Former Employee of Nursing Home Company Operating in North Carolina and Virginia Sentenced to Serve 63 Months in Prison for Kickback Schemes and Tax Evasion

WASHINGTON—The former director of corporate maintenance and renovations at Medical Facilities of America Inc. (MFA) was today sentenced to serve 63 months in prison for accepting kickbacks from contractors and evading federal income taxes, the Department of Justice announced. MFA operates health care and nursing home facilities throughout Virginia and North Carolina.

John D. Henderson, of Colonial Heights, Virginia, was sentenced in U.S. District Court in Roanoke, Virginia, by Judge Samuel G. Wilson. In addition to his prison sentence, Henderson was ordered to pay a total of $698,088 in restitution and additional taxes, penalties, and interest to the Internal Revenue Service for his participation in two separate conspiracies. The conspiracies involved steering contracts for the repair, maintenance, and renovation at MFA health care and nursing home facilities. One of the conspiracies took place from about June 1998 until at least December 2006, and the other conspiracy took place from about July 2005 until at least December 2006. Henderson pleaded guilty on March 14, 2012, to two counts of conspiracy to commit mail and honest services fraud for the kickback schemes and to two counts for failing to include the kickbacks and other income he received on his federal income tax returns for years 2005 and 2006.

According to the four-count felony charge, Henderson oversaw the bidding process for repair, maintenance, and renovation contracts at MFA facilities. To facilitate the conspiracies, Henderson steered contracts to several venders in return for kickbacks; created fictitious competitor bids that were higher than the quotes submitted by the venders who paid him, in order to create the appearance of competition; and directed subordinates to solicit quotes only from vendors who paid him. Henderson received more than $560,000 in kickbacks and had at least $101,000 more paid to a co-conspirator, and in return steered MFA contracts totaling more than $5 million.

“Through this kickback scheme, Henderson and his co-conspirators deprived MFA of competitive pricing to its financial detriment,” said Acting Assistant Attorney General Joseph Wayland in charge of the Antitrust Division. “Today’s sentencing demonstrates the division’s commitment to holding executives accountable for disrupting the competitive bidding process for service contracts.”

Henderson is the fifth individual to plead guilty in the department’s fraud investigation into the award of repair, maintenance, and renovation contracts at facilities owned by MFA. On October 18, 2011, both Donald R. Holland and Larry R. Sumpter pleaded guilty in U.S. District Court in Roanoke to participating in the scheme. On January 31, 2012, Holland and Sumpter were each sentenced by Judge Samuel G. Wilson to serve two years of probation and were fined $50,000 and $15,000, respectively. On April 4, 2011, Edward T. Fodrey pleaded guilty in U.S. District Court in Norfolk, Virginia, and was sentenced by Judge Mark S. Davis on January 31, 2012, to serve 37 months in prison and was ordered to pay $326,799 in restitution. Gary L. Johns pleaded guilty on December 12, 2011, in U.S. District Court in Roanoke and was sentenced by Judge Wilson on March 14, 2012, to serve three years of probation and to pay $169,341 in restitution.

The investigation is being conducted by the Antitrust Division’s Philadelphia Field Office, the U.S. Attorney’s Office for the Western District of Virginia, the FBI in Roanoke, and the Internal Revenue Service-Criminal Investigation in Roanoke. Anyone with information concerning fraudulent behavior relating to the award of contracts by MFA should contact the Antitrust Division’s Philadelphia Field Office at 215-597-7405 or visit www.justice.gov/atr/contact/newcase.htm.

Owner of Southern California-Based Mesquite Charcoal Distributor Pleads Guilty to Customer Allocation and Bid-Rigging Conspiracy

WASHINGTON—The owner of a southern California-based mesquite charcoal distributor pleaded guilty for his role in a customer allocation and bid-rigging conspiracy for the sale of mesquite charcoal, the Department of Justice announced today.

According to a one-count felony charge filed on May 7, 2012, in the U.S. District Court in San Francisco, William W. Lord, the owner of Carpinteria, California-based Chef’s Choice Mesquite Charcoal, participated in a conspiracy with competitors to refrain from competing for each other’s customers and to submit non-competitive bids for the sale of mesquite charcoal. According to the plea agreement, Lord has agreed to cooperate with the department’s ongoing investigation.

“Today’s charge demonstrates the Antitrust Division’s commitment to prosecute bid-rigging conspiracies that involve products used in the everyday lives of consumers and businesses’ daily operations,” said Acting Assistant Attorney General Joseph Wayland in charge of the Department of Justice’s Antitrust Division.

