On Line Education – Is this the next big Fraud Arena? Trenda L. Halton pleads Guilty!

January 14, 2010

An interesting article appeared in the Chronicle of High Education.

Seems that 38-year-old Trenda L. Halton just fit in with the working-adult students at Rio Salado. She however led a double life.  Ms. Halton used social security numbers, tax returns and high school deplomas in a scheme that defrauded the federal government of about $539,000 in student-aid dollars—a scheme that involved dozens of people recruited to pose as phony “straw” students, according to court records.

Straw students…wow this sound a lot like what we read so much about with the massive mortgage fraud scandals.

According to the Chronicle’s article:

The high-tech methods she admitted using have already set off alarms at the U.S. Education Department. Ms. Halton made her bogus recruits look like real students by assuming their identities online to “participate” in classes and collect a share of their aid money, authorities say.

The case highlights how the same technology that is expanding access to education for millions of online students may also expose the country’s $117-billion federal financial-aid system to supersize fraud.

The full article is here.

Ms. Halton pleaded guilty in federal court to conspiracy, mail fraud, and financial-aid fraud. Her lawyer has not responded to requests for comment.

Ultimately, 65 people were indicted, most in Arizona but others in Wyoming and California. In her plea agreement on Tuesday, Ms. Halton agreed to repay $581,060. She was released pending sentencing on March 29. As of Wednesday, 23 other defendants had been sentenced and ordered to repay a total of $212,013.

YOUR THOUGHTS?


“Honest-Services Fraud” law – taking ethics and fraud deterrence too far?

January 12, 2010

Is it possible that in our quest for improved ethics and fraud deterrence that we’ve created a capture net that is too broad and too easy to be caught in?

Years ago I spent time in federal prison.  I am not proud of that fact, but it’s a fact that I cannot change.  Like Bernie Madoff, I defrauded clients (through the creation of a Ponzi scheme) and, when the card was pulled from the house of cards I created, I found myself facing that dreaded walk into federal prison.  Those 23 steps from the curb into federal prison were the longest 23 steps of my life.

Yet, while I was there…(as you can imagine) I became acquainted with many folks – most of whom had, in fact, done the crime.  They, like I, were paying the price for our crimes by doing the time (so to speak).  From that experience, one thing I learned was the broad sweeping power to convict of the word – CONSPIRACY.

It became clear that the government could use CONSPIRACY laws to capture “would be” criminals or make it easy to win convictions for those who committed crime, but otherwise would walk. Now it would appear that the broad bush word CONSPIRACY has been replaced with an even broader bush (or criminal capture net) called “HONEST SERVICES.”

HERE’S THE CONCEPT – according to an article in Fortune Magazine:

If a judge or governor accepts bribes, for instance, he is not necessarily stealing money from anyone, but he is depriving the public of the “honest services” they have a right to expect from him. Likewise, if a corporate purchasing officer accepts secret kickbacks from vendors, he’s depriving his employer of his “honest services.”

“Look around at all the high-profile cases today,” says Richard Craig Smith, a former federal prosecutor now with the law firm Fulbright & Jaworski. “Ninety-five percent of them are charged under honest-services fraud. That’s not just an accident.”

In fact, recent defendants in such cases compose a white-collar rogues’ gallery for our times, featuring such tarnished luminaries as former governor Rod Blagojevich of Illinois; former U.S. congressman William Jefferson of Louisiana; newspaper magnate and former Hollinger International CEO Conrad Black; lobbyist Jack Abramoff; and former Enron CEO Jeff Skilling.

HERE’S THE RUB – Just about anything that someone might perceive as wrong could be captured with the very wide net of the “Honest-Services” doctrine.  The Fortune article goes on to say:  “The feature that prosecutors love about honest-services fraud is precisely what critics say dooms it constitutionally: its nearly infinite adaptability. “There’s almost no fact pattern that cannot be fit around 1346,” says Smith, referring to the section of Title 18 of the U.S. Code that defines the offense. Read literally, it seems broad enough to catch any deceit at all. If so, then who among us is not guilty?”

