Brooklyn Man Charged with Defrauding Former Business Partners in $1 Million Kickback Conspiracy

NEWARK, NJ—The former part-owner, underwriter, and legal counsel for New York-based litigation funding company Law Funder, LLP has been arrested and charged in connection with an alleged secret kickback scheme which defrauded his former business partners of approximately $1 million, U.S. Attorney Paul J. Fishman announced.

Mathew Sheldon, 36, of Brooklyn, N.Y., was arrested Saturday by special agents of the FBI on a federal criminal complaint charging him with conspiracy to commit wire fraud. Sheldon was taken into custody at Miami International Airport before he boarded a commercial flight bound for the Dominican Republic. The defendant is expected to appear this afternoon before U.S. Magistrate Judge John J. O’Sullivan for an initial appearance and bail hearing in Miami federal court.

According to the complaint unsealed today in Newark federal court:

Law Funder, which extends loans to plaintiffs in pending civil litigation, did business with Montclair Funding Group, LLC (“MFG”), a brokerage firm with offices in Union City, N.J. Between approximately February 2005 and July 2009, Sheldon conspired with a broker from MFG to design and execute a secret kickback scheme. Law Funder would get new clients either directly or through broker services, and would pay fees to the referring brokers. As part of the scheme, Sheldon referred clients who had contacted Law Funder directly to the MFG broker, who would generate a fee by referring the client back to Law Funder. Sheldon would receive a kickback of approximately half of the broker’s fee. The scheme resulted in more than approximately $1 million in fraudulent payments to Sheldon.

Sheldon and his co-conspirator concealed the kickback scheme from Sheldon’s former business partners, Law Funder, and others by, among other means, using code words, such as “Giants” or the letter “G,” in records which referred to related transactions. During the conspiracy, Sheldon met weekly with his co-conspirator to identify the coded transactions and calculate the amount payable to Sheldon pursuant to the kickback scheme, which was paid using wire transfers and other means.

Sheldon used proceeds from the scheme to purchase illegal drugs, engage in illicit gambling, and patronize prostitutes in New York, New Jersey, and elsewhere.

The count with which Sheldon is charged carries a maximum potential penalty of 20 years in prison and a $250,000 fine.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, for the investigation leading to the arrest and charges. He also thanked inspectors of the Newark division of the U.S. Postal Inspection Service, under the direction of Acting Inspector in Charge Thomas E. Boyle.

“According to the complaint, Mathew Sheldon constructed a referral scheme solely to generate unnecessary fees, including a million dollars for his own use. Businesses and individuals should expect fees paid will be for honest work, not for illegal kickbacks used for additional, illicit purposes.”

“Regardless of the complexities or sophistication involved, dishonesty and fraud in the financial marketplace cannot be tolerated, as the risk and impact to honest customers is severe,” said Michael B. Ward, Special Agent In Charge of the FBI’s Newark Division. “This investigation is but a far-too-often example of those who seek to defraud the financial process for their personal benefit. Hopefully the arrest of Mr. Sheldon will serve as a stark reminder of law enforcement’s resolve toward combating financial crimes.”

The charge and allegations contained in the complaint are merely accusations, and the defendant is considered innocent unless and until proven guilty.

The government is represented by Assistant U.S. Attorney André M. Espinosa of the U.S. Attorney’s Office Economic Crimes Unit in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. 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.

Defense counsel: Michael Critchley, Sr., Esq., Roseland, N.J.