and merchants of $344,465.09. The money was used for shopping sprees, vacations, casino gambling, and to purchase property in both Pikeville, Kentucky, and Hurley, Virginia.

Estep and Timothy Carl Ling were in the process of building two houses in Pikeville, Kentucky. In the course of that scheme, Timothy Carl Ling and Estep used the social security number and date of birth of another family member in order to attempt to hide their criminal conduct and falsely implicate this individual.

What a massive fraud with far reaching tentacles. But, it doesn’t start with what written above – using some of the proceeds of the credit card fraud, Timothy Carl Ling and Estep, both recipients of Social Security disability benefits, established a recycling business in Hurley, Virginia, known as “The Yard,” which posted gross profits of $210,641.93, during 2005 and 2006. The profits from “The Yard” were divided between Timothy Carl Ling, Estep, and others. None of these individuals reported their income to the Internal Revenue Service or the Social Security Administration Office and Timothy Carl Ling, Estep, and Herman Ling actively tried to hide this income from the Internal Revenue Service by engaging in money laundering transactions.

Wow…social security fraud, tax fraud, wire fraud, – this would be a good movie if it weren’t so sad. From personal experience, I speak to group about the Truth about Consequences. In most cases, one can trace back white collar crime to three key components: NEED – OPPORTUNITY – AND RATIONALIZATION.

If anyone is familiar with Estep and the others, and have some insight into the fraud and crimes…feel free to comment. It would be interesting to understand how and why something like this was done.

Former Georgia Tech Employee Donna Renee Gamble Indicted! ‘P-Card’ Fraud – What was She Thinking? Comments by White Collar Crime Speaker Chuck Gallagher

March 4, 2008

Working for the Parker H. Petit Institute for Bioengineering and Bioscience at Georgia Tech in Atlanta, Donna Renee Gamble, age 43, was indicted by a federal grand jury on charges credit card abuse.


According to United States Attorney Nahmias, and other information presented in court: GAMBLE was employed by Georgia Tech in Atlanta, where she was assigned to the Parker H. Petit Institute for Bioengineering and Bioscience. As an employee of Georgia Tech, GAMBLE had access to one or more Georgia Tech credit cards, also known as Procurement Cards or “P-Cards,” which she was allowed to use for authorized official business purchases only. GAMBLE was prohibited from charging personal purchases on her Georgia Tech P-Cards. From April 2002 through April 2007, GAMBLE allegedly used her Georgia Tech P-Cards to purchase more than 3,800 personal items, at a total cost of more than $316,000. In an effort to conceal and disguise the personal nature of certain charges on her Georgia Tech P-Cards, GAMBLE allegedly created fake receipts, which she submitted to her supervisor, and made false entries in Georgia Tech’s accounting records. Grant money provided to Georgia Tech by the NSF was used to pay for GAMBLE’s personal purchases.

Now, as a white collar crime speaker, there are times when I have the feeling that a person might have gotten caught up in something that might have been unintended. However, in this case, it appears that there was clear thought in how the crime was committed.

Generally there are three components to any fraud: (1) need (or perceived need); (2) opportunity and (3) rationalization. Alleging to have purchased more than 3,800 items for personal use indicates that what might have started as need – grew! The opportunity was there – as often it is with ‘P-Cards’ in that it is difficult to have complete control (effective internal controls) when each person is given a card that is honored.

While most respect the responsibility that comes with such a card, there are always issues of fraud that seem to arise from those who get caught up in the opportunity for abuse. GAMBLE was on of several current and former university employees who have had their card usage scrutinized after an audit. What is astonishing in this case is the effort used to conceal the nature of the alleged fraud.

Gamble is charged with 22 counts of mail fraud and theft each of which carry a maximum sentence of 20 years in prison and a fine up to $250,000.

Stay tuned as I’ll report more later. Business ethics and white collar crime speaker, Chuck Gallagher, signing off…

Your comments welcome!

White Collar Crime – A Crazy Week In Texas For The Feds – Comments by Chuck Gallagher White Collar Crime Speaker

March 2, 2008

It happens once every four years – leap year that is. Should that mean anything unusual? Can’t say that I can trace it back four years, but this week this year was especially ripe for white collar crime in Texas. Maybe the federal government is more focused in this arena. Whatever the reason, below you’ll see a brief synopsis of the week in review.

