Christopher P. Gunn, 31, previously of Walton County, Florida, was indicted
on multiple charges involving the online sextortion and cyberstalking of
young girls ranging in age from 13 to 17 years old. The indictment was announced
by Pamela C. Marsh, United States Attorney for the Northern District of
Florida.
The federal indictment alleges that Gunn, who was recently arrested on
related charges in Alabama, extorted images and videos of minor females in
“various states of undress, naked, and engaging in sexually explicit conduct.”
The indictment also charges that Gunn violated federal cyberstalking statutes by
engaging these females online with the “intent to injure, harass, and cause
substantial emotional distress.” The conduct with which Gunn is charged in the
Northern District of Florida is alleged to have occurred between October 2009
and March 2011. In total, the indictment alleges that Gunn victimized 11 minor
females who resided in various states throughout the nation.
Gunn is currently in custody in Montgomery, Alabama on a federal indictment
that also charges him with the production and possession of child pornography.
If convicted on all charges in the Florida indictment, Gunn faces over 50 years
in federal prison.
This case is being brought as part of Project Safe Childhood, a nationwide
initiative launched in May 2006 by the Department of Justice to combat the
growing epidemic of child sexual exploitation and abuse. Led by the United
States Attorneys’ Offices and the Criminal Division’s Child Exploitation and
Obscenity Section, Project Safe Childhood marshals federal, state, and local
resources to locate, apprehend, and prosecute individuals who sexually exploit
children and to identify and rescue victims. For more information about Project
Safe Childhood, please visit http://www.justice.gov/psc/.
The case was investigated by the Federal Bureau of Investigation and the
Walton County Sheriff’s Office. The case is being prosecuted by Assistant United
States Attorney David L. Goldberg. An indictment is merely a formal charge by a
grand jury that a defendant has committed a violation of federal criminal law.
All defendants are presumed innocent unless and until the government proves
their guilt beyond a reasonable doubt to the satisfaction of a jury at trial.
Wednesday, May 23, 2012
Tuesday, May 22, 2012
Second Former U.S. Army Corps of Engineers Manager Pleads Guilty in Alleged $30 Million Bribery and Kickback Scheme
Kerry F. Khan, 54, a former program manager for the U.S. Army Corps of
Engineers, pled guilty today to federal charges of bribery and conspiracy to
commit money laundering in a scheme that allegedly involved more than $30
million in bribes and kickback payments and the planned steering of a government
contract potentially worth $1 billion.
The plea was announced by U.S. Attorney Ronald C. Machen Jr.; Ronald T. Hosko, Special Agent in Charge of the FBI Washington Field Office’s Criminal Division; Eric Hylton, Acting Special Agent in Charge of the Washington Field Office of the Internal Revenue Service- Criminal Investigation (IRS-CI); Peggy E. Gustafson, Inspector General for the Small Business Administration (SBA); Robert E. Craig, Special Agent in Charge of the Mid-Atlantic Field Office of the Defense Criminal Investigative Service (DCIS); and Frank Robey, Director of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).
Khan’s son, Lee A. Khan, 31, formerly of Fairfax, Virginia, also pled guilty today to charges in the case.
Khan and his son were among four men arrested on October 4, 2011 following an investigation into one of the most brazen corruption schemes in the history of federal contracting. The others arrested that day—Michael A. Alexander, a former program manager for the U.S. Army Corps of Engineers, and businessman Harold F. Babb—earlier pled guilty to charges in the case. Khan, Lee Khan, Babb, and Alexander have been in custody since their arrests in October. All told, eight defendants have now pled guilty in the ongoing investigation.
Kerry Khan, formerly of Alexandria, Virginia, pled guilty before the Honorable Emmet G. Sullivan in the U.S. District Court for the District of Columbia. A sentencing date has not been set. The bribery charge carries a statutory maximum of 15 years in prison, and the conspiracy charge carries up to 20 years of incarceration.
The charges also carry potential fines, an order of restitution, and forfeiture of a money judgment for $11,082,687 and specific property, including more than $1.4 million in bank account funds; 13 properties in Virginia, Florida, and West Virginia; and a 2011 GMC Yukon Denali truck. Kerry Khan has previously forfeited about $600,000 in bank account funds and four luxury automobiles.
Also before Judge Sullivan today, Lee Khan pled guilty to a charge of conspiracy to commit money laundering. No sentencing date was set. As part of his plea agreement, Lee Khan agreed to forfeit his interest in more than $1 million in bank account funds; 13 properties in Virginia, Florida, and West Virginia;and a Rolex watch.
In the overall investigation, to date, the United States has seized for forfeiture or recovered approximately $7.5 million in bank account funds, cash, and repayments; 19 real properties; six luxury cars; and multiple pieces of fine jewelry.
“Today, the ringleader of the largest bribery and bid-steering scheme in the history of federal contracting accepted responsibility for his crimes,” said U.S. Attorney Machen. “For his shocking abuse of his position of power, Kerry Khan faces more than two decades in prison. The homes, cars, and jewelry he financed with bribes and kickbacks have now been returned to their rightful owner—the American taxpayer. He and his son are now the seventh and eighth members of this far-reaching scheme to plead guilty since the fall of 2011, and our investigation is still ongoing. Corrupt public officials and the businessmen who bribe them should take notice: we will do everything in our power to disrupt your dirty deals and hold you accountable.”
“Mr. Khan saw large government contracts as a golden ticket for personal gain as he funneled millions of dollars to himself and others through bribes and kickbacks,” said Special Agent in Charge Hosko. “Together with our law enforcement partners, we will combat such deceit and corruption within our government as we tirelessly work to protect the money of the American taxpayer.”
“Today’s plea hearing is a reminder that individuals who scheme to defraud the U.S. government and violate the public’s trust will be brought to justice,” said Acting IRS Special Agent in Charge Hylton. “Honest and law-abiding citizens are fed up with the likes of those who use deceit and fraud to line their own pockets. The use of bribes and kickbacks to secure government contracts will not be tolerated. IRS Criminal Investigation will continue to work with the U.S. Attorney’s Office and other law enforcement agencies to punish corrupt behavior wherever we find it.”
