Carl J. Shapiro and Others Agree to $625 Million Civil Forfeiture for Victims of Bernard L. Madoff’s Ponzi Scheme

Irving H. Picard to Serve as Department of Justice Special Master for Returning Forfeited Funds to Victims

NEW YORK—Carl J. Shapiro and various related people and entities have agreed to forfeit $625 million to the United States, all of which will be made available to the victims of the fraudulent investment advisory business which was owned and operated by Bernard L. Madoff. The distribution of funds to victims will be administered by Irving H. Picard in his dual capacities as the newly-appointed special master to assist the department in connection with the victim remission proceedings, and as the court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities LLC, under the Securities Investor Protection Act. The agreement was submitted to and approved by U.S. District Judge Thomas P. Griesa today.

The announcement was made by Preet Bharara, U.S. Attorney for the Southern District of New York; Orlan Johnson, Chairman of the Securities Investor Protection Corporation (SIPC); Janice K. Fedarcyk, Assistant Director-in-Charge of the New York Field Division of the FBI; and Charles R. Pine, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service (IRS), Criminal Investigation Division, announced today that

According to the stipulation and order of settlement and accompanying civil forfeiture complaint filed in Manhattan federal court earlier today, the investment advisory business of Bernard L. Madoff Investment Securities LLC (BLMIS) was operated from at least as early as the 1980s as a massive Ponzi scheme, defrauding investors of billions of dollars. Rather than use client funds to invest in securities, as promised, BLMIS diverted those funds to (a) pay other clients’ redemption requests; (b) fund transactions to disguise BLMIS’s fraud; and (c) enrich Madoff, his family, and his associates. In order to support the lie that BLMIS was operating a legitimate investment advisory business, BLMIS created and disseminated fictitious account statements that, among other things, showed trades that never actually took place. During the course of the fraud, Madoff’s clients lost approximately $20 billion in funds they invested with BLMIS.

Since at least the late 1960s, Carl J. Shapiro was an investor in BLMIS, holding an account in his own name and controlling accounts held by various related individuals and entities. Over the course of his approximately 40-year relationship with Madoff and BLMIS, Shapiro invested hundreds of millions of dollars into his BLMIS accounts, but withdrew hundreds of millions more. When Madoff was arrested in December 2008 and his fraud was revealed, it became clear that Shapiro—like all of BLMIS’s investors who withdrew more money than they invested—had profited at the expense of more recent BLMIS investors.

In order to resolve any potential civil claims by the government against Shapiro and his family, the Shapiro family has agreed to forfeit $625 million to the government—an amount in excess of Carl J. Shapiro and his wife’s current net worth, as well as in excess of the fictitious profits that Shapiro and his wife took out of BLMIS. The settlement contains no finding or admission of fault against Shapiro or his family; the settlement does not, however, release any party from criminal liability.

Simultaneously with the announcement of today’s historic settlement, U.S. Attorney Bharara announced that the department has appointed Irving H. Picard as special master to assist in identifying eligible victims, verifying their losses, and distributing the forfeited funds in accordance with department regulations governing remission or mitigation of forfeitures. For approximately two years, Picard has served as the court-appointed trustee for BLMIS under the Securities Investment Protection Act (SIPA). Under the terms of today’s settlement, and a related settlement submitted to the U.S. Bankruptcy Court for the Southern District of New York, Picard will administer $550 million of the funds being returned to investors by the Shapiro family through the SIPA liquidation proceedings, and the remaining $75 million through the department’s remission or mitigation process.

“For almost 40 years, Carl Shapiro invested hundreds of millions of dollars with Bernie Madoff but withdrew far more,” said U.S. Attorney Preet Bharara. “By requiring him to forfeit this money—more than he is currently worth—the government and the SIPA Trustee have sent an important message: those who profited as a result of Bernard Madoff’s fraud should disgorge those profits, which are rightfully other people's money. We will continue to work tirelessly with our partners from SIPC, the FBI, and the IRS, to track down any and all proceeds of Madoff’s Ponzi scheme and return them to their rightful owners. And, to be clear, the criminal and civil forfeiture investigations relating to the Madoff fraud are very much ongoing.”

“The trustee used the legal tools made available under the Bankruptcy Code and SIPA to benefit the victims here,” said SIPC Board Chairman Johnson. “The Madoff case is now entering a new phase. I hope this marks the beginning of a period that will see many such settlements.”

“As we approach the two-year anniversary of the Bernard Madoff arrest, this settlement represents a significant step in the restitution of retirements, pensions, and university endowments that were robbed with blatant disregard for the law,” said FBI Assistant Director-in-Charge Fedarcyk. “It takes a special depravity to victimize so many people so severely. The investigation of prodigious fraud, like that of Madoff, remains one of the FBI's top priorities. From robbers to fraudsters, the FBI will continue to bring to justice crooks who steal.”

“Investment fraud is never a victimless crime,” said IRS Criminal Investigation Special Agent-in-Charge Pine. “Financial distress left in the wake of a crumbling investment scheme leaves victims in financial ruins and feeling betrayed by individuals they trusted would help them make a better life. The victims in the case can know that IRS Criminal Investigation has resources devoted to assisting the U.S. Attorney to hold the perpetrators accountable, and to help re-coop some of their stolen money.”

U.S. Attorney Bharara praised the work of SIPC, the SIPA Trustee, the FBI, the IRS, the Department of Labor’s Employee Benefits Security Administration and Office of the Inspector General, the Department of Justice’s Criminal Division’s Asset Forfeiture and Money Laundering Section, and the U.S. Marshals Service. U.S. Attorney Bharara also thanked the Securities and Exchange Commission for their assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. 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.

Assistant U.S. Attorneys Lisa A. Baroni, Julian J. Moore, Barbara A. Ward, and Matthew L. Schwartz are in charge of the case.

Firefighter Fatality

The United States Fire Administration (USFA) has received notice of the following firefighter fatality:

Name: Dillon C. Denton

Rank: Lieutenant

Age: 64

Gender: Male

Status: Volunteer

Years of Service: 30+

Date of Incident: 12/06/2010

Time of Incident: 2000hrs

Date of Death: 12/07/2010

Fire Department:

Charlotte Road

/ Van Wyck Fire Department

Address:

4455 Old Hickory RD, Lancaster, SC 29720

Fire Department Chief: Craig Roff

Incident Description: Lieutenant Denton was participating in a training activity when he informed other members that he wasn't feeling well. He was assisted by fellow firefighters and Lancaster County EMS then airlifted to the Carolina Medical Center where he passed away early in the morning of December 7th from a reported brain aneurysm.