Chef’s Choice distributes and sells mesquite charcoal throughout the United States. Mesquite charcoal, which is typically used by restaurants and individuals to grill meat, fish, and poultry, is primarily produced in Mexico and then sold to distributors in the United States for eventual resale to restaurants and consumers.

According to court documents, the charged conspiracy began as early as January 2000 and lasted until about September 2010. Lord and his competitors, a Los Angeles-area mesquite charcoal distributor and a San Francisco-area mesquite charcoal distributor, entered into an agreement to refrain from competing for the sale of mesquite charcoal to each other’s customers. The purpose of this agreement was to ensure that Lord and his competitors would not have to reduce mesquite charcoal prices in the face of competition in order to retain their customers. Lord and his competitors carried out the conspiracy in various ways, including: refraining from submitting bids for the sale of mesquite charcoal to each other’s customers; submitting intentionally noncompetitive bids to each other’s customers; and communicating with each other regarding what price to bid and then submitting agreed-upon, non-competitive bids to each other’s customers.

Lord is charged with violating the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim of the crime if either of those amounts is greater than the statutory maximum fine.

Today’s guilty plea arose from an ongoing federal investigation of the mesquite charcoal industry in the United States. The investigation is being conducted by the Department of Justice Antitrust Division’s Chicago Field Office and the FBI’s San Francisco Office. Anyone with information concerning customer allocation, bid-rigging or price fixing related to the mesquite charcoal industry in the United States should contact the Antitrust Division’s Chicago Field Office at 312-353-7530 or visit www.justice.gov/atr/contact/newcase.htm.

Former Employee of Nursing Home Company Operating in North Carolina and Virginia Pleads Guilty to Kickback Schemes and Tax Evasion

Co-Conspirator Sentenced for His Role in Scheme

WASHINGTON—The former director of corporate maintenance and renovations at Medical Facilities of America Inc. (MFA) pleaded guilty today to accepting kickbacks and evading taxes, the Department of Justice announced. MFA operates health care and nursing home facilities throughout Virginia and North Carolina.

According to a four-count charge filed today in U.S. District Court in Roanoke, Virginia, John D. Henderson, a resident of Colonial Heights, Virginia, conspired with others to steer contracts for repair, maintenance, and renovations at MFA facilities to co-conspirator contractors in return for kickbacks beginning as early as June 1998 through December 2006. Henderson was also charged with evading taxes on his 2005 and 2006 federal tax returns. According to the plea agreement, which is subject to court approval, Henderson has agreed to cooperate with the department’s ongoing investigation.

According to court documents, as the director of corporate maintenance and renovations at MFA, Henderson was responsible for overseeing maintenance, repairs and renovations of the various MFA locations throughout Virginia and obtaining quotes from contractors for capital improvements and equipment purchases. Henderson participated in a conspiracy with contractors Donald R. Holland and Larry R. Sumpter to defraud MFA by circumventing MFA’s competitive procurement process and steering contracts to Hardy Plumbing & Heating Corp., formerly owned by Holland and Sumpter, in return for monetary payments. The department said that Henderson created fictitious competitor bids that were higher than the quotes submitted by Hardy Plumbing, and he directed subordinates to solicit quotes only from Hardy Plumbing. As a result of the conspiracy, Henderson received payments from Holland and Sumpter totaling more than $250,000.

According to court documents, Henderson also participated in a separate conspiracy with contractors Edward T. Fodrey, Gary L. Johns, and others to defraud MFA by circumventing MFA’s competitive procurement process and steering contracts to the contractors’ companies in return for monetary payments to himself and a co-conspirator. The department said that Henderson created fictitious competitor bids that were higher than the quotes submitted by co-conspirators’ companies, and directed subordinates to solicit quotes only from the conspiring vendors. As a result of the conspiracy, Henderson received more than $400,000 in kickbacks from Fodrey, Johns, and other co-conspirators.

Henderson is charged with two counts of conspiracy to commit mail and honest services fraud for the two separate kickback schemes, each of which carries a maximum penalty of 20 years in prison and a $250,000 criminal fine. Henderson is also charged with two counts of tax evasion, each of which carries a maximum penalty of five years in prison and a $250,000 criminal fine, together with the cost of prosecution. The maximum fines for each of these charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximums.

Henderson is the fifth individual to plead guilty in the department’s fraud investigation into the award of repair, maintenance, and renovation contracts at facilities owned by MFA. On October 18, 2011, both Holland and Sumpter pleaded guilty in the U.S. District Court in Roanoke to participating in the scheme. On Jan. 31, 2012, Holland and Sumpter were each sentenced by Judge Samuel G. Wilson to two years of probation and fined $50,000 and $15,000, respectively. On April 4, 2011, Fodrey pleaded guilty in the U.S. District Court in Norfolk, Virginia and was sentenced by Judge Mark S. Davis on Januaey 31, 2012 to serve 37 months in prison and was ordered to pay $326,799 in restitution. Johns pleaded guilty on December 12, 2011, in the U.S. District Court in Roanoke and was sentenced today by Judge Wilson to serve three years of probation and to pay $169,341 in restitution.