“Today’s guilty pleas effectively highlight the brazen corruption scheme sown by Kerry Khan and his co-conspirators,” said Inspector General Gustafson of the Small Business Administration. “This investigation demonstrates that there is no tolerance for criminal activity by federal employees who hold positions of trust in the federal contracting process. The SBA OIG appreciates the leadership of the U.S. Attorney’s Office and the support of the FBI and our interagency partners in bringing forth these plea agreements.”
“Today is a day of reckoning for Kerry Khan. His plea today is a chilling example of a corrupt government employee coming to the realization that engaging in criminal activity within the federal procurement process will be discovered, and there is a severe price to be paid for selfishly violating the public’s trust,” said Special Agent in Charge Craig of the Defense Criminal Investigative Service (DCIS). “DCIS and our law enforcement partners are working to ensure that this realization becomes a stark reality for any and all others who are willing to engage in this kind of dishonest, deceitful, and deplorable behavior. Let’s hope that today’s plea serves as a clear reminder that stealing money from the American taxpayer is not worth the day of reckoning that will inevitably follow.”
“Today’s pleas are another example of the great investigative work our agents and our federal law enforcement partners do every day,” said Director Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU). “It is a clear message that we will relentlessly pursue those attempting to defraud the U.S. Army.”
Kerry Khan worked for the Army Corps of Engineers from 1994 until the time of his arrest in October 2011. He was a program manager and contracting officer’s technical representative with the Directorate of Contingency Operations. In that position, Kerry Khan had authority, among other things, to place orders for products and services through federal government contracts. He also had authority to certify that the work on orders had been completed.
The scheme involved the Army Corps of Engineers and two contracts: the Technology for Infrastructure, Geospatial, and Environmental Requirements (TIGER) contract and the Contingency Operations Readiness Engineering and Support (CORES) contract.
The TIGER contract was used by authorized federal government agencies and departments to purchase products and services. It is what is known as an Indefinite Delivery/Indefinite Quantity contract. Authorized agencies and departments are not required to obtain three separate bids or to compare the TIGER contract to another contract before submitting an invoice for products and services through the TIGER contract.
The CORES contract was a planned contract, envisioned as an alternative or potential replacement to the TIGER contract. As planned, the CORES contract would be a five-year contract with an award potential for all contracts placed under it of nearly $1 billion. The CORES contract has not been issued for solicitation to potential prime contractors.
In his guilty plea, Kerry Khan admitted to carrying out a bribery scheme with others.
They included Alexander, a colleague, who was then a program manager with the Army Corps of Engineers; Babb, the former director of contracts at Eyak Technology LLC (EyakTek), an Alaska Native-owned small business; Alex N. Cho, the former chief technology officer of Nova Datacom LLC, a provider of information assurance and security services to federal agencies and commercial companies; Robert L. McKinney, the president of Alpha Technology Group Inc., a provider of program management services; James Edward Miller, formerly of Virginia Beach, Virginia, the owner of Big Surf Construction Management LLC; and an unindicted co-conspirator, referred to in court documents as Co-Conspirator 3, who was another contractor.
Another company, Ananke LLC, also was involved in the scheme. Ananke LLC was a shell company that was controlled by Kerry Khan.
According to a statement of offense signed by Kerry Khan, in or around 2006, he and Alexander agreed to work together to obtain government contracts for corrupt contractors who would reward them with bribes. Among others, Kerry Khan and Alexander worked with Babb on a scheme to use EyakTek as a vehicle for channeling contracts awarded by the Army Corps of Engineers. EyakTek, in turn, hired sub-contractors that submitted fraudulently inflated or fictitious quotes for equipment and services. As directed by Kerry Khan and Alexander, the sub-contractors kicked back a significant portion of the payments to them, as bribes for keeping the money flowing their way from the Army Corps of Engineers.
Kerry Khan and the others attempted to obtain more than $30 million through the bribery scheme primarily through the submission of fraudulently inflated invoices to the government, according to the statement of offense. The fraudulently inflated amounts were referred to by the perpetrators as “overhead.” Kerry Khan, Alexander, and the contractors agreed to split the “overhead.”
As part of his plea, Kerry Khan admitted obtaining and attempting to obtain these payments:
From those amounts, Kerry Khan admitted actually receiving, directly and indirectly, over $12 million from the contractors. He also admitted that, at the time of his arrest, he was owed more than $14 million in additional “overhead” payments from the contractors.
In addition to these activities involving the TIGER contract, according to the statement of offense, Kerry Khan, Alexander, Babb, and Cho agreed to steer the award of the CORES contract to Nova Datacom. This scheme was thwarted by the arrests of Kerry Khan, Alexander, and others last fall.
In an attempt to surreptitiously receive and hide the receipts of proceeds of the bribery scheme, Kerry Khan and Lee Khan admitted today that they established and used multiple corporate entities, including shell companies that had no legitimate business purpose, as well as multiple bank and financial accounts. Kerry Khan and Lee Khan also purchased or paid off the mortgage for at least a portion of at least 13 pieces of real property, including several houses and condominiums, using proceeds of the scheme. Additionally, Kerry Khan and members of his immediate family owned in full 10 automobiles, most of them luxury vehicles that were purchased with proceeds of the criminal activities.
With instruction and supervision from his father, Lee Khan managed the portfolio of real property and automobiles, selling real property after its value had appreciated, managing the lease of certain real properties to tenants, and selling automobiles.
Alexander, 56, formerly of Woodbridge, Virginia, pled guilty in February 2012 to federal charges of bribery and conspiracy to commit money laundering. Babb, 60, formerly of Sterling, Virginia, pled guilty in March 2012 to federal charges of bribery and unlawful kickbacks.
Cho, 40, formerly of Great Falls, Virginia, pled guilty in September 2011 to one count of conspiracy to commit bribery, money laundering, wire fraud, to defraud the United States, and to one count of bribery. Another former Nova Datacom employee, Theodoros Hallas, 40, of Potomac, Maryland, the company’s former executive vice president, pled guilty in October 2011 to one count of conspiracy to commit wire fraud.
