Texas duo – Silverio Garza, jr. and Joel Javier Garza sentenced to federal prison for embezzlement! Choices and Consequences…

August 6, 2011

Silverio Garza Jr., 60, and Joel Javier Garza, 42, both of  Rio Grande City, Texas, have been sentenced to prison for embezzlement, United States Attorney José Angel Moreno announced.

U.S. District Judge Randy Crane sentenced Garza Jr. and Garza to two years and four months, respectively, in federal prison without parole at a hearing yesterday afternoon in federal court in McAllen.

Garza Jr. and Garza (not related) pleaded guilty on June 7, 2011, to embezzlement – admitting they embezzled and converted property belonging to the United States government over a two-year-period between May 2007 and August 2009. Garza Jr. was the area operations manager for the Falcon Dam Power Plant, while Garza was the superintendent of the plant. The embezzlement was accomplished with the use of a government International Merchant Purchase Authorization Credit (IMPAC) card issued to Garza.

In deciding their sentence, Judge Crane considered the amount of embezzled property and the position held by each defendant at the Falcon Dam and power plant project. Following completion of their term of imprisonment, the court ordered each defendant to serve a three-year-term of supervised release. As part of their sentence, the court ordered Garza Jr. to  pay $31,521.40 in restitution within 30 days, while Garza must pay $64,600.45 in restitution with $10,000 due within 30 days and the balance to paid during the term of supervised release in equal monthly installments.

The defendants have been out on bond since their Dec. 2 and Dec. 3, 2010, arrests. They were allowed to remain on bond pending their surrender to the United States Marshals Service on Aug. 15, 2011, pending transfer to a U.S. Bureau of Prisons facility where they will serve their sentence.


The Anatomy of a Ponzi Scheme – Commentary by Fraud Prevention Expert Chuck Gallagher

February 2, 2010

“I have an inside track on a great investment.  You’ll get better than a 12% per year return.  But, there are only a limited number of folks that I can get in on this offering.  You interested?

STEP ONE – make a promise that seems ‘special’ or ‘better’ than what anyone else can get on their investment funds!

“Wow…this is great.  I just got our statement in the mail and you know that investment I made in that private fund that Joe recommended…well its done better than he projected.  The market has been down, but this has returned over 16% thus far.  Man…I’m glad we got in on this deal!”

STEP TWO – Create an illusion that the investment is real.  This is done with fake statements (Bernie Madoff has had co-workers indicted for their role in creating fake documents).  Gordon Grigg is now in jail for his Ponzi scheme when he made a simple mistake on one of his fake statements.  He reversed the names and instead of calling them Fannie Mae and Freddy Mac he stated Fannie Mac and Freddy Mae…oops.

“Hey Frank…I know you told me the other day how badly your portfolio has been.  Well, I got connected with one of my friends on a private placement investment and, well, I was hesitant at first, but it’s been going great guns.  We’re up over 16% this year and I have a guarantee of 12%.  I didn’t say anything at first, but I thought that you might want to connect with this guy.  He’s really got it together.  Who knows, if you put some money with him…you might be able to dig yourself out of the hole a bit quicker.  Want me to call him and see if he could take you on?”

STEP THREE – Grow the fraud using trust.  First you trusted the person who hooked you into the fraud, and now you’re using that same blind trust to lead others to the slaughter.  Ouch…it will be painful both emotionally and financially on the back side.

HISTORY:

Charles Ponzi arrive in Boston on November 15, 1903, aboard the S.S. Vancouver. By his own account, Ponzi had $2.50 in his pocket, having gambled away the rest of his life savings during the voyage. “I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me,” he later told The New York Times. He quickly learned English and spent the next few years doing odd jobs along the East Coast, eventually taking a job as a dishwasher in a restaurant, where he slept on the floor. He managed to work his way up to the position of waiter, but was fired for shortchanging the customers and theft.

NOTE: There was a pattern of theft and unethical behavior, but the consequence of his actions were not significant enough for Ponzi to change his ways.