If the law is so vague, broad and ill defined that you could commit a crime without knowing that you’ve committed one…then it is possible that the law that prosecutors love could be struck down as unconstitutional.  In fact thee are two cases before the Supreme Court on that very issue.

The law “invites abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators, and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct,” wrote U.S. Supreme Court Justice Antonin Scalia.  “Carried to its logical conclusion,” he continued, it “also renders criminal a state legislator’s decision to vote for a bill because he expects it will curry favor with a small minority essential to his reelection; a mayor’s attempt to use the prestige of his office to obtain a restaurant table without a reservation; [or] a salaried employee’s phoning in sick to go to a ball game.”

“If you defraud someone out of money,” explains Susan Necheles, a white-collar defense lawyer at New York’s Hafetz & Necheles, “there’s clearly a crime, and there are plenty of statutes that cover it. When the government resorts to honest-services fraud, on the other hand, it’s almost always because there’s a real question whether this was a crime or just aggressive business behavior.”

SO HERE’S THE QUESTION:

As an ethics and fraud prevention speaker, I wonder, in the governments efforts to rein in fraud – have they gone too far in their efforts to broadly define “Honest-Services” for purposes of prosecuting and convicting those accused of (shall we say) “ethical” crimes?  The Fortune Magazine article provides an outstanding framework for this law’s background (read here).

In December the Supreme Court signaled, hearing an “Honest Services” case that the law was ambiguous and therefore likely to be struck down.  “A citizen is supposed to be able to understand the criminal law,” Breyer said, yet it was unclear what the law in question branded as a crime.

Early next year, the justices will hear a third case testing the honest-services fraud law, brought by former Enron Chief Executive Jeffrey K. Skilling.  The justices hinted that they would put off ruling on the issue until they had considered Skilling’s case, since his lawyers argued most directly that the entire law should be thrown out as too vague.

QUESTION:  Do you feel that this statute should be struck down for being too vague?  If so, what should replace it?

COMMENTS ARE WELCOME!


Antonio Stone – GUILTY! More Time in Prison for Identity Theft. Comments by Fraud Speaker Chuck Gallagher

September 19, 2008

There are some people who learn from there mistakes and others, it seems, can’t learn!  Apparently Antonio Stone is yet too young to get the concept that crime does not pay.

But, let’s spend a moment with a simple fraud lesson.  It takes three things to truly create an effective fraud:  (1) need; (2) opportunity and (3) rationalization.  Now of the three – OPPORTUNITY – is critical.  Without the big “O” it is not practical or possible to pull off the fraud.

Case in point – Antonio Stone in 2002 pled guilty to possession of counterfeit checks and received 50 months in federal prison. He served that time and was on supervised release.  It will soon be obvious that he didn’t get it – the message that every choice has a consequence didn’t sink in.  I guess almost four years in federal prison wasn’t enough for Antonio.

The ringleader in a counterfeit check and identity theft operation, Antonio Desmond Stone, 32, of Dallas, was sentenced today by U.S. Chief District Judge Sidney A. Fitzwater, to a total of 105 months in federal prison.  Stone, was convicted at trial in June of conspiracy to commit bank fraud, multiple counts of bank fraud and aggravated identity theft.  Stone was sentenced to 105 months in prison.

OUCH!

Well…how did this seasoned former inmate accomplish his new fraud.   Ah…it was the OPPORTUNITY that made it possible.

As the ringleader of the counterfeit check and identity theft operation, Stone recruited bank insiders to obtain confidential bank customer information and used this information to produce counterfeit checks, produce phony ID’s to pass the checks, and recruited others to pass the counterfeit checks.
Three of Stone’s co-defendants, Williana Sharee Johnson, Natasha Toinette McGruder and Meoshia Christine Guidry, pled guilty to bank fraud, and have been sentenced. Johnson was an employee of First Convenience Bank and provided customer account information through others to Stone.
As you read this you might assume that Stone and other co-defendants made off with massive amounts.  I honestly don’t know, but since Stone was ordered to pay restitution of $26,482 one might assume that he got all that time for very little money.
As a business ethics and fraud speaker (see my web site) I often speak to groups about how simple it is to get caught up in behavior that can ultimately have profound consequences.  Most white collar crimes start with a simple wrong that compounded can send one to prison.  In this case, it appears that Antonio Stone made a clear choice.
And – EVERY CHOICE DOES HAVE A CONSEQUENCE.