McKinney, 52, of Waldorf, Maryland, the president of Alpha Technology Group, pled guilty in February 2012 to bribery. James Edward Miller, 64, formerly of Virginia Beach, Virginia, the owner of Big Surf Construction Management LLC, pled guilty on April 17, 2012 to a federal charge of conspiracy to commit money laundering
All of the defendants are awaiting sentencing.
In announcing the pleas, U.S. Attorney Machen, Special Agent in Charge Hosko, Inspector General Gustafson, Special Agent in Charge Craig, Acting Special Agent in Charge Hylton, and Director Robey thanked those who investigated the case from the FBI’s Washington Field Office; the Office of the Inspector General for the Small Business Administration; the Department of Defense’s Defense Criminal Investigative Service; the Defense Contract Audit Agency; the Washington Field Office of the Internal Revenue Service-Criminal Investigation; and the Army Criminal Investigation Command. They also expressed thanks to the U.S. Marshals Service for its assistance on the forfeiture matter.
They also praised the efforts of those who worked on the case from the U.S. Attorney’s Office, including Assistant U.S. Attorneys Michael K. Atkinson and Bryan Seeley of the Fraud and Public Corruption Section and Assistant U.S. Attorney Anthony Saler of the Asset Forfeiture and Money Laundering Section. Finally, they expressed thanks for assistance provided by former Special Assistant U.S. Attorney Christopher Dana; Forensic Accountant Maria Boodoo; Paralegal Specialists Tasha Harris, Lenisse Edloe, Shanna Hays, Taryn McLaughlin, Sarah Reis, Christopher Samson, and Nicole Wattelet; former Paralegal Specialist Jared Forney; and Legal Assistants Krishawn Graham and Jessica McCormick.
The plea was announced by U.S. Attorney Ronald C. Machen Jr.; Ronald T. Hosko, Special Agent in Charge of the FBI Washington Field Office’s Criminal Division; Eric Hylton, Acting Special Agent in Charge of the Washington Field Office of the Internal Revenue Service- Criminal Investigation (IRS-CI); Peggy E. Gustafson, Inspector General for the Small Business Administration (SBA); Robert E. Craig, Special Agent in Charge of the Mid-Atlantic Field Office of the Defense Criminal Investigative Service (DCIS); and Frank Robey, Director of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).
Khan’s son, Lee A. Khan, 31, formerly of Fairfax, Virginia, also pled guilty today to charges in the case.
Khan and his son were among four men arrested on October 4, 2011 following an investigation into one of the most brazen corruption schemes in the history of federal contracting. The others arrested that day—Michael A. Alexander, a former program manager for the U.S. Army Corps of Engineers, and businessman Harold F. Babb—earlier pled guilty to charges in the case. Khan, Lee Khan, Babb, and Alexander have been in custody since their arrests in October. All told, eight defendants have now pled guilty in the ongoing investigation.
Kerry Khan, formerly of Alexandria, Virginia, pled guilty before the Honorable Emmet G. Sullivan in the U.S. District Court for the District of Columbia. A sentencing date has not been set. The bribery charge carries a statutory maximum of 15 years in prison, and the conspiracy charge carries up to 20 years of incarceration.
The charges also carry potential fines, an order of restitution, and forfeiture of a money judgment for $11,082,687 and specific property, including more than $1.4 million in bank account funds; 13 properties in Virginia, Florida, and West Virginia; and a 2011 GMC Yukon Denali truck. Kerry Khan has previously forfeited about $600,000 in bank account funds and four luxury automobiles.
Also before Judge Sullivan today, Lee Khan pled guilty to a charge of conspiracy to commit money laundering. No sentencing date was set. As part of his plea agreement, Lee Khan agreed to forfeit his interest in more than $1 million in bank account funds; 13 properties in Virginia, Florida, and West Virginia;and a Rolex watch.
In the overall investigation, to date, the United States has seized for forfeiture or recovered approximately $7.5 million in bank account funds, cash, and repayments; 19 real properties; six luxury cars; and multiple pieces of fine jewelry.
***
“Today, the ringleader of the largest bribery and bid-steering scheme in the history of federal contracting accepted responsibility for his crimes,” said U.S. Attorney Machen. “For his shocking abuse of his position of power, Kerry Khan faces more than two decades in prison. The homes, cars, and jewelry he financed with bribes and kickbacks have now been returned to their rightful owner—the American taxpayer. He and his son are now the seventh and eighth members of this far-reaching scheme to plead guilty since the fall of 2011, and our investigation is still ongoing. Corrupt public officials and the businessmen who bribe them should take notice: we will do everything in our power to disrupt your dirty deals and hold you accountable.”
“Mr. Khan saw large government contracts as a golden ticket for personal gain as he funneled millions of dollars to himself and others through bribes and kickbacks,” said Special Agent in Charge Hosko. “Together with our law enforcement partners, we will combat such deceit and corruption within our government as we tirelessly work to protect the money of the American taxpayer.”
“Today’s plea hearing is a reminder that individuals who scheme to defraud the U.S. government and violate the public’s trust will be brought to justice,” said Acting IRS Special Agent in Charge Hylton. “Honest and law-abiding citizens are fed up with the likes of those who use deceit and fraud to line their own pockets. The use of bribes and kickbacks to secure government contracts will not be tolerated. IRS Criminal Investigation will continue to work with the U.S. Attorney’s Office and other law enforcement agencies to punish corrupt behavior wherever we find it.”
“Today’s guilty pleas effectively highlight the brazen corruption scheme sown by Kerry Khan and his co-conspirators,” said Inspector General Gustafson of the Small Business Administration. “This investigation demonstrates that there is no tolerance for criminal activity by federal employees who hold positions of trust in the federal contracting process. The SBA OIG appreciates the leadership of the U.S. Attorney’s Office and the support of the FBI and our interagency partners in bringing forth these plea agreements.”
“Today is a day of reckoning for Kerry Khan. His plea today is a chilling example of a corrupt government employee coming to the realization that engaging in criminal activity within the federal procurement process will be discovered, and there is a severe price to be paid for selfishly violating the public’s trust,” said Special Agent in Charge Craig of the Defense Criminal Investigative Service (DCIS). “DCIS and our law enforcement partners are working to ensure that this realization becomes a stark reality for any and all others who are willing to engage in this kind of dishonest, deceitful, and deplorable behavior. Let’s hope that today’s plea serves as a clear reminder that stealing money from the American taxpayer is not worth the day of reckoning that will inevitably follow.”