Let’s start in the Southern District for Texas (Houston Area):

Priscilla A. Thomas, age 39, (Houston, TX) plead guilty to mail fraud in connection with a false claim for Hurricane Katrina disaster assistance. Thomas was charged in a three-count indictment relating to three false claims for Hurricane Katrina disaster assistance. The claims were filed on or about Sept. 11, 2005, each falsely claiming primary residence in New Orleans, La., at the time of Hurricane Katrina. Thomas claimed that as a result of damage to her primary residence, she had an essential need for food, clothing and shelter as a result of the storm. Upon filing the claims, Thomas provided a Houston address as her current mailing address where payments were sent and subsequently received.

Uzoma Okechukwu Osuagwu, age 36, was sentenced to over 14.5 years in federal prison for conspiracy to launder funds, procuring U.S. citizenship by fraud and identity theft. Court documents demonstrated Osuagwu obtained stolen confidential bank account and identity information of numerous individuals which was used to transfer funds from the compromised accounts to bank accounts controlled by one of Osuagwu’s co-conspirators. After the funds reached the controlled account, they were withdrawn by check writing, automated teller withdrawals, money order purchases and other financial transactions.

Anthony D. Thurman, age 26, (Houston, TX) plead guilty to one count of health care fraud and one count of conspiracy. Thurman is the final defendant to plead in a three-defendant case, involving his mother, Sandra Thurman Patino, 44, and his cousin, Katrice Oliver, 25. Patino and Oliver will be sentenced in August. All three defendants helped run two Houston durable medical equipment (DME) companies, Thurman Family Medical Services and Seniors Comfort & Caring Medical Services. From 2002 through 2003, these two companies billed Medicare for DME, primarily for motorized wheelchairs and related accessories, but delivered less expensive scooters. A motorized wheelchair and its accessories were reimbursed at a rate of approximately $5,000 in this time frame, while a scooter’s cost was approximately $800-1,200 wholesale. In all, the two companies billed Medicare approximately $3.9 million and were paid approximately $2.6 million.

Agustin Dovalina III, the former chief of the Laredo Police Department (LPD), was sentenced for committing Hobbs Act extortion. The government’s evidence showed that on or about January 2006, with Sgt. Alfonso Santos acting as the middleman, the (cooperating witness) CW provided Chief Dovalina funds to pay for golf tournament fees and golf equipment. As the relationship progressed, when Dovalina needed funds, Santos would arrange lunch meetings between the CW and Dovalina. Dovalina received $5,000 June 22, 2006, from the CW for personal expenses and a second $5,000 payment Sept. 25, 2006, both of which were captured on audio and videotape. On Nov. 8-9, 2006, Dovalina met the CW for lunch, and through Santos and Lt. Eloy Rodriguez, thereafter received two $1,000 bribe payments from the CW. Dovalina’s lunch meeting with the CW prior the delivery of the two $1,000 bribe payments was also captured on audio and videotape. The recordings prove that in exchange for the bribe payments, Dovalina offered, among other things, to re-divide the sectors at LPD to keep Rodriguez and Santos in their positions to oversee the CW’s illegal eight-liner business, and to close down a competitor of the CW’s business.

Edward E. Villarreal, 53, of Corpus Christi, has been sentenced for accepting a $5,000 bribe. Villarreal was an engineer technician in the Public Works Department at the Naval Air Station in Corpus Christi. He pleaded guilty Dec. 19, 2007, for accepting a $5,000 bribe in exchange for recommending Contract Construction and Fence Company (CCFC) for a fencing contract in the amount to $153,000 at the Naval Air Station. The bribe was paid in two installments during meetings with agents of CCFC, the second of which was captured on audio.

Sharif J. Reid, 33, has pleaded guilty to one count of conspiracy to commit credit card fraud and one count of credit card fraud. Reid admitted he participated in a 17-month conspiracy with several other individuals, including Nandasharie Shivmangal, 31, to commit credit card fraud through the use of counterfeit credit cards in names other than his or Shivmangal’s. The FBI and League City Police Department conducted a search of Reid’s residence, Sept. 7, 2007, resulting in the seizure of approximately 100 counterfeit cards, two cash register rolls with approximately 1800 additional credit card numbers, counterfeit drivers licenses, a document shredder, a bag of shredded credit cards and approximately $300,000 in electronic equipment, gold and diamond jewelry, designer clothing and shoes. Reid further admitted he and Shivmangal deposited more than $505,000 in cash from April 2006 through September 2007 into bank accounts under their control.