Incident Location: Next door to the fire department in the parking lot of the Trinity Presbyterian Church.

Funeral Arrangements: Pending

Memorial Fund Contact and Address: Pending

Tribute is being paid to Lieutenant Dillon C. Denton at http://www.usfa.dhs.gov/fireservice/fatalities/

To date, 81 firefighter fatalities have been reported to USFA in 2010; 79 from incidents that occurred in 2010 and 2 from previous year incidents.  Year-to-date monthly and annual USFA firefighter fatality reports are posted online @ http://www.usfa.dhs.gov/fireservice/fatalities/statistics/ff_stats.shtm.

East St. Louis Man Sentenced on Marijuana Offense

Stephen R. Wigginton, United States Attorney for the Southern District of Illinois, announced today that on December 6, 2010, TERRION WILLIAMS, age 30, of East St. Louis, Illinois, was sentenced in the United States District Court, East St. Louis, Illinois, following a previously entered guilty plea to an indictment charging him with possession with intent to distribute marijuana. The violation took place on December 8, 2009, in St. Clair County, Illinois. WILLIAMS was sentenced to 12 months’ imprisonment, three years’ supervised release, and was ordered to pay a $250 fine and a $100 special assessment.

According to court documents, on December 8, 2009, law enforcement officers went to the defendant’s residence in East St. Louis, upon receiving a tip that marijuana was at the residence. After obtaining consent to search the residence from WILLIAMS, police recovered 376.8 grams of marijuana which WILLIAMS admitted was his.

The case resulted from the efforts of the WAVE (Working Against Violent Elements) Task Force, which focuses its efforts on combating violent crime in East St. Louis, Washington Park, and surrounding communities. WAVE was formed in November, 2009, and is a collaboration of law enforcement officers from the Illinois State Police, the Metropolitan Enforcement Group of Southwestern Illinois (MEGSI), the St. Clair County Sheriff’s Department, the East St. Louis Police Department, the Federal Bureau of Investigation, the Bureau of Alcohol, Tobacco, Firearms, and Explosives, and the United States Marshals Service. The WAVE Task Force receives financial support through the Department of Justice’s Project Safe Neighborhoods (PSN) initiative, a nationwide federal program which endeavors to address gun-related violence. The case was handled by Assistant United States Attorney Kit R. Morrissey.

Serial Bank Robber Strikes Again in Philadelphia

The FBI, the Philadelphia Police Department, and the Cheltenham Township (PA) Police Department are seeking the public’s assistance to identify and locate the subject believed to be responsible for at least four bank robberies in the Philadelphia area since November 12, 2010.

The same subject is believed to be responsible for the following robberies:

November 12, 2010 robbery of the Sovereign Bank branch located at

500 Central Avenue, Cheltenham, PA.

November 30, 2010 robbery of the Bank of America branch located at

1000 Cottman Avenue, Philadelphia, PA

December 1, 2010 robbery of the Bank of America branch located at 6425 Rising Sun Avenue, Philadelphia, PA

December 2, 2010 robbery of the VIST Financial branch located at

8004 Verree Road, Philadelphia, PA

In each of the robberies, the subject has presented threatening demand notes to tellers and fled the area of the banks on foot after obtaining cash. The subject is described as a black male in his 20s or 30s, 5’6” to 5’8” tall, medium build, clean shaven, and has been wearing hats and heavy coats in the robberies.

This subject is considered armed and dangerous. Anyone with information is asked to call the FBI at 215-418-4000, the Philadelphia Police Department, or the Cheltenham Police Department at 215-885-1600. There may be a reward for information leading to this subject’s capture, and tipsters can remain anonymous.

Beverly Hills Woman Arrested on Federal Charges of Running Ponzi Scheme That Collected Almost $11 Million

Federal authorities have arrested a Beverly Hills woman on federal wire fraud charges for allegedly running a Ponzi scheme that collected nearly $11 million from scores of Southland victims who were promised huge profits from settlement annuities.

Rosi Ray, 56, of Beverly Hills, was arrested at her business yesterday by special agents with the Federal Bureau of Investigation. Ray, who also used the names “Rose Ray” and “Gloria Lujan,” was arraigned late Thursday in United States District Court in Los Angeles, where she pled not guilty to the five counts in the indictment.

The indictment, which was returned by a federal grand jury on December 1, alleges that Ray and others solicited investments from victims who were told their money would be used to purchase court-ordered, monetary settlement annuities from accident victims at a discount, and the settlement annuities would then be cashed in at a substantial profit. Ray told investors that once she purchased the annuities she could arrange to receive the true value of the settlement in a lump sum. As part of the scheme, Ray told victims that their investments were guaranteed to earn a substantial monthly return, anywhere from 10 to 200 percent over a period of two to 12 months.

The indictment alleges that Ray did not spend any of the investors’ money on the promised investments. Rather, Ray spent the money on investor payouts, her son’s drag racing career, her purse consignment business, and personal expenses.

As a result of the fraud scheme, the indictment alleges, Ray caused approximately 180 investors to invest approximately $10.9 million in the bogus monetary settlement annuity business, with approximately half of the investors losing most of their money.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

Each count of wire fraud in the indictment carries a statutory maximum penalty of 20 years in federal prison.

Ray was released late Thursday on a $100,000 bond. She is currently scheduled to go on trial on January 25 in United States District Court in Santa Ana.

The case against Ray is the result of an investigation by the Federal Bureau of Investigation.

Former corporate executive from Oregon pleads guilty to financial crimes

PORTLAND, Ore. - A former executive at athletic footwear and apparel company Nike pleaded guilty to evading currency importation reporting laws and filing a false federal income tax return, following an investigation by the U.S. Immigration and Customs Enforcement (ICE) Office of Homeland Security Investigations (HSI).

Ronald N. Hartfeil, 52, of Oregon City, Ore., traveled to South Korea in 2007. When he returned to the United States, he was carrying $20,000 worth of traveler's checks, but he failed to declare them to U.S. customs authorities.

According to the plea agreement, Hartfeil knew he was required to report that he was transporting more than $10,000, but he purposely evaded this requirement. In addition, he mailed an additional $10,000 in traveler's checks to his home in Oregon from South Korea.

The investigation into Hartfeil also revealed that he and his wife Debra L. Hartfeil, 52, jointly filed a federal tax return declaring an adjusted gross income of $1,879,061 for 2007. The income was reportedly earned primarily from Mr. Hartfeil's position at Nike.