“Today’s pleas are another example of the great investigative work our agents and our federal law enforcement partners do every day,” said Director Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU). “It is a clear message that we will relentlessly pursue those attempting to defraud the U.S. Army.”
***
Kerry Khan worked for the Army Corps of Engineers from 1994 until the time of his arrest in October 2011. He was a program manager and contracting officer’s technical representative with the Directorate of Contingency Operations. In that position, Kerry Khan had authority, among other things, to place orders for products and services through federal government contracts. He also had authority to certify that the work on orders had been completed.
The scheme involved the Army Corps of Engineers and two contracts: the Technology for Infrastructure, Geospatial, and Environmental Requirements (TIGER) contract and the Contingency Operations Readiness Engineering and Support (CORES) contract.
The TIGER contract was used by authorized federal government agencies and departments to purchase products and services. It is what is known as an Indefinite Delivery/Indefinite Quantity contract. Authorized agencies and departments are not required to obtain three separate bids or to compare the TIGER contract to another contract before submitting an invoice for products and services through the TIGER contract.
The CORES contract was a planned contract, envisioned as an alternative or potential replacement to the TIGER contract. As planned, the CORES contract would be a five-year contract with an award potential for all contracts placed under it of nearly $1 billion. The CORES contract has not been issued for solicitation to potential prime contractors.
In his guilty plea, Kerry Khan admitted to carrying out a bribery scheme with others.
They included Alexander, a colleague, who was then a program manager with the Army Corps of Engineers; Babb, the former director of contracts at Eyak Technology LLC (EyakTek), an Alaska Native-owned small business; Alex N. Cho, the former chief technology officer of Nova Datacom LLC, a provider of information assurance and security services to federal agencies and commercial companies; Robert L. McKinney, the president of Alpha Technology Group Inc., a provider of program management services; James Edward Miller, formerly of Virginia Beach, Virginia, the owner of Big Surf Construction Management LLC; and an unindicted co-conspirator, referred to in court documents as Co-Conspirator 3, who was another contractor.
Another company, Ananke LLC, also was involved in the scheme. Ananke LLC was a shell company that was controlled by Kerry Khan.
According to a statement of offense signed by Kerry Khan, in or around 2006, he and Alexander agreed to work together to obtain government contracts for corrupt contractors who would reward them with bribes. Among others, Kerry Khan and Alexander worked with Babb on a scheme to use EyakTek as a vehicle for channeling contracts awarded by the Army Corps of Engineers. EyakTek, in turn, hired sub-contractors that submitted fraudulently inflated or fictitious quotes for equipment and services. As directed by Kerry Khan and Alexander, the sub-contractors kicked back a significant portion of the payments to them, as bribes for keeping the money flowing their way from the Army Corps of Engineers.
Kerry Khan and the others attempted to obtain more than $30 million through the bribery scheme primarily through the submission of fraudulently inflated invoices to the government, according to the statement of offense. The fraudulently inflated amounts were referred to by the perpetrators as “overhead.” Kerry Khan, Alexander, and the contractors agreed to split the “overhead.”
As part of his plea, Kerry Khan admitted obtaining and attempting to obtain these payments:
- Nova Datacom: Kerry Khan, Alexander, Cho, and Nova Datacom attempted to obtain more than $20 million in “overhead” on a total of $45 million in contracts.
- Alpha Technology: Kerry Khan, McKinney, and Alpha Technology Group obtained approximately $856,395 in “overhead” on a total of $1.8 million in contracts.
- Big Surf Construction: Kerry Khan, Babb, Miller, and Big Surf Construction Management LLC attempted to obtain $9,979,705 in “overhead” on a total of $9.9 million in contracts and intended contracts.
- Co-Conspirator 3: Kerry Khan obtained approximately $640,000 in bribe payments from Co-Conspirator 3.
- Ananke LLC: Kerry Khan and Babb obtained $147,544 in “overhead,” through contracts in that amount that were directed to Ananke, LLC.
From those amounts, Kerry Khan admitted actually receiving, directly and indirectly, over $12 million from the contractors. He also admitted that, at the time of his arrest, he was owed more than $14 million in additional “overhead” payments from the contractors.
In addition to these activities involving the TIGER contract, according to the statement of offense, Kerry Khan, Alexander, Babb, and Cho agreed to steer the award of the CORES contract to Nova Datacom. This scheme was thwarted by the arrests of Kerry Khan, Alexander, and others last fall.
In an attempt to surreptitiously receive and hide the receipts of proceeds of the bribery scheme, Kerry Khan and Lee Khan admitted today that they established and used multiple corporate entities, including shell companies that had no legitimate business purpose, as well as multiple bank and financial accounts. Kerry Khan and Lee Khan also purchased or paid off the mortgage for at least a portion of at least 13 pieces of real property, including several houses and condominiums, using proceeds of the scheme. Additionally, Kerry Khan and members of his immediate family owned in full 10 automobiles, most of them luxury vehicles that were purchased with proceeds of the criminal activities.
With instruction and supervision from his father, Lee Khan managed the portfolio of real property and automobiles, selling real property after its value had appreciated, managing the lease of certain real properties to tenants, and selling automobiles.
***
Alexander, 56, formerly of Woodbridge, Virginia, pled guilty in February 2012 to federal charges of bribery and conspiracy to commit money laundering. Babb, 60, formerly of Sterling, Virginia, pled guilty in March 2012 to federal charges of bribery and unlawful kickbacks.
Cho, 40, formerly of Great Falls, Virginia, pled guilty in September 2011 to one count of conspiracy to commit bribery, money laundering, wire fraud, to defraud the United States, and to one count of bribery. Another former Nova Datacom employee, Theodoros Hallas, 40, of Potomac, Maryland, the company’s former executive vice president, pled guilty in October 2011 to one count of conspiracy to commit wire fraud.