Identity Theft Alive and Well! Levander and Rita McLean of Garland Texas Convicted

September 19, 2008

There are times when I read of people who have been convicted and I wonder how good people got caught up in a crime and ended up with unfortunate consequences.  Often, as an ethics speaker, I have said that – Every Choice Has A Consequence.  That is a true statement.  And at times it is true that otherwise good people make bad choices and find out the hard way about the consequences that follow.  But in this case – well read for yourself.

According to the US Attorney’s office: Levander Carlton McLean, 66, and his wife, Rita Murphy McLean, 45, of Garland, Texas, were convicted by a federal jury following a three-day trial on conspiracy to unlawfully use identification documents.  They each face a maximum statutory sentence of five years in prison, a $250,000 fine and restitution. They are scheduled to be sentenced by Judge Kinkeade on December 3, 2008.

The government presented evidence at trial that in July 2001, Levander and Rita Murphy McLean were able to convince their nephew, a Texas Department of Public Safety driver’s license technician, to make them a fraudulent Texas driver’s license and a fraudulent Texas identification card in the names of two innocent people living in North Carolina and South Carolina. The McLeans used these identification documents, as well as a fraudulent Michigan driver’s license that Rita McLean obtained in the name of an innocent Texas resident, to open several fraudulent bank accounts in Dallas, Michigan, and North Carolina.
Now I have to ask here…wonder what the nephew thought when dear old Aunt and Uncle were asking for the fake ID’s?  In order for a fraud to happen three things must be present: (1) need; (2) opportunity and (3) rationalization.  In this case the Nephew provided the opportunity.  Had the Nephew just said now – which is the logical answer, this couple could not have carried out this fraud. 
From 2002 through 2004, the McLeans deposited more than $200,000 in proceeds from more than 130 false federal income tax returns, which had been filed in the names of real taxpayers using stolen W-2s, into these fraudulent accounts. 
While bluntly put this is just dumb fraud pure and simple, there are many other circumstances where good people make bad choices and find out the hard way about consequences.  In this case, I would wager that they both will serve some time in federal prison.  Meanwhile, while I have no idea about the nephew…I would suspect that at a minimum he’s lost his job and perhaps is subject of an investigation for conspiracy.
For information about ethics and choices presentations, visit my web site and remember – Every Choice Does Have A Consequence.

Mortgage Fraud Alive and Well in Ohio! Steven C. Gittinger Pleads Guilty to Mortgage Fraud Scheme Role

May 12, 2008

Either there is something in the water in Ohio when it comes to Mortgage Fraud – or – the US Attorney and others involved in law enforcement are serious about this wave of white collar crime. Either way, it seems that Ohio is talking a leading role in rooting out those involved in Mortgage Fraud.

Another Mortgage Fraud casualty is Steven C. Gittinger, who at age 50, pleaded guilty in United States District Court to one count of conspiracy to commit bank fraud and one count of money laundering for his participation in a mortgage fraud scheme.

According to a statement of facts filed with his guilty plea, Gittinger was a principal of Classic Title Agency, Inc. and helped close real estate sales. Between June 2003 and 2005, Gittinger received business and made money for performing closings of real estate sales. In 2003, Gittinger made various fraudulent representations on closing documents in which misrepresentations were made, then forwarded to financial institutions which funded loans for the property.

Gittinger agrees that for the purpose of the Sentencing Guidelines the amount of loss attributable to him is more than $400,000.00 but less than $1,000,000.00. Conspiracy to Commit Bank Fraud carries a maximum penalty of not more than thirty years imprisonment, a fine of up to $1,000,000 (or twice the gross gain to the defendant or loss of the victim. Money Laundering carries a maximum penalty of not more than ten years imprisonment, a fine of up to $250,000 (or twice the gross gain to the defendant or loss of the victim.

Since I jokingly mentioned Ohio as a hot spot…I decided as this was being written to verify if I was dreaming or has Ohio become a mortgage fraud “hot spot?” Interestingly enough with little effort the following was found on the FBI’s web site under mortgage fraud.