However, further investigation into the Hartfeil's finances showed that in 2005, 2006 and 2007, they received a $100,000 per year from a Korean footwear manufacturer. This income was not reported on their joint federal income tax returns, allowing the couple to avoid additional tax liabilities of more than $25,000 over a three-year period. Mrs. Hartfeil has pleaded guilty to filing a false federal income tax return.

"Today's guilty plea serves as a reminder of the importance of complying with our nation's monetary laws," said Leigh Winchell, special agent in charge of ICE HSI for the Pacific Northwest. "HSI will continue to target individuals and organizations that engage in this type of illegal activity to ensure that they do not create vulnerability and exploit our nation's financial system."

HSI was joined in this investigation by the Internal Revenue Service Criminal Investigation Division and the case was prosecuted by Assistant U.S. Attorney Hannah Horsley. The Hartfeils are scheduled to be sentenced on March 8, 2011.

ICE recovers stolen Degas masterpiece set to be sold at auction

NEW YORK - The United States entered into a settlement agreement with a New York-based art collector that provides for the return of a rare Edgar Degas to the government of France following an investigation by the U.S. Immigration and Customs Enforcement (ICE) Office of Homeland Security Investigations (HSI).

The painting, Blanchisseuses souffrant des dent, was stolen from the Malraux Museum in Le Havre in Normandy, France, on Dec. 27, 1973. At the time of its theft, the artwork was on loan to the museum from the collection of the French government, which considers the Degas artwork to be a national treasure.

The French government loaned the painting to the museum in June 1961 in honor of the reconstruction of the museum's building, which had been destroyed during World War II. Degas' Blanchisseuses souffrant des dent was painted approximately in 1870-1872, signed by Degas, and, like most French national paintings, was registered in the inventory of the Louvre Museum.

The painting was rediscovered last month when it appeared in the Sotheby's New York on the Nov. 3, 2010, Impressionist and Modern Art Day Sale catalogue.

Sotheby's promptly cooperated with law enforcement and pulled the piece from the auction block.

When inspected, federal agents found the Louvre Museum's registration markings on the back of the painting. The auction catalogue estimated the sale price to be between $350,000 and $450,000.

"We are very pleased to have recovered this historic piece of art and look forward to its return to the French government," said James T. Hayes, Jr., special agent in charge of ICE HSI in New York. "ICE will continue working with foreign governments, art dealers, and Interpol to recover priceless works of fine art and antiquities so they can be returned to their rightful owners."

"The return of this masterpiece to the French government reflects our commitment to ensure the return of stolen artwork and cultural patrimony," stated U.S. Attorney for the Eastern District of New York Loretta E. Lynch. Lynch expressed her grateful appreciation to Interpol France and Washington for their cooperation and assistance in this matter.

As the largest investigative arm of the Department of Homeland Security, ICE plays a leading role in investigating crimes involving the illicit importation and distribution of cultural property, art and antiquities. ICE's Cultural Property, Art and Antiquities Unit and Office of International Affairs work jointly to identify, investigate and eventually return art and cultural items to their countries of origin or rightful owners.

ICE uses its investigative authority to seize cultural property, art and antiquities if they were illegally imported into the United States. It also investigates the illegal trafficking of artwork, especially works that have been reported lost or stolen. ICE's Office of Homeland Security Investigations, through its 66 attaché offices worldwide, works closely with foreign governments to conduct joint investigations.

Jury Convicts La Vergne, Tennessee Man of Multiple Child Pornography Offenses

NASHVILLE, TN—A federal jury yesterday convicted Joel H. Gilchrist, 50, of La Vergne, Tennessee, of a four-count indictment charging two counts of distribution of child pornography as well as one count each of receipt and possession of child pornography, announced Jerry E. Martin, United States Attorney for the Middle District of Tennessee.

At trial, the jury heard evidence about an on-line undercover investigation conducted by Franklin Police Department and Metro Nashville Police Department officers assigned to the Internet Crimes Against Children (“ICAC”) Task Force. Through that investigation, officers discovered that Gilchrist was distributing thousands of files through Limewire, a type of file-sharing software that operates on a peer-to-peer network. With that and other information developed through the investigation, officers obtained a search warrant for Gilchrist’s home.

According to testimony at trial, officers executed the search warrant on September 29, 2009, and subsequently seized multiple computers and various types of computer media. Forensic analysis uncovered over 47,000 images or videos of child pornography on Gilchrist’s computers, hard drives, and compact disks. The jury heard evidence establishing that the images and videos were of real children engaged in sexually explicit activity or being sexually abused in various ways.

Upon learning of the verdict, United States Attorney Jerry E. Martin commented: “Sex crimes involving children are among the most heinous crimes imaginable, and the United States Attorney’s Office will continue to vigorously prosecute those who possess, receive, and distribute child pornography. This office applauds the local, state, and federal law enforcement agencies who worked cooperatively on this investigation and helped to bring a dangerous defendant to justice.”

Gilchrist faces a mandatory minimum sentence of five years in prison, and a possible maximum of up to 20 years in prison, for the distribution and receipt offenses. In addition, he faces up to 10 years on the possession offense. United States District Judge Aleta Trauger, who presided over the trial, scheduled a sentencing hearing for March 7, 2011.

The case was investigated by officers and agents with the Franklin Police Department-ICAC Task Force, the Metro Nashville Police Department-ICAC Task Force, La Vergne Police Department, Rutherford County Sheriff’s Office, Tennessee Bureau of Investigation, and the FBI. The United States was represented by Assistant U.S. Attorneys Ty Howard and Scarlett Singleton.

Former President of Georgetown Company Sentenced for Securities Fraud Scheme

BOSTON, MA—A former Boxford man was sentenced in federal court late yesterday for making false statements to the public and the Securities and Exchange Commission in connection with the sale of stock of a company for which he served as president from 2004 to 2007.

DANIEL O’RIORDAN, 46, of Providence Village, Texas, was sentenced by Chief U.S. District Judge Mark L. Wolf to six months' imprisonment, to be followed by three years of supervised release and a $ 10,000 fine.