A former United States Postal employee has pleaded guilty to five counts of mail fraud. Dwayne Mickens, 37, of Deer Park, Texas, began his employment with the USPS in 1992 as a temporary employee until his service became permanent in 1999. Once he became a permanent employee, he was continually employed by the USPS until July 27, 2007. However, from June 1997 through February 2007, Mickens misrepresented his earning to the (Texas Workforce Commission) TWC, and, as a result, was over-paid $43,878 in unemployment insurance benefits, to which he was not entitled.

Kretia Griffin, 39, and Aubry Johnson, 35, have been sentenced for their roles in an identity theft scheme that resulted in actual losses of more than $184,000. Agents with the United States Secret Service became aware of the scheme in September 2006 when loss prevention investigators with Target Corporation provided store video surveillance tapes of various individuals opening and using new Target VISA accounts. All of the accounts had been opened with the unauthorized use of other individuals’ Social Security numbers. In February 2007, Johnson and another individual were arrested when the other individual used a stolen identity, including another person’s Social Security number, to open an instant credit account at Wal-Mart. In the vehicle with Johnson at the time of his arrest were 26 pieces of paper containing the personal identifiers of 26 different individuals with the same name as the personal identity used to open the Wal-Mart account. The papers appeared to have medical billing information and were subsequently traced back to the Kelsey-Seybold Medical Group business office. The director of operations identified Kelsey-Seybold employee Griffin as the person who had accessed the billing account information without authorization. When interviewed by Secret Service agents, Griffin confessed to having accessed the account information for approximately two years and to providing the information to Johnson in return for cash.

Wow…that’s a lot for just one week and that’s in the Southern District alone…!

Now Let’s move to the Northern District for Texas (DFW Area):

Gary R. Trebert, 57, pled guilty to two counts of an indictment that charged him with various offenses related to his operation of nursing homes in Texas and elsewhere. Trebert admitted that beginning in August 1999 and continuing though mid-May 2004, he, Stephen Michael Ewing and Larry May conspired together, and with others, to defraud the U.S. by impeding, impairing, obstructing, and defeating the lawful government functions of the IRS in the ascertainment, computation, assessment, and collection of the revenue, that is, nursing facility employees’ withheld income taxes, social security taxes and medicare taxes, and HHS in the administration of the Social Security Act and the Medicare and Medicaid programs. U.S. Attorney Richard Roper said, “This case is the one of the largest payroll tax fraud cases ever prosecuted in the U.S. Mr. Trebert admitted evading more than $34 million in payroll taxes – this is nothing short of egregious. Nursing homes should be safe havens for the elderly and vulnerable, not vehicles for criminals to commit fraud.”

Following 20 minutes of deliberation, a federal jury in Dallas has convicted James L. Fantroy, Sr., a former Dallas City Council Member and a former member of the Board of Directors and Treasurer of Paul Quinn College Community Development Corporation (Paul Quinn CDC) in Dallas, on an indictment that charged him with one count of embezzlement and theft from a program receiving federal funds. From April 26, 2003, through July 30, 2003, James L. Fantroy, Sr., acting as an agent for Paul Quinn College, embezzled approximately $21,000 in monies held in trust for Paul Quinn College.

A 14-count federal indictment was unsealed today that charges Amarillo, Texas, resident, John Joseph Baumgartner with several felony offenses related to a mortgage fraud scheme. Baumgartner, 45, was arrested without incident on those charges at the Pantex Plant in Amarillo, where he is employed by the National Nuclear Security Administration. The indictment alleges that in September 2006, Baumgartner applied for and obtained an $840,000 conventional, cash-out refinance mortgage for a property located at 1022 South Wilton Place in Los Angeles. As part of the scheme, Baumgartner falsely represented that he was purchasing the Wilton Place property as his current and primary residence. Baumgartner misrepresented his income and retirement account funds and misrepresented that he had rental property on Briarwood Drive in Amarillo that generated $1700 per month in rental income. When Baumgartner obtained the refinancing funds, he didn’t use them in the manner he represented in his application for refinancing, but instead diverted the bulk of the funds to a casino account at Caesar’s Palace in Las Vegas.