The investigation is being conducted by the Antitrust Division’s Philadelphia Field Office, the U.S. Attorney’s Office for the Western District of Virginia, the FBI in Roanoke, and the Internal Revenue Service-Criminal Investigation in Roanoke. Anyone with information concerning fraudulent behavior relating to the award of contracts by MFA should contact the Antitrust Division’s Philadelphia Field Office at 215-597-7405 or visit Justice.gov/atr/contact/newcase.htm.

California Investor Pleads Guilty to Bid Rigging and Fraud at Public Real Estate Foreclosure Auctions

10th Guilty Plea in the Investigation to Date

SACRAMENTO, CA—A real estate investor pleaded guilty today in U.S. District Court in Sacramento to conspiring to rig bids and commit mail fraud at public real estate foreclosure auctions held in San Joaquin County, Calif., Sharis A. Pozen, Acting Assistant Attorney General of the Department of Justice’s Antitrust Division, and Benjamin B. Wagner, U.S. Attorney for the Eastern District of California, announced.

Wiley C. Chandler pleaded guilty to conspiring with a group of real estate speculators who agreed to rig bids and commit mail fraud when purchasing selected properties at public real estate foreclosure auctions in San Joaquin County. The goals of the conspiracies were to suppress and restrain competition, to fraudulently obtain selected real estate at noncompetitive prices and to divert money to coconspirators that would have gone to the beneficiaries, the department said in court papers.

According to the court documents, after the conspirators’ designated bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group’s illicit profit. The illicit profit was divided among the conspirators in payoffs. According to Chandler’s plea agreement, the conspiracies began at least early as September 2008 and continued until at least October 2009.

To date, 10 individuals, including Chandler, have pleaded guilty in U.S. District Court for the Eastern District of California in connection with the investigation. They are: Anthony B. Ghio; John R. Vanzetti; Theodore B. Hutz; Richard W. Northcutt; Yama Marifat; Gregory L. Jackson; Walter Daniel Olmstead; Robert Rose; and Kenneth A. Swanger.

Chandler was indicted by a federal grand jury in Sacramento on Dec. 7, 2011 with three investors—Andrew B. Katakis, Donald M. Parker and Anthony B. Joachim—and one auctioneer, W. Theodore Longley. Trial dates for these individuals have yet to be set.

“The Antitrust Division will continue to cooperate with its law enforcement partners to bring to justice those who undermine the competitive market for foreclosed properties and harm consumers,” said Acting Assistant Attorney General Pozen.

“Public auctions are meant for the public, not for an elite group conspiring together for their own profit,” U.S. Attorney Wagner stated. “The prosecution of these defendants is necessary to protect the integrity of the housing market.”

Chandler pleaded guilty to bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime if either of those amounts is greater than the statutory maximum fine. Chandler also pleaded guilty to conspiracy to commit mail fraud, which carries a maximum sentence of 30 years in prison and a $1 million fine.

These charges arose from an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in San Joaquin County. The investigation is being conducted by the Antitrust Division’s San Francisco Field Office, the U.S. Attorney’s Office for the Eastern District of California, the FBI’s Sacramento Division and the San Joaquin County District Attorney’s Office. Trial attorneys Anna Pletcher and Tai Milder from the Antitrust Division’s San Francisco Field Office and Assistant U.S. Attorney Russell L. Carlberg are prosecuting the case.

Today’s charges are part of efforts underway by 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. One component of the task force is the national Mortgage Fraud Working Group, co-chaired by U.S. Attorney Wagner. For more information on the task force, visit www.StopFraud.gov.

Anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Field Office at 415-436-6660, visit www.justice.gov/atr/contact/newcase.htm, contact the U.S. Attorney’s Office for the Eastern District of California at 916-554-2700 or contact the FBI’s Sacramento Division at 916-481-9110.

Two Financial Investors Plead Guilty to Bid Rigging at Municipal Tax Lien Auctions in New Jersey

WASHINGTON—Two financial investors who purchased municipal tax liens at auctions in New Jersey pleaded guilty today for conspiring to rig bids for the sale of tax liens auctioned by municipalities throughout the state, the Department of Justice announced.