On August 16, 2010, O’RIORDAN pleaded guilty to one count of fraud in connection with the purchase and sale of securities. At the plea hearing, the prosecutor told the court that had the case proceeded to trial, the government’s evidence would have proven that O’RIORDAN was the president of Paradigm Tactical Products, Inc., with offices in Georgetown, Massachusetts when he acted in concert with others to file false documents with the SEC. The evidence would have proven that the false filings were used to fraudulently obtain an exemption from stringent SEC registration, reporting and disclosure requirements in connection with sales of the company’s stock to the public. As president of the company, O’RIORDAN signed a false “Form D” which fraudulently reported that a private offering had been made to purchasers of company stock in 2002, that the purchasers were accredited investors who met SEC investor requirements regarding financial assets and income, and that there were no individuals who owned more than 10 percent of the company’s equity shares. In fact, there was no private offering in 2002, the purported investors did not pay for shares of the company, and the shares of the company were actually owned entirely by someone other than the individuals reported to the SEC. O’RIORDAN was also involved in issuing false press releases about the company for the purpose of influencing public stock sales.

United States Attorney Carmen M. Ortiz, Richard DesLauriers, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division and William P. Offord, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation - Boston Field Division made the announcement. The case was prosecuted by Assistant U.S. Attorneys Victor A. Wild and Andrew E. Lelling of Ortiz’s Economic Crimes Unit.

Miramar Man Arrested and Charged in Armed Bank Robbery

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, and John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation, Miami Field Office, announced today that Jesse Gregg, 26, of Miramar, was arrested without incident yesterday evening by the Federal Bureau of Investigation in connection with an armed bank robbery. On November 23, 2010 Gregg was charged in a criminal complaint with armed bank robbery, in violation of Title 18, United States Code, Sections 2113(a) and 2113(d), and with possession of a firearm in furtherance of a crime of violence, in violation of Title 18, United States Code, Section 924(c).

Gregg made his initial appearance in court this afternoon before U.S. Magistrate Judge Peter R. Palermo. A pre-trial detention hearing has been scheduled for December 10, 2010 at 10:00 a.m. before U.S. Magistrate Judge Robert L. Dubé.

According to the affidavit filed in support of the criminal complaint, the armed robbery occurred on Friday, November 19, 2010, at a Bank of America branch on

NW 186th Street

in Miami Lakes. Gregg allegedly entered the bank and stood in the teller line. When called to the teller counter, Gregg passed the teller a handwritten note reading: “Give me all the money I have a gun.” The branch manager then approached Gregg to investigate. Gregg pulled a handgun out of his waistband, pointed it at the branch manager, and warned the branch manager to “stay back.” Gregg then left the bank on foot.

According to the affidavit, the branch manager was later presented with a photo array, from which he identified Gregg as the robber. Gregg was then arrested.

Mr. Ferrer commended the investigative efforts of the Federal Bureau of Investigation and the South Florida Violent Crimes Task Force for their work on this case. The case is being prosecuted by Assistant U.S. Attorney Seth M. Schlessinger.

A complaint is only an accusation, and a defendant is presumed innocent unless and until proven guilty.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the United States District Court for the Southern District of Florida at www.flsd.uscourts.gov or http://pacer.flsd.uscourts.gov.

Compass Bank Robbery in El Paso

At approximately 1:00 this afternoon, a man walked into the Compass Bank located at 6044 Gateway East, El Paso, Texas, approached a teller, displayed a weapon and a note, and demanded money. The teller handed over an undisclosed amount of money. It is unknown which direction the suspect fled.

The suspect is described as a Hispanic male, approximately 35 years old, 5’5” tall, medium build, wearing a black baggy zip-up hooded jacket, light jeans, black baseball cap, dark sunglasses, white shoes, medium/dark complexion, with a thin mustache.

This case is being worked by the FBI’s Violent Crimes Task Force, which includes the El Paso Police Department and El Paso Sheriff’s Department. If anyone was in the vicinity of this bank and/or has information about the robbery, please call the FBI at 915-832-5000.

Dallas man sentenced to more than 14 years in federal prison for possessing child pornography

DALLAS - A local man who admitted he possessed child pornography was sentenced on Friday to 14 years and two months in prison and ordered to serve a lifetime of supervised release. The sentence was announced by U.S. Attorney James T. Jacks of the Northern District of Texas. The case was investigated by the U.S. Immigration and Customs Enforcement (ICE) Office of Homeland Security Investigations (HSI), and by the Dallas Police Department's (DPD) Internet Crimes Against Children (ICAC) Unit.

According to documents filed in the case, Dustin Mishler, 29, of Dallas, freely admitted that he possessed images and videos of actual prepubescent children engaged in sexually explicit acts and that some of the images and videos depicted sadistic and/or masochistic acts. At the Dec. 3 sentencing hearing, Chief U.S. District Judge Sidney A. Fitzwater noted Mishler's prior conviction in 2006 in Dallas County for possessing child pornography.

The National Center for Missing and Exploited Children advised DPD that they had received a cyber tip from the Internet browser AOL concerning a subscriber who had transmitted child pornography over the AOL Internet service network on May 10, 2009. The investigation revealed that the subscriber was Mishler. DPD executed a search warrant at Mishler's residence on June 23, 2009. Mishler was not present, but his girlfriend and roommate indicated that Mishler had a computer, but had sold it a few weeks earlier to a pawn shop. Law enforcement seized a USB drive, paperwork, seven CDs and one DVD from the residence.

Law enforcement located Mishler's pawned laptop computer at Cash America, just a few blocks from his residence, on June 3, 2009. A search warrant for the computer was obtained and a forensic examination, conducted by the North Texas Regional Computer Lab (NTRCFL), revealed that Mishler's computer and USB drive contained three videos and 64 images of child pornography. The forensic exam also determined that Mishler had used Yahoo! Messenger to send images of child pornography.

Assistant U.S. Attorney Camille Sparks, Northern District of Texas, prosecuted this case.

This investigation is part of Operation Predator, a nationwide ICE initiative to protect children from sexual predators, including those who travel overseas for sex with minors, Internet child pornographers, criminal alien sex offenders, and child sex traffickers.

ICE encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE. This hotline is staffed around the clock by investigators.

Suspected child sexual exploitation or missing children may be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com.

Attorney General Eric Holder Speaks at the Operation Broken Trust Announcement

Washington, D.C. ~ Monday, December 6, 2010Good morning, and thank you all for being here.

I’m pleased to be joined today by several key leaders in our collective effort to combat financial fraud – FBI Executive Assistant Director Shawn Henry and SEC Director of Enforcement Robert Khuzami, as well as the U.S. Postal Inspection Service’s Chief Postal Inspector, Guy Cottrell; IRS Criminal Investigation Deputy Chief Rick Raven; and Commodity Futures Trading Commission Acting Director of Enforcement Vincent McGonagle.  