Of the items mentioned above 27% are female and 73% are male. 13% of the folks either indicted or convicted of white collar offenses are in their 20’s; 47% are in their 30’s; and 20% are in either their 40’s or 50’s. And, based on the brief summary above, they come from all walks of life.




Perhaps, if there were a way to have effective communication, the message that every choice has a consequence would be highly appropriate. As a speaker, and having been there myself, I know the challenges these individuals are and will be facing soon. Perhaps, their loss now, will prove to be a learning environment and allow them to be productive in the future.

One thing is for sure…each day we get the chance to choose! Make choices wisely.


On a crisp October day in 1995, I took 23 physical steps… opened a door… and began a new experience that was life-changing. In a style that is far more vulnerable than most motivational keynote speakers, I share the painful lessons of life with my audience and touch them forever.

My Poignant, High-Energy, Thought-Provoking and Honest Motivational Presentations Show Organizations how to:

  • Transform self-limiting beliefs into personal and organizational success
  • Help employees increase ethics awareness and reduce fraud
  • Understand the effect of choices on their personal and professional lives

Every choice has a consequence! Do your employees make the best choices for your company – or for themselves? Most organizations are vulnerable to unethical activities at any level. My message, as a keynote business ethics speaker, crystallizes, for those who hear, the critical importance of making the right choices and the positive results that can follow…a must for those who want to promote individual and organizational integrity in the workplace.

For information on how I can help your organization in a positive and meaningful way – contact me through www.chuckgallagher.com. Talk to you soon!

Credit Card Fraud Earns Man 13 Years In Prison – No Fun Says Business Ethics Speaker Chuck Gallagher

December 23, 2007


Peter Porcelli II, age 55, will now get to serve 13 years (or almost one-fourth of his life thus far) in prison for credit card fraud. Wonder now if he feels that his ill gotten gains are worth it?

The Associated Press article printed in the International Herald Tribune is reprinted as follows:

A man accused of orchestrating a scheme to sell bogus credit cards was sentenced to 13 years in prison and must repay the nearly $12 million (€8.3 million) he scammed from tens of thousands of U.S. customers.

Peter Porcelli II, 55, who lives in Florida, pleaded guilty in May to all 19 conspiracy and fraud counts related to the telemarketing scheme. U.S. District Judge William Stiehl also ordered Monday that he spend five years on supervised release after his prison term.

Prosecutors alleged Porcelli offered consumers a MasterCard credit card for a fee ranging from $160 (€111) to $500 (€347). Those charged the fee were sent offers that usually were already available for free to the public, along with an “acceptance form” for what amounted to a prepaid card, which cost consumers an extra $15 (€10.41).

Authorities say Porcelli defrauded or tried to dupe at least 165,000 Americans, many with poor credit histories.

The U.S. government alleged that Porcelli carried out the scam through several Florida-based companies beginning in June 2001, using call centers in several states and outside the U.S.

Porcelli has been free on $1 million unsecured bond since shortly after his federal indictment in March.

“Obviously, we are pleased with the sentence,” said Randy Massey, the U.S. attorney who prosecuted Porcelli. “We hope it sends a message that this type of fraud perpetrated on our citizens will not be tolerated.”

Comments from an article from TampaBay.com follow:

“Kathy Visceglie, a Pasco County woman who is the organizer of the homeowners group, said Monday that she was cheered by the stiff sentence handed Porcelli but unhappy that he gets to spend the holidays at home before reporting to prison.

Because Porcelli is recuperating from shoulder surgery, the judge said he could complete his rehabilitation and begin his sentence after 60 days.

“Mr. Porcelli didn’t have that kind of charity for the people whose homes he was taking last year,” said Visceglie. “The holidays for those who lost their homes were ruined.”

When Porcelli reports to prison he’ll have time to think about his formerly profitable business. He’ll be required to serve 85% of his 13 year sentence. By the time he gets out he’ll be at retirement age as a convicted felon. Likewise, his restitution of $11,886,317 will prove to provide their own financial burdens.

Every choice has a consequence.

I know from first hand experience the consequences of unethical choices.

If you have been a victim of credit card fraud – feel free to comment.

Business Ethics Speaker – Chuck Gallagher – signing off