  • Analysis of available law enforcement and industry resources indicates that the top ten mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia. There is a strong correlation between mortgage fraud and loans which result in default and foreclosure.
  • Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. Perpetrators are exploiting the home equity line of credit (HELOC) application process to conduct mortgage fraud, check fraud, and potentially money laundering-related activity.
  • The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. The FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice.

Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.

As a mortgage fraud and white collar crime speaker, I receive many calls from people who either think they may have become involved in committing some form of mortgage fraud or who have been convicted and wonder what is next. There is a clear pattern that seems to emerge. Either, the people involved are clearly doing what they know is wrong for immediate and personal (ill gotten) gain, or they are pushing the system for the purchase of property and doing so with the help of professionals who know where the gray areas are and just how far to push it.

Remember, if you do anything that is inaccurate and do so for the express purpose of having a financial institution to make a loan based on your representations – you may be guilty of mortgage fraud.

If you think you’ve been a victim feel free to comment!

White Collar Crime Speaker – Chuck Gallagher – signing off…


Sharpe James Ex-Mayor of Newark – GUILTY – Corruption in Real Estate Scheme!

April 21, 2008

Anyone accused of a crime deserves their day in court. Former mayor Sharpe James got his and along with it a big fat guilty verdict for his unethical behavior! Guilty on all corruption charges that enabled his girlfriend, Tamika Riley, to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits.

Riley was convicted with James on the same five charges: three counts of mail fraud related to the sale of the city lots to Riley, one count of fraud involving a local government receiving federal funds, and one count of conspiracy to defraud the public of James’ honest services.

“Sharpe James was among the most powerful and well-known political figures in New Jersey history, but he was not above the law. Justice has finally been done,” U. S. Attorney Christopher J. Christie said. “There were deep passions on either side of this case. But what everyone should now recognize is that 12 ordinary citizens from New Jersey heard the evidence and independently found what we’ve said all along – that Sharpe James is guilty of stealing from Newark and its citizens and of using Newark resources for his personal benefit.”

James remains under indictment on another set of charges related to his alleged fraudulent use of city credit cards to fund lavish trips with female companions, including Riley, and other personal expenses. Christie said he will consult within the office, with federal investigative agencies and with state Attorney General Anne Milgram before deciding how to proceed on those charges.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark. The properties were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly resold, or “flipped” the properties for more
than $600,000.

James used his influence and power as both mayor and as a state senator to manipulate and control a city program designed to redevelop run-down properties in the city. The program was intended to enable experienced, financially sound and qualified developers to buy blighted lots and houses at substantially less than market rates on the condition that they rehabilitate the properties before re-selling them at market prices. With James’s help, Riley acquired the properties at cut-rate prices and resold them without any rehabilitation.

Riley had no real estate or construction experience and did not possess the financial wherewithal or backing required to participate in the program. She was, in fact, the owner of a failed Newark clothing store and had operated an entertainment and public relations firm that reported no income or assets on tax returns in 1999 or 2000, the years before she started flipping Newark properties.

Throughout the period of their relationship and the property transactions benefitting Riley, James and Riley traveled and socialized together, shared hotel rooms and stayed in fine resorts, among other things. Testimony also revealed that James once directed his security personnel to purchase and install an air-conditioner in Riley’s Jersey City apartment. Riley also donated several times to James’ political campaigns.

According to a New York Times report, “Mr. James stood stony-faced and Ms. Riley appeared stunned as the jury foreman delivered the verdict, then quickly left the courtroom. Mr. James then took an elevator to the first floor of the federal courthouse, where he kissed his wife, Mary, on the cheek.”

Ethics Comments: Sharpe James was mayor for 36 years. What a sad way to end a career. However, as I say often when addressing groups: Every choice has a consequence. It’s funny – not haha funny, but odd – it seems the longer a person is able to get by with behavior that is unethical or wrong, the greater chance they have of perpetuating that behavior.