We are here to announce the results of Operation Broken Trust, a three-and-a-half-month targeting of investment fraud schemes throughout the country – and a critical step forward in law enforcement’s work to protect American investors, to ensure the strength of our markets, and to prevent financial fraud schemes.

While there is nothing new about conducting nationwide operations and sweeps – this one is different in that it brought together a broad array of criminal and civil enforcement tools, at both the federal and state level, to attack investment fraud schemes collectively.   Operation Broken Trust is the first national operation in history to target the many different types of investment fraud schemes that prey directly on the investing public.

This historic effort has been coordinated, executed, and led by members of the Financial Fraud Enforcement Task Force that President Obama created in November 2009.  This task force is the broadest coalition of law enforcement, investigatory and regulatory agencies ever established to combat fraud.   Multiple federal agencies, as well as partners at the state level, are working together to ensure that no stone is left unturned when it comes to protecting consumers and investors.

Our mission is simple – to bring financial fraud schemes to light and those who operate them to justice.   And our aggressive, coordinated approach is working.

Since Operation Broken Trust was launched on August 16th, all across the country investment fraud cases have been prioritized.   To date, the operation has involved enforcement actions against 343 criminal defendants and 189 civil defendants, whose conduct harmed more than 120,000 victims.   Several individuals have been charged with defrauding men and women across the country out of thousands – and sometimes millions – of dollars.   The cases in this operation involve a variety of different investment fraud schemes that have led to more than $8.3 billion in losses in just the criminal cases alone.   Staggering numbers.   These losses represent hard-earned money and even life savings.   They represent needs that may not be met and dreams that may not be fulfilled.

All of these victims can tell a tragic and cautionary story of being misled and exploited – often by someone they trusted.   In fact, many of the scam artists we’ve identified were preying on their own neighbors – and on the most vulnerable members of their communities.   Several of those prosecuted during this operation solicited victim investors from their own churches.   One man in Texas allegedly targeted his fellow parishioners, asking them to invest with him and claiming that his success in foreign exchange trading was “a blessing from God.”

In Florida, one defendant was convicted recently for his role in an investment scam that specifically targeted the local Haitian community.   In Ohio, a former police officer operating a Ponzi scheme solicited investments from active and retired police officers and firefighters.   And in Chicago, another Ponzi scheme resulted in more than $30 million in losses to hundreds of victims – many of them elderly, Italian immigrants.  As a result of our prosecution, the man who operated this scheme has been sentenced to more than 20 years in prison.

Many of the criminals we’ve identified used investor funds to support lavish lifestyles. One man operating an $880 million Ponzi scheme in Florida duped investors from across the country – and used the money to buy floor seats at professional basketball games and to make payments on his personal yacht, his beach house, and his Mercedes.   A New Jersey man charged with operating an investment scam allegedly used investor funds to make payments on three different luxury cars and to pay fees at two country clubs.

With this operation, the task force is sending two messages.   A message to the public: be alert for these frauds, take appropriate measures to protect yourself, and report such schemes to proper authorities when they occur.   And a second message to anyone operating or attempting to operate an investment scam: we will use every tool at our disposal to find you, to stop you, and to bring you to justice.   Cheating investors out of their earnings and savings is no longer a safe business plan.  

Along with the agencies represented here on stage, I also want to thank the Federal Trade Commission, the U.S. Secret Service, and the National Association of Attorneys General. Because of their work, and the contributions of everyone involved in Operation Broken Trust, dozens of criminals who hatched fraud schemes now face significant time behind bars – including one sentence of 85 years.

Although this operation marks an important step forward, our fight to combat financial fraud goes on.   The task force will continue working with consumer groups to increase financial literacy and raise awareness about the warning signs of financial scams.   And we encourage investors to share tips and concerns with us by visiting stopfraud.gov.   With the commitment of so many partners and with the help of an informed public, I am confident that we can take our fight against financial fraud to a new level.

And now I’d like to turn things over to FBI Executive Assistant Director, Shawn Henry.

Operation Broken Trust: Historic Investment Fraud Sweep

Today, the Financial Fraud Enforcement Task Force announced the conclusion of Operation Broken Trust, the largest investment fraud sweep ever conducted in the U.S.  The 231 cases in the operation involved more than 120,000 victims who lost more than $8 billion.

Operation Broken Trust—which included both criminal and civil enforcement actions that occurred from August 16 through December 1, 2010—was unveiled during a Washington, D.C. press conference attended by representatives of the agencies that make up the task force, including U.S. Attorney General Eric Holder and FBI Executive Assistant Director Shawn Henry.

The goal of the operation was two-fold:

1.To root out and expose massive investment fraud scams across the nation; and

2.To alert the public about many phony investment scams. (See sidebar below for the FBI’s prevention tips.)

Operation Broken Trust focused on scams directly targeting individual investors, rather than long-term complex corporate fraud matters. In many instances, these criminals were trusted people within their communities—sometimes neighbors, co-workers, fellow church-goers—who betrayed that trust in order to line their own pockets. And the results were often devastating, with some victims losing their life savings, their homes, their livelihoods.

Each of the cases included in the sweep involved individual investors being deceived by individuals presenting “investment opportunities” that were either completely fictitious or not structured as advertised. An overwhelming number of the cases were high-yield investment frauds and Ponzi schemes. Others involved commodities fraud, foreign exchange fraud, market manipulation (i.e., “pump-and-dump” schemes”), real estate investment fraud, business opportunity fraud, affinity fraud, and the like.

The FBI has observed a steady increase in investment frauds, in particular Ponzi and market manipulation schemes. Since January 2009, we’ve opened more than 200 Ponzi cases,  many with $20 million-plus losses. Based on our current caseload, the top five Ponzi scheme hot spots in the country are Los Angeles, New York, Dallas, Salt Lake City, and San Francisco, but keep in mind that these scams can and do happen anywhere.

We’ve had success in shutting down many and arresting those responsible, due in large part to our focus on partnerships—like our involvement in the Financial Fraud Enforcement Task Force—as well as intelligence-gathering and information-sharing efforts. And we continue to use sophisticated investigative techniques—like undercover operations to court-authorized electronic surveillance—to collect evidence in ongoing cases and to identify and stop criminals before they prey on others.

What about the victims? The FBI generally offers assistance to victims in fraud cases that fall under our jurisdiction (our partner agencies offer similar services). Our field office victim specialists can provide case status information, direct victims to organizations that can help with protecting or rebuilding credit, assist in documenting victims’ losses, help cope with stress, and even find government or community-based services for victims—especially the elderly and disabled—if their financial losses are severe.