A felony charge was filed today in U.S. District Court for the District of New Jersey in Newark, N.J., against Robert W. Stein of Huntington Valley, Pa., and David M. Farber of Cherry Hill, N.J. Under the plea agreements, which are subject to court approval, Stein and Farber have both agreed to cooperate with the department’s ongoing investigation.

According to the felony charge against Stein, from as early as 1998 until approximately spring 2009, Stein participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey by agreeing to allocate among certain bidders on which liens to bid. According to the felony charge against Farber, from as early as the beginning of 2005 through approximately February 2009, Farber also participated in a conspiracy to rig bids at auctions for the sale of municipal tax liens in New Jersey. The department said that both Stein and Farber proceeded to submit bids in accordance with their agreements and purchased tax liens at collusive and non-competitive interest rates. “Today’s guilty pleas demonstrate that the Antitrust Division will not tolerate those who manipulate the competitive process in order to harm home and property owners,” said Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice’s Antitrust Division.

The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected municipal tax liens offered at public auctions at non-competitive interest rates. When the owner of real property fails to pay taxes on that property, the municipality in which the property is located may attach a lien for the amount of the unpaid taxes. If the taxes remain unpaid after a waiting period, the lien may be sold at auction. State law requires that investors bid on the interest rate delinquent homeowners will pay upon redemption. By law, the bid opens at 18 percent interest and, through a competitive bidding process, can be driven down to zero percent. If a lien remains unpaid after a certain period of time, the investor who purchased the lien may begin foreclosure proceedings against the property to which the lien is attached.

According to the court documents, Stein conspired with others not to bid against one another at municipal tax lien auctions in New Jersey. Farber also agreed not bid against certain bidders at tax lien auctions. Because the conspiracies permitted the conspirators to purchase tax liens with limited competition, each conspirator was able to obtain liens which earned a higher interest rate. Property owners were therefore made to pay higher interest on their tax debts than they would have paid had their liens been purchased in open and honest competition.

Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for a Sherman Act violation may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.

Today’s pleas are the result of an ongoing investigation into bid rigging or fraud related to municipal tax lien auctions. On Aug. 24, 2011, Isadore H. May, Richard J. Pisciotta Jr. and William A. Collins each pleaded guilty to one count of bid rigging in connection with their participation in a conspiracy to allocate liens at New Jersey municipal tax lien auctions.

Today’s charges are part of efforts underway by President Barack Obama’s Financial Fraud Enforcement Task Force (FFETF). President Obama established the interagency FFETF 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. For more information on the task force, visit www.StopFraud.gov.

The ongoing investigation is being conducted by the Antitrust Division’s New York Field Office and the FBI’s Atlantic City, N.J., office. Anyone with information concerning bid rigging or fraud related to municipal tax lien auctions should contact the Antitrust Division’s New York Field Office at 212-335-8000, visit www.justice.gov/atr/contact/newcase.htm or contact the Atlantic City Resident Agency of the FBI at 609-677-6400.

White Collar Crime Stories: Success of Antitrust Enforcement

Success of DOJ/FBI Partnership

What are the two greatest investments for most Americans? Homes and vehicles. And the FBI is working alongside our partners in the Antitrust Division at the Department of Justice (DOJ) to make sure consumers aren’t defrauded by artificial increases in car prices or deflation of home values as a result of antitrust practices.

For example: in September, a Japanese auto parts company with operations in the U.S.—along with three of its executives—agreed to plead guilty in federal court in Detroit to a price-fixing and bid-rigging conspiracy with other companies involving the sale of parts to automobile manufacturers. The victims in this case? Other auto parts dealers who were shut out of the bidding process, car manufacturers who paid higher prices for auto parts, and ultimately, American car buyers who paid more for the price of a car.

A second example: As of October, 18 real estate investors have pled guilty in connection with two separate conspiracies to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in Northern California. When real estate properties are sold at these auctions, the proceeds pay off the mortgage and other debt attached to the property. These conspiracies cause the homes to be sold for less than they would go for at a fair and competitive auction. This lower price directly affects anyone in that neighborhood trying to sell their home.

Of course, antitrust violations go beyond auto parts and real estate. Recent criminal antitrust investigations have involved a number of industries, including freight-forwarding, concrete-mixing, optical disks, refrigerant compressors, and electronic LCD panels.

Antitrust activities raise prices and suppress competition, hurting businesses who play by the rules as well as consumers who pay more for products or services. And increasingly, profits from antitrust conspiracies to go foreign companies, which can impact the ability of U.S. businesses to remain competitive in the world market.