McKinney, 52, of Waldorf, Maryland, the president of Alpha Technology Group, pled guilty in February 2012 to bribery. James Edward Miller, 64, formerly of Virginia Beach, Virginia, the owner of Big Surf Construction Management LLC, pled guilty on April 17, 2012 to a federal charge of conspiracy to commit money laundering
All of the defendants are awaiting sentencing.
***
In announcing the pleas, U.S. Attorney Machen, Special Agent in Charge Hosko, Inspector General Gustafson, Special Agent in Charge Craig, Acting Special Agent in Charge Hylton, and Director Robey thanked those who investigated the case from the FBI’s Washington Field Office; the Office of the Inspector General for the Small Business Administration; the Department of Defense’s Defense Criminal Investigative Service; the Defense Contract Audit Agency; the Washington Field Office of the Internal Revenue Service-Criminal Investigation; and the Army Criminal Investigation Command. They also expressed thanks to the U.S. Marshals Service for its assistance on the forfeiture matter.
They also praised the efforts of those who worked on the case from the U.S. Attorney’s Office, including Assistant U.S. Attorneys Michael K. Atkinson and Bryan Seeley of the Fraud and Public Corruption Section and Assistant U.S. Attorney Anthony Saler of the Asset Forfeiture and Money Laundering Section. Finally, they expressed thanks for assistance provided by former Special Assistant U.S. Attorney Christopher Dana; Forensic Accountant Maria Boodoo; Paralegal Specialists Tasha Harris, Lenisse Edloe, Shanna Hays, Taryn McLaughlin, Sarah Reis, Christopher Samson, and Nicole Wattelet; former Paralegal Specialist Jared Forney; and Legal Assistants Krishawn Graham and Jessica McCormick.
SoCal Manager of International Computer Hacking Ring Sentenced to Five Years in Federal Prison for Defrauding Banks
A principal figure in the domestic arm of an international “phishing” operation
that used spam e-mails and bogus websites to collect personal information used
to defraud American banks was sentenced to five years in federal
prison.
Nichole Michelle Merzi, 26, of Oceanside, was sentenced in the fraud case by Senior United States District Judge Terry J. Hatter, Jr.
After a six-week trial last year, Merzi was found guilty of bank and wire fraud conspiracy, aggravated identity theft, computer fraud conspiracy, and money laundering conspiracy charges.
Along with her then-boyfriend—Kenneth Joseph Lucas, II—Merzi was a lead defendant named in an indictment returned in the fall of 2009 as part of Operation Phish Phry, a multinational investigation conducted in the United States and Egypt that led to charges against 100 individuals—the largest number of defendants ever charged in a cybercrime case. As a result of Operation Phish Phry, 47 people have been convicted in federal court in Los Angeles. Lucas was sentenced in 2011 in two federal cases—one stemming from the phishing scheme and one from a indoor marijuana grow operation that he constructed—to a total of 13 years in federal prison (see: http://www.justice.gov/usao/cac/Pressroom/2011/092.html).
Operation Phish Phry revealed how Egyptian hackers obtained bank account numbers and related personal identification information from bank customers through phishing—a technique that involves sending e-mail messages that appear to be official correspondence from banks or credit card vendors. Bank customers who received the spam e-mails were directed to phony websites purporting to be linked to financial institutions, where the customers were asked to enter their account numbers, passwords, and other personal identification information. Because the websites appeared to be legitimate—complete with bank logos and legal disclaimers—the victims did not realize that the websites were not related to legitimate financial institutions.
Armed with the bank account information, members of the conspiracy hacked into accounts at two banks. Once they accessed the accounts, the individuals in Egypt coordinated transfers of funds from the compromised accounts to newly created fraudulent accounts and other accounts used as part of the scheme. “Records at trial show that, from February 2008 through September 2008, defendant [Merzi] opened numerous BOA [Bank of America] accounts in her name at a variety of branches, and the amount of unlawful ‘phishing’ transfers into those accounts alone was $14,000,” prosecutors wrote in a sentencing memorandum filed with the court. From October 2008 to early 2009, Merzi and Lucas also had the individuals in Egypt make unlawful transfers from phished accounts to other fraudulent accounts opened in Southern California and elsewhere.
The United States part of the ring was overseen by Lucas, who directed associates to recruit “drops” to set up and use bank accounts where stolen funds could be held. A portion of the illegally obtained funds were transferred via wire services to the Egyptian co-conspirators. When Lucas was sentenced, a federal judge determined the total amount of intended loss in the case was more than $1 million.
“The harm done by [Merzi]’s activities is undisputed,” according to the goverment’s sentencing memo. “Although BOA and Wells Fargo reimbursed the individual victims whose accounts were compromised, it is undeniable that the scheme affected a large number of victims,” given that the illegal phishing transfers “occurred in amounts around $1,000 at a time.”
Marzi has been in custody since she was found guilty at trial in March 2011.
The investigation in the United States was conducted by the Federal Bureau of Investigation, which received support from the Electronic Crimes Task Force in Los Angeles and the Social Security Administration’s Office of Special Investigations.
Nichole Michelle Merzi, 26, of Oceanside, was sentenced in the fraud case by Senior United States District Judge Terry J. Hatter, Jr.
After a six-week trial last year, Merzi was found guilty of bank and wire fraud conspiracy, aggravated identity theft, computer fraud conspiracy, and money laundering conspiracy charges.
Along with her then-boyfriend—Kenneth Joseph Lucas, II—Merzi was a lead defendant named in an indictment returned in the fall of 2009 as part of Operation Phish Phry, a multinational investigation conducted in the United States and Egypt that led to charges against 100 individuals—the largest number of defendants ever charged in a cybercrime case. As a result of Operation Phish Phry, 47 people have been convicted in federal court in Los Angeles. Lucas was sentenced in 2011 in two federal cases—one stemming from the phishing scheme and one from a indoor marijuana grow operation that he constructed—to a total of 13 years in federal prison (see: http://www.justice.gov/usao/cac/Pressroom/2011/092.html).
Operation Phish Phry revealed how Egyptian hackers obtained bank account numbers and related personal identification information from bank customers through phishing—a technique that involves sending e-mail messages that appear to be official correspondence from banks or credit card vendors. Bank customers who received the spam e-mails were directed to phony websites purporting to be linked to financial institutions, where the customers were asked to enter their account numbers, passwords, and other personal identification information. Because the websites appeared to be legitimate—complete with bank logos and legal disclaimers—the victims did not realize that the websites were not related to legitimate financial institutions.