Imprisoned for forgery, Ponzi spent three years in the prison St. Vincent-de-Paul near Montreal. Rather than inform his mother of this development, he posted her a letter stating that he had found a job as a “special assistant” to a prison warden.   After his release in 1911 he decided to return to the United States, but got involved in a scheme to smuggle Italian illegal immigrants across the border. He was caught and spent two years in Atlanta Prison, where he met inmate Charles W. Morse, a wealthy Wall Street businessman and speculator, where he learned of greater opportunities than simple petty theft.

Ponzi seized on, what he said was an opportunity, to use postal coupons (I guess today we’d call them stamps), to make money.  IRCs (the postal coupons referred to) were priced at the cost of postage in the country of purchase, but could be exchanged for stamps to cover the cost of postage in the country where redeemed; if these values were different, there was a potential profit.  Here’s where Ponzi dreamed up his opportunity for fraud.

Ponzi went to several of his friends in Boston and promised that he would double their investment in 90 days. The great returns available from postal reply coupons, he explained to them, made such incredible profits easy. Some people invested and were paid off as promised, receiving $750 interest on initial investments of $1,250.

NOTE: The scheme always involves a promise of something that the average bloke just can’t get.  So when someone – especially someone you trust tells you that they have a fail safe investment that offers great returns…be prepared to be scammed.

Soon afterward, Ponzi started his own company, the “Old Colony Foreign Exchange Company,” to promote the scheme. He set up shop in a building on School Street. Word spread, and investments came in at an ever-increasing rate. Ponzi hired agents and paid them generous commissions for every dollar they brought in. By February 1920, Ponzi’s total take was US$5,000, (approximately US$54,000 in 2008 dollars). By March, he had made $30,000 ($328,000 in 2008 terms). A frenzy was building, and Ponzi began to hire agents to take in money from all over New England and New Jersey. At that time, investors were being paid impressive rates, encouraging yet others to invest. By May 1920, he had made $420,000 ($4.59 million in 2008 terms).

NOTE: The illusion was in full force.  Just as soon as folks began to see the promised returns happening (just as promised) they began to believe that what they were seeing was real.  Bernie Madoff, Gordon Grigg, and many many more in just 2009 did exactly the same thing.  They promised something and delivered…creating the illusion that all was just as portrayed.  What investors didn’t know was that the returns they were seeing came from other peoples investments.

By July 1920, Ponzi had made millions. People were mortgaging their homes and investing their life savings. Most did not take their profits, but reinvested.

NOTE: Another psychological part of most Ponzi schemes is that once there is an element of trust, greed sets in and investors (wanting more and more) do not take their profits, but rather leave them for yet bigger and bigger profits.  In effect, victims would rather gamble with their funds than protect their assets.

Ponzi was bringing in cash at a fantastic rate, but the simplest financial analysis would have shown that the operation was running at a large loss. As long as money kept flowing in, existing investors could be paid with the new money. In fact, new money was the only way Ponzi had to pay off those investors, as he made no effort to generate legitimate profits.

NOTE: It seems odd, but the obvious somehow becomes clouded in the quest for more money.  In the Madoff scam…people now looking back could have seen that what he was doing couldn’t work…yet, Madoff survived three SEC investigations with flying colors.  It seems that it is human nature to want to believe that what is not real somehow is real.

Ponzi lived luxuriously: he bought a mansion in Lexington, Massachusetts with air conditioning and a heated swimming pool, and he maintained accounts in several banks across New England besides Hanover Trust. He also brought his mother from Italy in a first-class stateroom on an ocean liner.

NOTE:  Most Ponzi schemers use the funds (for the most part) for an illusory lifestyle.   That’s part of the illusion that causes people to trust the schemer.  Madoff, Grigg, Stanford (although he’s not yet been found guilty) Huffman and others all have become part of the illusion that promotes trust so that more people will invest (oops…become scammed).

Joseph Daniels, a Boston furniture dealer who had given Ponzi furniture which he could not afford to pay for, sued Ponzi to cash in on the gold rush. The lawsuit was unsuccessful, but it did start people asking how Ponzi could have gone from being penniless to being a millionaire in so short a time. There was a run on the Securities Exchange Company, as some investors decided to pull out. Ponzi paid them and the run stopped. On July 24, 1920, the Boston Post printed a favorable article on Ponzi and his scheme that brought in investors faster than ever. At that time, Ponzi was making $250,000 a day. Ponzi’s good fortune was increased by the fact that just below this favorable article, which seemed to imply that Ponzi was indeed returning 50% return on investment after only 45 days, was a bank advertisement that stated that the bank was paying 5% returns annually. The day after this article was published, Ponzi arrived at his office to find thousands of Bostonians waiting to give him their money.