DOJ’s Antitrust Division is charged with civil and criminal enforcement of federal antitrust laws, and FBI investigators work jointly with DOJ antitrust prosecutors at several regional DOJ antitrust offices. In the mid-1990s, that partnership really took off when we embarked on a highly aggressive antitrust enforcement program, focusing resources on long-range investigations involving national and international conspiracies that greatly impacted U.S. commerce.

Antitrust violations include:

■Price-fixing—when competitors agree to raise, lower, or maintain the price at which their products or services are sold;

■Bid rigging—an agreement that competitors work out ahead of time about who’s going to be awarded a contract and at what price; and
■Market allocation—involving agreements among conspirators on how to divvy up market share, either geographically or by customer.

To conduct antitrust investigations, we use the full arsenal of investigative tools available to us in all criminal cases, including the execution of search warrants on businesses, interviews, analysis of hard copy and electronic records, court-authorized electronic surveillance, and cooperating witnesses.

Importance of international cooperation. A vital piece of our antitrust effort is increased support and assistance from our foreign law enforcement partners—the Department of Justice currently has in place antitrust cooperation agreements with approximately 10 countries, including Russia and China.

These agreements come in very handy when our antitrust investigations lead us overseas….which happens nearly every day as more companies expand their operations worldwide.

Tips for Spotting Antitrust Schemes
Price fixing, bid rigging, and market allocation can be very difficult to detect because the agreements are usually reached in secret, with only the participants having knowledge of the scheme. We often receive tips about possible antitrust activity from business competitors, but there are some telltale signs that others might be able to recognize:
 
- Large price changes involving more than one seller of similar products but different brands, especially if the price changes happen at about the same time;
 - Statements from a seller suggesting that a particular customer or contract “belongs” to a certain vendor;
 - Fewer competitors than normal submitting bids on a project;
 - The same company repeatedly being the low bidder on contracts for a product or service, or in a particular area;
 - Bidders seeming to win bids on a fixed rotation; and
 - Unusual and unexplainable large-dollar differences between the winning bids and all other bids.
 
Keep in mind that these signs are by no means conclusive evidence of antitrust violations, just indicators that they may be. But if you do suspect someone of violating federal antitrust laws, you can report it to DOJ at antitrust.complaints@usdoj.gov or to the FBI through our Tips webpage.

Michigan Businessman Sentenced to 15 Months in Prison for Defrauding the Federal E-Rate Program

WASHINGTON—The president and part owner of a Michigan-based Internet and technology services company was sentenced today to serve 15 months in prison for defrauding the federal E-Rate program, the Department of Justice announced.

Jeremy R. Sheets was also sentenced by Judge Paul L. Maloney of U.S. District Court in Kalamazoo, Mich., to pay a $12,000 criminal fine and to pay $115,534 in restitution for engaging in wire fraud in connection with the E-Rate applications of two school districts his company serviced in western Michigan. Sheets was charged with wire fraud on Dec. 9, 2010, and pleaded guilty on Jan. 24, 2011.

As a result of the Antitrust Division’s investigation into fraud and anticompetitive conduct in the E-Rate program, a total of seven companies and 24 individuals have pleaded guilty, been convicted at trial or entered civil settlements. Those companies and individuals have been sentenced to pay criminal fines and restitution totaling more than $40 million. Eighteen individuals, including Sheets, have been sentenced to serve prison time.

According to the charge, Sheets violated E-Rate program rules by compensating two school districts for their share of E-Rate expenses. In addition, Sheets utilized E-Rate funds to purchase undisclosed items, some of which were not eligible for E-Rate funding. Sheets concealed his violation of E-Rate program rules from the E-Rate program by fraudulently misrepresenting that the schools had been billed for their E-Rate expenses when, in fact, Sheets had reimbursed the schools for their share of expenses. The department said Sheets engaged in the wire fraud beginning in or about December 2001 and continuing until about December 2007.

The E-Rate program was created by Congress in the Telecommunications Act of 1996 and is administered by the Universal Service Administrative Company, under the auspices of the Federal Communications Commission (FCC). The program provides subsidies to economically disadvantaged schools and libraries. Depending on the financial needs of the applicant schools, the program pays 20 to 90 percent of the cost for Internet access and telecommunications services, as well as internal computer and communications networks.

Today’s sentencing resulted from an investigation by the Department of Justice Antitrust Division’s Chicago Field Office, with the assistance of the U.S. Attorney’s Office in Grand Rapids, the FBI’s Grand Rapids Office of its Detroit Division, and the FCC’s Office of Inspector General. Anyone with information concerning violations of the E-Rate program or other anti-competitive conduct is urged to call the Antitrust Division’s Chicago Field Office at 312-353-7530 or visit justice.gov/atr/contact/newcase.htm.