Armed with the bank account information, members of the conspiracy hacked into accounts at two banks. Once they accessed the accounts, the individuals in Egypt coordinated transfers of funds from the compromised accounts to newly created fraudulent accounts and other accounts used as part of the scheme. “Records at trial show that, from February 2008 through September 2008, defendant [Merzi] opened numerous BOA [Bank of America] accounts in her name at a variety of branches, and the amount of unlawful ‘phishing’ transfers into those accounts alone was $14,000,” prosecutors wrote in a sentencing memorandum filed with the court. From October 2008 to early 2009, Merzi and Lucas also had the individuals in Egypt make unlawful transfers from phished accounts to other fraudulent accounts opened in Southern California and elsewhere.
The United States part of the ring was overseen by Lucas, who directed associates to recruit “drops” to set up and use bank accounts where stolen funds could be held. A portion of the illegally obtained funds were transferred via wire services to the Egyptian co-conspirators. When Lucas was sentenced, a federal judge determined the total amount of intended loss in the case was more than $1 million.
“The harm done by [Merzi]’s activities is undisputed,” according to the goverment’s sentencing memo. “Although BOA and Wells Fargo reimbursed the individual victims whose accounts were compromised, it is undeniable that the scheme affected a large number of victims,” given that the illegal phishing transfers “occurred in amounts around $1,000 at a time.”
Marzi has been in custody since she was found guilty at trial in March 2011.
The investigation in the United States was conducted by the Federal Bureau of Investigation, which received support from the Electronic Crimes Task Force in Los Angeles and the Social Security Administration’s Office of Special Investigations.
Former Alabama Organ Center Executive Sentenced for Fraud
U.S. District Judge R. David Proctor sentenced the former director of the
Alabama Organ Center to 13 months in prison for his role in a scheme to take
kickbacks from a funeral home that did business with the organ center, announced
U.S. Attorney Joyce White Vance and FBI Special Agent in Charge Patrick J.
Maley.
Judge Proctor also ordered the defendant, Demosthenes Lalisan, 45, to pay $489,551 in restitution to the University of Alabama Health Services Foundation and to forfeit $242,344 to the federal government as proceeds of illegal activity. The Alabama Organ Center is a component of the Health Services Foundation and is the federally approved organ procurement organization for the state of Alabama.
The judge ordered Lalisan to remain on supervised release for three years after completing his prison sentence. As a special condition of that release, if Lalisan seeks employment in any occupation involving the rendering of health care services, he must inform the prospective employer of his conviction and provide a copy of his plea agreement.
Lalisan and his co-defendant, Richard Alan Hicks, 40, pleaded guilty in November to one count each of conspiracy to commit health care fraud, health care fraud, and mail fraud. Hicks’ sentencing is scheduled June 5. Hicks is the former associate director of the Organ Center. He and Lalisan will both be responsible for paying the restitution.
From about March 2007 until June 2011, Lalisan solicited and received kickbacks totaling $242,344, and Hicks received kickbacks totaling $256,207 from a local funeral home that did business with the organ center, according to court documents. In exchange for the kickback payments, Lalisan and Hicks promoted the funeral home and recommended its hiring by the organ center for services paid for by the Health Services Foundation. Neither Lalisan nor Hicks disclosed to the organ center or the foundation that they were receiving payments from the funeral home. Both men falsely represented to the foundation that neither of them had any financial conflicts of interest from customers, suppliers, contractors or competitors, according to court documents.
The investigation revealed no evidence that indicated Lalisan’s and Hicks’s conduct endangered the public or donors or recipients of organs or tissue.
This prosecution is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
The FBI investigated the case. Assistant U.S. Attorney Elizabeth A. Holt is prosecuting the case.
Judge Proctor also ordered the defendant, Demosthenes Lalisan, 45, to pay $489,551 in restitution to the University of Alabama Health Services Foundation and to forfeit $242,344 to the federal government as proceeds of illegal activity. The Alabama Organ Center is a component of the Health Services Foundation and is the federally approved organ procurement organization for the state of Alabama.
The judge ordered Lalisan to remain on supervised release for three years after completing his prison sentence. As a special condition of that release, if Lalisan seeks employment in any occupation involving the rendering of health care services, he must inform the prospective employer of his conviction and provide a copy of his plea agreement.
Lalisan and his co-defendant, Richard Alan Hicks, 40, pleaded guilty in November to one count each of conspiracy to commit health care fraud, health care fraud, and mail fraud. Hicks’ sentencing is scheduled June 5. Hicks is the former associate director of the Organ Center. He and Lalisan will both be responsible for paying the restitution.
From about March 2007 until June 2011, Lalisan solicited and received kickbacks totaling $242,344, and Hicks received kickbacks totaling $256,207 from a local funeral home that did business with the organ center, according to court documents. In exchange for the kickback payments, Lalisan and Hicks promoted the funeral home and recommended its hiring by the organ center for services paid for by the Health Services Foundation. Neither Lalisan nor Hicks disclosed to the organ center or the foundation that they were receiving payments from the funeral home. Both men falsely represented to the foundation that neither of them had any financial conflicts of interest from customers, suppliers, contractors or competitors, according to court documents.
The investigation revealed no evidence that indicated Lalisan’s and Hicks’s conduct endangered the public or donors or recipients of organs or tissue.
This prosecution is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
The FBI investigated the case. Assistant U.S. Attorney Elizabeth A. Holt is prosecuting the case.
Arizona State Representative Charged with Bribery, Fraud, Attempted Extortion, and Making False Statements
A member of the Arizona House of Representatives was charged by a federal
grand jury in the District of Arizona with bribery, fraud, attempted extortion,
and false statements in connection with receiving more than $6,000 in tickets to
sporting and special events while serving as a Tempe, Arizona City Council
council member and member-elect of the Arizona House, announced Assistant
Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division
and Special Agent in Charge James L. Turgal of the FBI’s Phoenix Field
Office.