My guess (and it’s only a guess) is that James has been an honest man. He was well respected and, likely, proud of his service to the city – at least at first. Then, as time went by, he, like most white collar criminals, began to feel invincible. When you first do something wrong and there is no immediate consequence, you begin to feel that there is no consequence. Then you begin to feel that it just isn’t wrong – that somehow you’re entitled.

No one is entitled and you do reap what you sow. Perhaps with the history of Newark one assumes that actions like James are acceptable since five of the last seven mayors have been indicted. Hum…don’t think I’d want that job if it were given to me…

Judge Martini scheduled sentencing for James and Riley for July 29. Both will receive active prison sentences is my prediction. Having been in their shoes, I suspect that the time they are given now will be precious, as time in federal prison is reflective and lonely.

Business Ethics and White Collar Crime speaker – Chuck Gallagher – signing off…


$34 Million Dollar Payroll Tax Fraud By Texas Nursing Home Executive!

February 27, 2008

U.S. Attorney Richard Roper said in a recently issued news release, “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.”

Gary R. Trebert, age 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. Co-defendant Larry Gordon May pled guilty to his role in the conspiracy in October 2007 and co-defendant Stephen Michael Ewing, a/k/a “Stephen Michaels,” is scheduled to go on trial March 3, 2008.

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.

As part of the conspiracy, Trebert and his coconspirators, using the names of sham corporate entities, obtained control of 70 licensed nursing facilities with thousands of patient beds and thousands of employees. In order to acquire control of these facilities, Trebert, Ewing and May used false statements and false and fraudulent documents including Applications for Nursing Facility License and Medicaid Contracts, Medicare Federal Provider Enrollment applications, ownership documents, IRS Employer Identification Number applications, Health Insurance Benefit Agreements, and Electronic Fund Transfer forms. Their falsifications included falsely identifying relatives as owners, operators, and managers of the nursing homes on the applications; failing to disclose staffing/payroll companies on nursing home applications; failing to disclose Ewing and May as the true owner/operators of nursing homes; and forging names of individuals on filed documents to divert responsibility away from the three defendants. Trebert and his co-conspirators used the false statements and documents to hide from HHS, state licensing and Medicaid agencies, and the IRS, the true control and management of the nursing facilities, their responsibility for more than $200 million in money derived from the nursing homes, and their responsibility for the nursing facilities’ residents.

More than 150 sham staffing/payroll entities, many with foreign business addresses at drop boxes in England and Austria, were created to file Form 941 employer withholding tax returns with the IRS, preventing the IRS from assessing and attempting to collect more than $34 million of unpaid payroll tax liabilities from Trebert, Ewing and May, and creating the appearance that these sham staffing/payroll entities employed more than 4500 nursing facility employees, when they did not. From time to time Trebert caused his coconspirator to fly to London in order to mail to the IRS the sham payroll/staffing companies’ false withholding tax returns.

Trebert admitted that he and his coconspirators diverted to themselves and their personal activities substantial sums of money derived from their nursing home operations and from the non-payment of employees’ withheld payroll taxes. Trebert also admitted that in April 2004, he attempted to evade and defeat the assessment and payment of more than $4,113,000 in withholding taxes taken out of employees’ pay at 42 nursing homes he and his coconspirators controlled.

“Evading employment taxes can have serious consequences for employers and their employees. Today’s guilty plea demonstrates that those who willfully attempt to undermine our tax system by playing fast and loose with the rules will be held accountable, regardless of how complicated a scheme they devise,” said Erick Martinez, IRS Special Agent in Charge for the Dallas Field Office.

In the plea agreement, Trebert will spend 8 years in federal prison. Needless to say, when sentenced, Trebert will also be facing substantial restitution – which he may not be able to repay.

Every choice has a consequence! Regardless of how well thought out, no one will escape the consequences of their choices. As a business ethics and white collar crime speaker, I know from personal experience that you reap what you sow. While Trebert and others got by with their scheme for 5 years, the reality is the consequences of their actions will be far greater than any benefit they received.

Your comments are welcome – as you might have been a victim of this massive scam. But let me leave you with this – before you make a choice consider what is the worst thing that could happen – feel what that would feel like – then make your choice. Trust me, the consequences to negative choices are far worse than any gain you can imagine!