In cases with hundreds or even thousands of victims, we can provide information using websites and toll-free phone lines. Reflecting on the importance of collaboration with our law enforcement and private sector partners in combating investment fraud, Executive Assistant Director Henry said, “Together, we are smarter. Together, we are stronger. Together, we will continue to seek out those who look to profit at the expense of the hard-working men and women of the United States of America.”

Avoiding Investment Fraud

- Be careful of any investment opportunity that makes exaggerated earnings claims, especially during a short period of time.

- Ask for written information about the investment, such as a prospectus, recent quarterly or annual reports, or an offering memorandum.

- Consult an unbiased third party, like an unconnected broker or licensed financial advisor, before investing.

- Don’t be fooled into believing an investment is safe just because someone you know is recommending it. So-called “affinity scams” are one of the favorite methods used to lure people in.

- If you feel you are being pressured into investing, don’t do it.

- Be wary of people you meet on social networking sites and in chat rooms, where investment fraud criminals have been known to troll for victims.

150 LAW ENFORCEMENT OFFICERS TO DELIVER 1,000 TOYS TO KIDS AT THE CHILDREN’S HOSPITAL

Aurora, Colorado – More than 150 uniformed law enforcement officers from throughout Colorado will bring smiles to kids at The Children’s Hospital when they arrive in a motorcade, also known as a “long blue line” -- flashing red and blue lights -- to bring them 1,000 new toys for Christmas. It’s all part of the “8th Annual Cops Fighting Cancer Toy Drive Drop-off” to benefit The Children’s Hospital. The event takes place on Wednesday, December 15, with the gathering of police officers at 9:00 A.M. at the Aurora Sports Park and the motorcade arriving at The Children’s Hospital at 10:15 A.M.

Cops Fighting Cancer drew national attention a few years ago when People Magazine profiled its founder, James Seneca, who started his law enforcement career in Buffalo, N.Y. “My goal is to get the Buffalo Police Department to do this next year, then eventually I’d like to see every major city in the U.S. to do a ‘long blue line,’ says Seneca, “It would be wonderful to see other law enforcement agencies across the country helping kids with cancer in their own cities.”

Mattel, Inc., based in El Segundo, California donated more than 400 of the toys, the rest were donated by residents, businesses, churches and other non-profit organizations.

The event will be “the largest deployment of law enforcement officers since the Democratic National Convention in 2008” according to The Denver Police Department. The “long blue line” will consist of more than 80 police cars, 20 police motorcycles, 3 U.S. Army hummers, 2 K-9 units and a helicopter. There will also be a fly-over with 5 F-16 Military Jets. Officers from 30 different local, state and federal law enforcement agencies will participate. Streets will be blocked off during the procession. The trip is four miles long and will take approximately 15 minutes.

Once the officers arrive at The Children’s Hospital they’ll each carry a bundle of toys, while patients watch excitedly from large front windows. The officers will then proceed up to the patient floors to deliver toys to more than 250 children, congratulating them on their courage and perseverance.

“If a little emotional support helps a child get through another day then I’m doing my job,” says James Seneca, the founder of Cops Fighting Cancer and a cancer survivor himself who is heading up the toy drive.

More Information
Ginger Delgado
ginger@realprmedia.com

Former Employee of Florida Property Management Company Pleads Guilty to Wire Fraud

WASHINGTON — A former residential sales manager at a Florida property management company pleaded guilty to wire fraud in connection with housing repair contracts for the U.S. Department of Veterans Affairs (VA), the Department of Justice announced today.

Benjamin K. Graves, formerly a residential sales manager at West Palm Beach, Fla.-based Ocwen Loan Servicing LLC, pleaded guilty today in U.S. District Court in Orlando, Fla., to wire fraud. According to the one-count felony charge filed on Nov. 12, 2010, in the Middle District of Florida, Ocwen managed foreclosed properties under contract with the VA, which guaranteed qualifying residential mortgages for veterans. Under the contract between the VA and Ocwen, if a veteran defaulted, Ocwen completed necessary repairs and re-sold the property.

According to the court document, Graves engaged in fraud by steering the repair contracts to companies affiliated with a particular contractor, in exchange for cash payments, from at least as early as January 2006 and continuing until at least as late as March 2007. The department said, in order to execute the scheme, Graves sent competitive bid information to the contractor and transmitted sham bids to Ocwen via wire communication.

The wire fraud charge carries a maximum penalty of 20 years in prison and a maximum fine of $250,000. 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.

Graves’s guilty plea is the first to arise from an ongoing federal investigation of housing repair contracts performed under contract with the VA. The investigation is being conducted by the Antitrust Division’s Chicago Field Office and the Central Field Office of the U.S. Department of Veterans Affairs, Office of Inspector General, Criminal Investigations Division, located in Hines, Ill. Anyone with information concerning suspicious activity relating to housing repairs performed under a contract with the VA should contact the Antitrust Division’s Chicago Field Office at 312-353-7530 or visit www.justice.gov/atr/contact/newcase.htm.

3 conspirators plead guilty to smuggling counterfeit goods through the Port of Baltimore

BALTIMORE - Three individuals plead guilty in federal court to conspiring to smuggle into the United States counterfeit shoes, handbags and wrist watches manufactured in Malaysia and China and trafficking in counterfeit goods. The guilty pleas resulted from an investigation conducted by the U.S. Immigration and Customs Enforcement (ICE) Office of Homeland Security Investigations (HSI).

Kim Yip Ng, aka "James Lee," 43, of Whitestone, N.Y.; Lidan Zhang, aka "Mrs. Li," 39, of the People's Republic of China; and Josephine O. Zhou, 32, of Brooklyn, N.Y., pleaded guilty in separate hearings.

Ng pleaded guilty on Dec. 2, Zhou pleaded guilty on Dec. 1 and Zhang pleaded guilty on Nov. 30.

According to their guilty pleas, from 2008 to 2010 the defendants conspired to smuggle counterfeit Coach handbags manufactured in China and elsewhere into the United States for sale. Part of the sales proceeds were returned to manufacturers and middlemen in China to pay for additional counterfeit goods.

The defendants and their co-conspirators paid thousands of dollars in smuggling fees to an undercover business located in Maryland to clear counterfeit clothing and accessories through U.S. Customs and Border Protection (CBP) at the Port of Baltimore and deliver the goods to customers in the United States. On Oct. 15, 2009, Zhou received a container loaded with approximately 25,000 counterfeit Coach handbags through the undercover business. On Dec. 10, 2009, Ng and Zhang received a container loaded with approximately 25,000 counterfeit Coach handbags through the undercover business. The defendants admit that the counterfeit handbags were sold to other vendors and to the general public.