The indictment charges Paul Ben Arredondo, 63, of Tempe, with one count of federal programs bribery, two counts of honest services mail fraud, one count of attempted Hobbs Act extortion, and one count of making false statements. Arredondo will be arraigned on May 30, 2012 in U.S. District Court for the District of Arizona before U.S. Magistrate Judge Lawrence O. Anderson.
According to the indictment, Arredondo was a council member in Tempe for 16 years, until July 2010. He was elected to the Arizona House of Representatives in November 2010. The indictment alleges that from February 2009 to November 2010, Arredondo accepted, agreed to accept, and solicited things of value from representatives of a company whose purported business objective was to acquire city-owned property in Tempe for real estate development purposes. The representatives were, in fact, undercover agents with the FBI. According to the indictment, Arredondo received from the undercover agents more than $6,000 worth of tickets to sporting and other special events. Those tickets included 18 tickets for Arizona Diamondbacks baseball games valued at a total of approximately $2,400 and four tickets to an American League Championship Series baseball game valued at a total of approximately $1,225.
According to the indictment, in return for those tickets, Arredondo took and agreed to take action in his capacity as a Tempe city council member and as a member of the Arizona House of Representatives to facilitate the undercover agents’ purported purchase of city-owned property and development project. The indictment alleges that Arredondo brokered meetings between the undercover agents and other public officials, divulged information regarding the city of Tempe’s bidding process, and attempted to persuade other city officials to approve the purported development project.
The indictment further alleges that Arredondo lied to the FBI about his conduct during an interview in January 2012.
The federal programs bribery charge carries a maximum penalty of 10 years in prison and a $250,000 fine. Each count of honest services mail fraud and attempted extortion carries a maximum penalty of 20 years in prison and a $250,000 fine. The false statement charge carries a maximum penalty of five years in prison and a $250,000 fine. The indictment also contains a notice of forfeiture.
An indictment is merely a charge, and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.
The case is being prosecuted by Trial Attorneys Edward T. Kang and Monique T. Abrishami of the Criminal Division’s Public Integrity Section, and Assistant U.S. Attorney Frederick A. Battista of the District of Arizona. The case is being investigated by the FBI’s Phoenix Field Office.
The indictment charges Paul Ben Arredondo, 63, of Tempe, with one count of federal programs bribery, two counts of honest services mail fraud, one count of attempted Hobbs Act extortion, and one count of making false statements. Arredondo will be arraigned on May 30, 2012 in U.S. District Court for the District of Arizona before U.S. Magistrate Judge Lawrence O. Anderson.
According to the indictment, Arredondo was a council member in Tempe for 16 years, until July 2010. He was elected to the Arizona House of Representatives in November 2010. The indictment alleges that from February 2009 to November 2010, Arredondo accepted, agreed to accept, and solicited things of value from representatives of a company whose purported business objective was to acquire city-owned property in Tempe for real estate development purposes. The representatives were, in fact, undercover agents with the FBI. According to the indictment, Arredondo received from the undercover agents more than $6,000 worth of tickets to sporting and other special events. Those tickets included 18 tickets for Arizona Diamondbacks baseball games valued at a total of approximately $2,400 and four tickets to an American League Championship Series baseball game valued at a total of approximately $1,225.
According to the indictment, in return for those tickets, Arredondo took and agreed to take action in his capacity as a Tempe city council member and as a member of the Arizona House of Representatives to facilitate the undercover agents’ purported purchase of city-owned property and development project. The indictment alleges that Arredondo brokered meetings between the undercover agents and other public officials, divulged information regarding the city of Tempe’s bidding process, and attempted to persuade other city officials to approve the purported development project.
The indictment further alleges that Arredondo lied to the FBI about his conduct during an interview in January 2012.
The federal programs bribery charge carries a maximum penalty of 10 years in prison and a $250,000 fine. Each count of honest services mail fraud and attempted extortion carries a maximum penalty of 20 years in prison and a $250,000 fine. The false statement charge carries a maximum penalty of five years in prison and a $250,000 fine. The indictment also contains a notice of forfeiture.
An indictment is merely a charge, and a defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.
The case is being prosecuted by Trial Attorneys Edward T. Kang and Monique T. Abrishami of the Criminal Division’s Public Integrity Section, and Assistant U.S. Attorney Frederick A. Battista of the District of Arizona. The case is being investigated by the FBI’s Phoenix Field Office.
Seattle Financial Advisor Indicted in $46 Million Investment Fraud Scheme
A long-time Seattle financial advisor was indicted by a federal grand
jury with 23 criminal counts, including wire fraud, money laundering and
investment advisor fraud, announced U.S. Attorney Jenny A. Durkan. Mark F.
Spangler, 57, of Seattle is accused of diverting investor money from accounts he
managed to risky start-up ventures in which he or his investment firm had an
ownership interest. Spangler allegedly diverted more than $46 million to two
companies, one of which is now shut down after failing to generate any positive
revenue. Those who invested in the funds managed by Spangler, as part of The
Spangler Group Inc.(TSG), were not told that their money was being invested in
risky start-up companies. Spangler and several of his companies went into
receivership last year. Today, the Securities and Exchange Commission filed a
civil suit against Spangler as well. Spangler is scheduled to appear in U.S.
District Court in Seattle on May 18, 2012 at 2:30.
“The Department of Justice is making the prosecution of financial fraud a top priority,” said U.S. Attorney Durkan. “These investors lost millions to a man they trusted to safeguard their resources. We are working closely with the SEC to ensure Mr. Spangler is held accountable for his fraud.”
The six investors described in the indictment were told their funds were conservatively invested in publicly traded companies and in bonds. Spangler allegedly provided them misleading statements over time, falsely describing the value of their accounts and how the money was invested. When investors sought to liquidate their holdings, Spangler was unable to provide them any funds, because the money had been funneled to the high risk start-up ventures that were not profitable.