NOTE: At the height of the schemes most fraudsters find that their false promise supported by an illusion and reinforced with trust (many times of well known and influential individuals) drives ever more folks to be sucked into the PIT. (PROMISE, ILLUSION AND TRUST).  Likewise, at its height that is generally when the pendulum is preparing to swing in – well lets say – a more truthful direction.  In other words the house of cards is soon to collapse.

On July 26, the Post started a series of articles that asked hard questions about the operation of Ponzi’s money machine. The Post contacted Clarence Barron, the financial analyst who published the Barron’s financial paper, to examine Ponzi’s scheme. Barron observed that though Ponzi was offering fantastic returns on investments, Ponzi himself was not investing with his own company. Barron then noted that to cover the investments made with the Securities Exchange Company, 160 million postal reply coupons would have to be in circulation. However, only about 27,000 actually were. The United States Post Office stated that postal reply coupons were not being bought in quantity at home or abroad.

The stories caused a panic run on the Securities Exchange Company. Ponzi paid out $2 million in three days to a wild crowd outside his office. He canvassed the crowd, passed out coffee and donuts, and cheerfully told them they had nothing to worry about. Many changed their minds and left their money with him. However, this attracted the attention of Daniel Gallagher (no relation by the way – although that would be quite a coincidence), the United States Attorney for the District of Massachusetts. Gallagher commissioned Edwin Pride to audit the Securities Exchange Company’s books—an effort made difficult by the fact his bookkeeping system consisted merely of index cards with investors’ names.

The denouement for Ponzi began in late July, when McMasters found several highly incriminating documents that indicated Ponzi was merely robbing Peter to pay Paul. He went to his former employer, the Post, with this information. The paper offered him $5,000 for his story. On August 2, 1920, McMasters wrote an article for the Post declaring Ponzi hopelessly insolvent. The article claimed that while Ponzi claimed $7 million in liquid funds, he was actually at least $2 million in debt. With interest factored in, McMasters wrote, Ponzi was as much as $4.5 million in the red. The story touched off a massive run, and Ponzi paid off in one day. He then sped up plans to build a massive conglomerate that would engage in banking and import-export operations.

On August 11, it all came crashing down for Ponzi. First, the Post came out with a front-page story about his activities in Montreal 13 years earlier—including his forgery conviction and his role at Zarossi’s scandal-ridden bank. That afternoon, Bank Commissioner Allen seized Hanover Trust after finding numerous irregularities in its books. Although the commissioner did not know it, this move foiled Ponzi’s last-ditch plan to “borrow” funds from the bank vaults after all other efforts to obtain funds failed.

With reports that he was due to be arrested any day, Ponzi surrendered to federal authorities on August 12 and was charged with mail fraud for sending letters to his marks telling them their notes had matured. He was originally released on $25,000 bail, but after the Post released the results of the audit, the bail bondsman withdrew the bail due to concerns he might be a flight risk.

The news brought down five other banks in addition to Hanover Trust. His investors were practically wiped out, receiving less than 30 cents on the dollar. The Post won a Pulitzer Prize in 1921 for its exposure of Ponzi’s fraud.

WHERE ARE WE TODAY?

Same place we were when old Charles created what we now call the “Ponzi scheme.”  Robbing Peter to Pay Paul is the name of this game and unfortunately it existed before Charles Ponzi (he just got the notoriety for it) and continues to this day…and unfortunately will continue.

People get victimized, in a sense, by their own greed – although many don’t wish to admit that.  But, reality is – the investor (victim) wants a better return than he/she can get elsewhere (they fall victim to a false promise).  The illusion that the fraudster creates lures the investor victim into believing that what seemingly can’t be real – in fact is.  And, most fraudsters prey first on those closest to them – their friends, family and close acquaintances people that trust them.