The defendants admit that the loss attributable to the counterfeited merchandise was between $400,000 and $1 million. As part of their plea agreements, Zhang agrees to forfeit $49,000 seized at the time of her arrest in March 2010 and a BMW sedan; and NG agrees to forfeit a mini-van.

The defendants face a maximum sentence of five years in prison for the conspiracy and a maximum of 10 years in prison for trafficking in counterfeit goods.

Assistant U.S. Attorney James G. Warwick is prosecuting the case.

Anyone with information related to counterfeit merchandise is encouraged to contact law enforcement. The public may call ICE's 24-hour toll-free hotline at: 1 (866) DHS-2ICE.

City Man to Serve 10 Years in Prison for Possession of Child Pornography

OKLAHOMA CITY—Today, GEORGE BYRAN WALTERS, 62, of Oklahoma City, was sentenced by United States District Judge Robin Cauthron to serve 120 months in federal prison following his conviction for possession of child pornography, announced Sanford C. Coats, United States Attorney for the Western District of Oklahoma. Walters was originally charged with possession of child pornography on August 4, 2010, and pled guilty on August 18, 2010. Judge Cauthron also ordered Walters to serve five years of supervised release upon his release from prison, and he will be required to register as a sex offender.

This case was brought as part of the United States Department of Justice Project Safe Childhood initiative designed to protect children from online exploitation and abuse. For more information about Project Safe Childhood, please visit www.projectsafechildhood.gov .

This case is a result of an investigation conducted by the Federal Bureau of Investigation and was prosecuted by Assistant United States Attorney Brandon Hale.

New England Man Dubbed the “British Bandit” Sentenced to 30 Months in Prison

SACRAMENTO, Calif. — United States Attorney Benjamin B. Wagner announced that today United States District Judge William B. Shubb sentenced Patrick Edward Doherty, 32, of Boston, to 30 months in prison to be followed by a three-year term of supervised release for bank robbery. He was also ordered to pay restitution.

This case is the product of an investigation by the Sacramento Violent Crimes Task Force, which includes the Federal Bureau of Investigation and the Sacramento County Sheriff's Office. Assistant United States Attorney Michelle Rodriguez prosecuted the case.

According to court documents, during the early stages of the investigation the task force dubbed the perpetrator "the British Bandit" because tellers indicated the robber used a flamboyant or exaggerated English accent during his robberies. Doherty was arrested when investigators uncovered information regarding his modus operandi and linking his likeness to the surveillance photos. Doherty was charged on November 30, 2009 and on April 5, 2010, pleaded guilty to robbing the following banks:

April 5, 2009, the Tri Counties Bank at

3250 Arena Blvd., Sacramento

;

April 22, 2009, the Bank of America at

1900 Anderson Road, Davis

.

Doherty has remained in custody since his arrest in November 2009.

Jury Finds Connecticut Man Guilty of Making Grenades, Selling Guns Intended for White Supremacist Group

BRIDGEPORT, CT—A federal jury in Bridgeport, Conn., today found Alexander DeFelice, 33, of Milford, Conn., guilty of conspiracy and firearms offenses stemming from an alleged attempt to sell firearms and explosive grenades to what he thought was a white supremacist group located outside of Connecticut, announced David B. Fein, U.S. Attorney for the District of Connecticut. The jury found DeFelice's co-defendants Kenneth Zrallack, 29, of Ansonia, Conn., and David Sutton, 46, of Milford, not guilty of conspiring with DeFelice and others in the same conspiracy. The trial began on Nov. 15, 2010, and the jury returned the verdicts this morning.

"We respect the jury's verdicts and are pleased that a previously convicted felon who was involved in the manufacture of grenades that he knew were intended for a white supremacist group now faces a significant term of imprisonment," stated U.S. Attorney Fein. "I want to thank the members of the FBI's Joint Terrorism Task Force for their diligent investigative work that has led to today's conviction, and the conviction of two other defendants who previously pleaded guilty to charges stemming from this criminal scheme. The U.S. Attorney's Office is committed to working with our law enforcement partners to protect the safety of all Americans and prosecuting those who seek to harm anyone whose race, ethnicity or religious beliefs differ from his or her own."

According to the evidence at trial, in late 2008 and early 2009, DeFelice associated with a cooperating witness working under FBI supervision. DeFelice and the witness attended meetings of a white supremacist group known as the Connecticut White Wolves, and drove to and from meetings of another such group known as North East White Pride. The cooperating witness had identified himself to DeFelice as a member of a large, out-of-state white supremacist group known as the Imperial Klans of America (IKA). Also, the witness let it be known that he was a convicted felon. Over the course of a series of discussions about firearms, DeFelice offered to sell the cooperating witness semi-automatic weapons and ammunition.

On March 9, 2009, DeFelice advised the cooperating witness that he had a deal arranged and, later that evening, the witness went to meet DeFelice in the garage of his home in Milford. Also in the garage were William Bolton of Milford, Conn., and Edwin Westmoreland of Stratford, Conn. After some discussion, DeFelice and the other defendants sawed off the barrel of a shotgun and sold it to the cooperating witness for $300.

The evidence also showed that on March 23, 2009, DeFelice arranged a meeting with the cooperating witness in the parking lot of a Hamden, Conn., shopping plaza, and told the witness he could arrange to provide the witness' "people," referring to the IKA, with grenades and other live explosive devices. Eventually, DeFelice requested, and the cooperating witness provided, three empty grenade shells that DeFelice advised would be converted into live grenades.

On Nov. 11, 2009, DeFelice and Westmoreland sold a rifle and a shotgun to the cooperating witness.

On Jan. 23, 2010, DeFelice, with Westmoreland's assistance, completed making the explosive grenades and sold and delivered them to the cooperating witness for $3,000.

On Jan. 28, 2010, five days after the grenades sale, the FBI conducted a court-authorized search of DeFelice's residence, where they found and seized a 12-gauge shotgun, live rounds of ammunition of various calibers, and several items used to make the explosive grenades. DeFelice was arrested at that time.

Today, the jury found DeFelice guilty of one count of conspiracy, two counts of transferring a firearm to a convicted felon, one count of making explosive grenades and one count of transferring explosive grenades. Following the jury's verdicts, DeFelice also pleaded guilty to two counts of possession of a firearm by a previously convicted felon.