According to the indictment, Spangler established a variety of funds as early as 1998 to pool investor money to buy publicly traded stocks and bonds. Spangler co-founded the two startup companies in the early 2000s—Tamarac Inc. in 2000 and TeraHop Networks Inc. in 2002. Tamarac Inc. is headquartered in Seattle and provides software to financial planners. TeraHop Networks Inc. is headquartered in Georgia and manufactured wireless devices used to monitor the location and activity of people and physical assets such as construction equipment. TeraHop has ceased operation. Spangler not only failed to disclose to his investors that he was diverting significant amounts of their funds to TeraHop and Tamarac, but he also failed to disclose that he was involved in the management of these companies, had an ownership interest in Tamarac, and was receiving payments from both companies. The indictment contains an order of forfeiture, which will be used to try to recover assets for the investors.
The case is being investigated by the FBI and Internal Revenue Service Criminal Investigation (IRS-CI).
The case is being prosecuted by Assistant United States Attorneys Mike Lang and Carl Blackstone.
“The Department of Justice is making the prosecution of financial fraud a top priority,” said U.S. Attorney Durkan. “These investors lost millions to a man they trusted to safeguard their resources. We are working closely with the SEC to ensure Mr. Spangler is held accountable for his fraud.”
The six investors described in the indictment were told their funds were conservatively invested in publicly traded companies and in bonds. Spangler allegedly provided them misleading statements over time, falsely describing the value of their accounts and how the money was invested. When investors sought to liquidate their holdings, Spangler was unable to provide them any funds, because the money had been funneled to the high risk start-up ventures that were not profitable.
According to the indictment, Spangler established a variety of funds as early as 1998 to pool investor money to buy publicly traded stocks and bonds. Spangler co-founded the two startup companies in the early 2000s—Tamarac Inc. in 2000 and TeraHop Networks Inc. in 2002. Tamarac Inc. is headquartered in Seattle and provides software to financial planners. TeraHop Networks Inc. is headquartered in Georgia and manufactured wireless devices used to monitor the location and activity of people and physical assets such as construction equipment. TeraHop has ceased operation. Spangler not only failed to disclose to his investors that he was diverting significant amounts of their funds to TeraHop and Tamarac, but he also failed to disclose that he was involved in the management of these companies, had an ownership interest in Tamarac, and was receiving payments from both companies. The indictment contains an order of forfeiture, which will be used to try to recover assets for the investors.
The case is being investigated by the FBI and Internal Revenue Service Criminal Investigation (IRS-CI).
The case is being prosecuted by Assistant United States Attorneys Mike Lang and Carl Blackstone.
Friday, May 18, 2012
FBI and U.S. Postal Inspection Service Announce Reward for Information Leading to the Arrest and Conviction of the Person(s) Responsible for the Recent Mailings of White Powder Letters in the North Texas Area
Kevin F. Kolbye, Acting Special Agent in Charge, Dallas, Federal Bureau of Investigation (FBI), and Randall C. Till, Inspector in Charge, Fort Worth Division, U.S. Postal Inspection Service (USPIS), announce a reward of up to $150,000 for information leading to the identification, arrest, prosecution, and conviction of the person(s) responsible for the recent mailings of letters containing white powder in the Dallas/Fort Worth area. The reward flyer is posted below.
During the week of May 7, 2012, over 20 letters containing white powder were received by early childhood development centers, elementary schools, and an aerospace-related business. These letters were received in Texas and several other states. The FBI, USPIS, local law enforcement, and local fire department hazardous materials teams responded to each location and field screened the letters for the presence of toxins or poisons. To date, none of the mailings have contained hazardous materials.
Each letter was sent through the U.S. mail and featured a postmark from North Texas. It is highly likely these letters were sent by the same person responsible for mailing over 380 letters, beginning in late 2008, each of which contained a non-hazardous substance. This person has sent letters to elementary, middle, and high schools; day care centers; churches; government offices; U.S. Embassies abroad; restaurants; and other private businesses. A sample letter is posted below.
The author has and continues to reference subjects such as al Qaeda and the Nazi SS, which is believed to have been included for shock value rather than to express any sincere sympathy or affiliation. In a recent letter, he used the terms “Scooby Doo” and “triple dealer spy” and made reference to CIA counterintelligence and FBI internal affairs.
The sender has taken steps to conceal his activities and prevent law enforcement from finding physical evidence of his crimes, including his fingerprints. A flyer announcing the reward along with possible details about the subject has been posted on the Dallas FBI website (www.fbi.gov/dallas) and on the USPIS website (postalinspectors.uspis.gov).
Although mail is screened for toxic substances prior to delivery, the public is reminded to take the following precautions should they open a piece of mail with a powdery substance in it.
During the week of May 7, 2012, over 20 letters containing white powder were received by early childhood development centers, elementary schools, and an aerospace-related business. These letters were received in Texas and several other states. The FBI, USPIS, local law enforcement, and local fire department hazardous materials teams responded to each location and field screened the letters for the presence of toxins or poisons. To date, none of the mailings have contained hazardous materials.
Each letter was sent through the U.S. mail and featured a postmark from North Texas. It is highly likely these letters were sent by the same person responsible for mailing over 380 letters, beginning in late 2008, each of which contained a non-hazardous substance. This person has sent letters to elementary, middle, and high schools; day care centers; churches; government offices; U.S. Embassies abroad; restaurants; and other private businesses. A sample letter is posted below.
The author has and continues to reference subjects such as al Qaeda and the Nazi SS, which is believed to have been included for shock value rather than to express any sincere sympathy or affiliation. In a recent letter, he used the terms “Scooby Doo” and “triple dealer spy” and made reference to CIA counterintelligence and FBI internal affairs.
The sender has taken steps to conceal his activities and prevent law enforcement from finding physical evidence of his crimes, including his fingerprints. A flyer announcing the reward along with possible details about the subject has been posted on the Dallas FBI website (www.fbi.gov/dallas) and on the USPIS website (postalinspectors.uspis.gov).
Although mail is screened for toxic substances prior to delivery, the public is reminded to take the following precautions should they open a piece of mail with a powdery substance in it.
- Leave the immediate area where the powder was spilled but keep yourself separated from individuals who have not been exposed to the powder. Do not attempt to clean up the powder and do not move the letter. Isolate the area where the spill has occurred.
- Wash hands immediately.
- Call 911 and advise them of the receipt of the mailing.
- Remember, all instances of white powder in this matter have tested negative for a toxic substance. The white powder, however, should still be handled with caution until verification of its lack of toxicity is received.
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