The fraudster typically uses need, opportunity and rationalization to effect their crime while the victim falls into the PIT – or stated this way, they fall victim to a PROMISE supported by an ILLUSION which has a foundation in TRUST.


Car Repair and Identity Theft – Charles E. Perry, Jr. Pleads Guilty! Just When You Thought It Was Safe To Get Your Car Fixed…

April 16, 2008

As host of Wise Choices – The Great Advice Radio Show on CBS Radio – KRLD, I had a guest on the program talking about identity theft. Certainly, that’s a hot topic – especially when the methods of stealing and using identities has changed in the past ten years. Often, however, we don’t think of the obvious when it comes to how and where our ID’s can be stolen.

Christopher Bianez – member of the crime prevention unit of the Plano, Texas police department was my guest on the show and he outlined three things that help when thinking of identity theft: Deter, Detect and Defend.

In the case of Charles E. Perry, Jr. it would have been hard to use Christopher’s first suggestion as Perry used the trust people placed in him for the simple task of auto repair to steal their identities. Other than paying with cash (which few people do these days and I don’t blame them), when Perry’s customers paid – with their credit cards – Perry took advantage of the opportunity.

According to the US Attorney’s news release: Perry used his auto repair businesses, previously located in Norfolk, Hampton, and Virginia Beach, to conduct assorted, fraudulent criminal activities in violation of federal law. Perry regularly stole the identities and credit card numbers of customers seeking vehicle repairs. He then used this data in various ways. For example, Perry applied for credit card merchant accounts and business cash advances in customers’ names. Perry also used customers’ identities to open dealer accounts with vendors and then ordered parts and supplies for which he never paid. Perry also fraudulently charged customers’ credit card accounts for repairs that were either improperly or never performed. The known losses are estimated at more than $500,000.

According to the dailypress.com – Perry used several business names, including Dog & Pony Automotive Inc., T & S Transmissions Inc., T & C Automotive Inc., Hampton Tune LLC, Hampton Tune Inc., Hampton Tune and Lube Inc., Hampton & Tune Inc., Cornerstone Mechanical, Corner Stone Mechanical Inc., Seven Cities Automotive Inc., J & P Cycle Repair, J & P Automotive & Cycles, Python Custom Cycles, S & P Transmissions, Tidewater Automotive Center, ATL Motor Mate and JLP Enterprises, according to court records.

Perry faces a maximum sentence of 20 years in prison and a fine of $1,000,000 on the wire fraud charge, and a mandatory, consecutive sentence of two years in prison on the aggravated identity theft charge.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Perry may have enjoyed the money for a time and avoided the consequences – he did not avoid the consequences all together. Prison is no fun and Perry is facing several years plus substantial restitution for his conviction. Likely he will serve time and that will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Perryfeel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime. Likewise, if you were a victim…please share your experience so other may benefit.

White Collar Crime Speaker – Chuck Gallagher – signing off…


Real Estate Agent – John Turner, Jr. – Sentenced to Prison for Mortgage – Bank Fraud

April 4, 2008

He walked in the door to Money Stop – a check cashing business – handed over a check for $62,000 and walked out with fifty-one $1,000 money orders, a money order for $365 and $9,992 in cash. When he walked out he had completed all that was necessary to effect bank fraud and earn a slot in federal prison.

Licensed real estate agent John Turner Jr., 52, has been sentenced to 18 months in federal prison for bank fraud and engaging in monetary transactions with criminally derived property stemming from a mortgage fraud investigation. In addition, Turner was ordered to pay a fine of $2,000 and serve a term of 3 years supervised release.

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According to the US Attorney’s news release:

Turner arranged for a straw borrower to purchase the residence located on the 1600 block of Cherry Ridge Drive in Houston. Turner amended the purchase contract, instructing the title company to disburse $62,000 of the loan proceeds to a remodeling company of the buyer’s choice, ostensibly for repairs and upgrades to be made at the residence.

First National Bank of Arizona funded the $213,377 mortgage loan Nov. 17, 2006. At closing, Turner submitted a $62,000 false invoice in the name of First Class Construction Inc., for repairs and remodeling. The title company and First National Bank of Arizona were unaware that First Class Construction, Inc., was owned by Turner nor that the repairs and remodeling had not been done and would never be done.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While Turner may have looked good for a time and avoided the consequences – he did not avoid the consequences all together. Prison is no fun and Turner is facing over a year in prison for his conviction. Serving time will prove to be a dramatic change from his prior activities. You do reap what you sow.

If anyone reading has any background on Turnerfeel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime.

White Collar Crime Speaker – Chuck Gallagher – signing off…


Carl Riley, Jr. and Paul Emile Ntahonkiriye Sentenced – PRISON – False Income Tax Return Scheme!

March 18, 2008

Preparing false tax returns is a crime – subject to prison. The principles of PNT Tax Service have just found that out – as now all three involved have been sentenced to time in federal prison.

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From October 2004 through April 2005, Paul Emile Ntahonkiriye began operating an income tax return preparation business in Abilene, Texas, by the name of PNT Tax Service (PNT). Beginning in January 2005, Mandengu, Ntahonkiriye and Riley began preparing tax returns through PNT. For the 2005 tax filing season, PNT prepared approximately 100 income tax returns. Approximately 57 of those returns were fraudulent and claimed false income tax refunds.

In preparing the fraudulent returns, Mandengu, Ntahonkiriye, and Riley would tell their clients that in order to get a larger refund, one or two false dependents could be listed on the return as either a nephew or niece, and in some instances the wages earned were increased to increase the earned income tax credit. Using fraudulent dependents and inflated wages created a fraudulent income tax refund to which each of the co-defendants knew that the client was not entitled. Ntahonkiriye would add the names of the false dependants from a list he obtained from Burundi.

Mandengu, Riley, and Ntahonkiriye would not have the clients sign any documents and often would not furnish them with copies of the return or any documents or forms he used in the preparation and filing of theft tax return. Mandengu, Riley, and Ntahonkiriye would prepare the returns and then Ntahonkiriye would electronically file the client’s return with the Internal Revenue Service. The preparation fee for each return varied from approximately $20 to more than $900 and was electronically deposited by HSBC Taxpayer Financial Services, located at New Castle, Delaware, into Mandengu’s savings account at the First Financial Bank, in Abilene, Texas. When the refund was received, an additional fee was requested from some of the clients; often clients did not know about the first fee being deducted.

The total amount of the fraudulent income tax refunds claimed by Mandengu, Ntahonkiriye, and Riley on the false returns was $100,725.

Martin Fungai Mandegu was sentenced to 16 months in federal prison. On Friday March 14, 2008 – Carl Riley, Jr. was sentenced to 10 months in federal prison and Paul Ntahonkiriye was sentenced to 18 months. In addition the the prison sentences – all were ordered to make complete restitution of $100,725.

Rick Martinez, Special Agent in Charge of Internal Revenue Service, Criminal Investigation for the Dallas Field Office, said, “While most return preparers provide excellent service to their clients, a few unscrupulous tax preparers file false and fraudulent returns to defraud the government, the tax paying public and their own clients. Internal Revenue Service, Criminal Investigation always strives to ensure that attorneys, accountants and other tax practitioners adhere to professional standards and follow the law.”

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. While the these three avoided the “tax man” for a time – they did not avoid the consequences. You do reap what you sow.

White Collar Crime Speaker – Chuck Gallagher – signing off…


Jailer Faces Jail! Thomas Preston Wills Reports To Prison…Perhaps There He’ll Understand Civil Rights From A Different Perspective.

January 21, 2008

On December 13, 2006, Thomas Preston Wills, a former deputy with the Harrison County Sheriff’s Department, pleaded guilty today to conspiring to violate the civil rights of inmates housed at the Harrison County Adult Detention Center in Mississippi. The charge arises from Wills’ employment as a corrections officer at the prison between November 2002 and April 2006.

Those comments were from a Department of Justice News Release which goes on to say:

In documents filed in federal court today, Wills admitted that he and other corrections officers participated in a conspiracy to intentionally use excessive force to punish, intimidate, injure, oppress, threaten and retaliate against inmates at the facility.

In a related case, former deputy Ryan Michael Teel was indicted on charges relating to the circumstances surrounding the death of an inmate who died as a result of injuries sustained at the prison in February 2006. Teel faces a maximum penalty of life in prison on count one of the indictment, and a maximum penalty of 20 years in prison and a fine of $250,000 on count two. Three other former officers, Dedri Yulon Caldwell, Regina Rhodes and Morgan Thompson, have also previously pleaded guilty to participating in a conspiracy to violate the civil rights of inmates.

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Now, in early 2007, Wills turned himself in to federal prison in Minnesota – required to serve a 3 1/2 year prison sentence on the guilty plea he entered a year ago. However, Wills feels that he got the shaft in the whole process. In an article in the Sun Herald Wills stated the following:

“If you follow the rules, you’ll be all right. I followed the rules and look where it got me,” said Wills. According to the article:

The criminal case of civil rights violations began after inmate Jessie Lee Williams Jr. was fatally beaten by officers in the county jail booking room on Feb. 4, 2006.

Wills wasn’t present when the beating occurred, though federal trial attorneys have said a culture of abuse existed at the jail for at least five years and no one spoke up to stop it.

Federal prosecutors took the position that if you witnessed excessive or unjustified force or other violations of a persons civil rights and failed to report it – you’re guilty. Wills said he was surprised when federal prosecutors explained that some of the common practices in the jail were violations of civil rights. Guess Wills didn’t know that even inmates have fundamental civil rights.

Wills, a booking officer for 4½ years, worked at the jail from November 2002 through May 2006. He was accepted for academy training for patrol in September 2005, but that plan was halted after Hurricane Katrina a month earlier.

“I wanted out of there,” he said. “I wanted to be on patrol. My lifelong dream was to be a hero, to put bad guys in jail and protect others.”

Wills said he feels betrayed by federal prosecutors and the Department of Justice, which has monitored jail conditions since 1995.

“When I was called in, I asked if I was a suspect. They said ‘no,’ so I answered all their questions. I cooperated. I made copies of every report and narrative I ever wrote and turned it over to them.”

“Then they threatened to put me in prison for many years if I didn’t plead guilty to whatever they said I did. I’ve got a child. I decided to do it and get it over with.”

The reading of his plea agreement in court listed no specific incident of inmate abuse.

U.S. Probation and Parole officers and prosecutors disagreed on the amount of leniency Wills should receive. Prosecutors wanted less leniency for Wills. He received the second longest prison term of those with plea bargains, including some who admitted they broke an inmate’s jaw or knocked out an inmate’s tooth.

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On this, Martin Luther King, Jr. day, it is fitting to know that in America we recognize that even the lowest in society have basic fundamental rights. Having spent time in federal prison, I can say it was no cake walk. I did not enjoy the experience, but am better for it – as today I share that experience with others in hopes that they will learn the value of making right choices. www.chuckgallagher.com Prison is prison – federal or not. But, I have to be honest and say, that while I did not like or respect every guard or prison official, I never witnessed anyone’s civil rights being violated. We were all treated as inmates. The respect we received was in direct perportion to the respect we gave.

While some would consider inmates scum and elect to deny their rights, hats off to the federal prosecutors who would stand up for the basic rights of those who cannot stand up for their own.

The rest of the story:

Nine former Harrison County jailers have begun serving time in the federal prison system for their roles in a conspiracy to deprive the civil rights of inmates.

A 10th ex-jailer, Timothy Moore, was sentenced to four months’ house arrest. The others and where they are by name, age, location and time to serve:

Ryan Teel: Age 30, Inez, Ky., two life terms plus 20 years.

Regina Rhodes: Age 30, Danbury, Conn., 18 months.

Morgan Thompson: Age 30, Elkton, Ohio, 48 months.

Preston Wills: Age 26, Waseca, Minn., 41 months.

Daniel Evans: Age 27, Fort Worth, 36 months.

Brodrick Fulton: Age 27, Milan, Mich., 33 months.

Dedri Caldwell: Age 46, Carswell/Fort Worth, 24 months.

Jeffrey Priest: Age 35, Coleman, Fla., 21 months.

Karle Stolze: Age 39, Miami, 15 months.

– BUREAU OF PRISONS