Sentencing has been scheduled for Feb. 18, 2011, at which time DeFelice faces a total maximum term of 65 years in prison.

DeFelice has been detained in federal custody since his arrest on Jan. 28, 2010.

On June 29, 2010, Edwin Westmoreland pleaded guilty to one count of sale of a firearm to a convicted felon, and one count of conspiracy to sell firearms to a convicted felon and to make and transfer unregistered firearms consisting of explosive grenades. On Aug. 18, 2010, William Bolton pleaded guilty to one count of Hobbs Act robbery conspiracy, and one count of sale of a firearm to a convicted felon. Westmoreland and Bolton await sentencing.

U.S. Attorney Fein commended the joint investigation of this matter, which has been conducted by the Joint Terrorism Task Force, notably the FBI, the Connecticut State Police, the U.S. Secret Service and the Federal Air Marshal Service, with the assistance of the Bureau of Alcohol, Tobacco, Firearms and Explosives, the U.S. Marshals Service; the U.S. Army, Criminal Investigation Command, and the Milford, Ansonia, Stratford and New Haven Police Departments.

This case is being prosecuted by Assistant U.S. Attorneys Henry K. Kopel and Peter S. Jongbloed, and Trial Attorney David Cora of the Department of Justice's National Security Division.

Tucson man sentenced for possession of child pornography

TUCSON, Ariz. - A Tucson man was sentenced to seven years in prison Wednesday after he pleaded guilty to possessing more than 60,000 images and 7,700 videos of child pornography following an investigation by the U.S. Immigration and Customs Enforcement (ICE) Office of Homeland Security Investigations (HSI).

An ICE HSI investigation discovered that Adam Fell Berner, 47, had subscribed to several online services which sold child pornography images over the Internet. Financial records revealed Berner paid for these subscriptions on multiple occasions throughout 2006.

In April 2008, a search warrant was executed at Berner's residence and his computer seized. A forensic examination of the computer revealed 59,108 still images and 7,780 videos of child pornography. In addition to the first computer Berner admitted that he also possessed another computer which was found to contain more than 1,000 images of child pornography.

The investigation that led to this case was part of Operation Predator, a nationwide ICE initiative to identify, investigate and arrest those who prey on children, including human traffickers, international sex tourists, Internet pornographers and foreign-national predators.

ICE encourages the public to report suspected child predators and any suspicious activity through its toll-free hotline at 1-866-DHS-2ICE. This hotline is staffed around-the-clock by investigators.

Suspected instances of child sexual exploitation or missing children may also be reported to the National Center for Missing and Exploited Children, an Operation Predator partner, at 1-800-843-5678 or http://www.cybertipline.com.

Former Employee of a Financial Institution Subsidiary Pleads Guilty for Role in Bid-rigging and Fraud Conspiracies Involving Municipal Bonds

WASHINGTON — A former employee of a subsidiary of a financial institution pleaded guilty today for his participation in bid-rigging and fraud conspiracies related to contracts for the investment of municipal bond proceeds and other municipal finance contracts, the Department of Justice announced.

According to the plea proceeding held today in U.S. District Court in New York City, James L. Hertz, a resident of Cranford, N.J., engaged in separate bid-rigging and fraud conspiracies related to the provision of a type of contract, known as an investment agreement, and other municipal finance contracts, including derivatives contracts, to public entities throughout the United States, such as state, county and local governments and agencies.   Hertz also pleaded guilty to one count of wire fraud.   According to the plea agreement, Hertz has agreed to cooperate with the ongoing investigation.

According to the court document, from approximately 1994 through approximately December 2007, Hertz worked in the municipal derivatives group of the financial institution’s subsidiary as a vice president and a marketer of investment agreements and other municipal finance contracts.   The Manhattan, N.Y.-based financial institution was a provider of investment agreements and other municipal finance contracts, such as swaps, to public entities.   Public entities seek to invest money from a variety of sources, primarily the proceeds of municipal bonds that they issued, to raise money for, among other things, public projects.   Public entities typically hire a broker to conduct a competitive bidding process for the award of the investment agreements to invest such money.   Competitive bidding for these agreements is the subject of regulations issued by the U.S. Department of the Treasury and is related to the tax-exempt status of the bonds.

The department said in court documents that Hertz was authorized to act as an agent of the financial institution in marketing investment agreements and other municipal finance contracts.

According to the court document, Hertz and co-conspirators engaged in a bid-rigging conspiracy from at least as early as October 2001 until at least November 2006.   As a part of the bid-rigging conspiracy, Hertz and co-conspirators designated in advance which co-conspirator provider, either his employer or another financial institution, would be the winning bidder for certain investment agreements or other municipal finance contracts.   Hertz and co-conspirators also agreed to submit intentionally losing bids for investment agreements or other municipal finance contracts that were steered to other financial institutions, giving the false appearance that these deals had been bid competitively in accordance with relevant U.S. Treasury regulations, or the requirements of the municipality.

According to the court documents, Hertz also participated in a fraud conspiracy with a broker located in Minnesota from as early as 1998 until at least November 2006.   As part of this conspiracy, the broker gave Hertz information about the prices, price levels or conditions in competitors’ bids, a practice known as a “last look,” which is explicitly prohibited by U.S. Treasury regulations.   On some occasions, the broker signaled Hertz to change his bids to specific numbers so that his employer could make more money.   Hertz and co-conspirators also submitted intentionally losing bids to the broker for certain investment agreements to make it appear that his employer had competed for those agreement or contracts, when in fact, it had not.   As a result of the bid manipulation, Hertz’s employer won investment agreements and other municipal finance contracts at artificially determined price levels, which deprived municipal issuers of money and property.

The court documents also charge that Hertz and co-conspirators misrepresented to municipal issuers or their bond counsel that the bidding process was in compliance with U.S. Treasury regulations.   This caused the municipal issuers to award investment agreements and other municipal finance contracts to providers that otherwise would not have been awarded the contracts if the issuers had true and accurate information regarding the bidding process.   Such conduct caused municipal issuers to file inaccurate reports with the Internal Revenue Service (IRS) and placed the tax-exempt status of the underlying bonds in jeopardy.

The bid-rigging conspiracy with which Hertz is charged carries a maximum penalty of 10 years in prison and a $1 million fine.   The fraud conspiracy with which Hertz is charged carries a maximum penalty of five years in prison and a $250,000 fine.   The wire fraud charge carries a maximum penalty of 20 years in prison and a $250,000 fine.   The maximum fines for each of these offenses 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.

This is the eighth guilty plea to arise from an ongoing investigation into the municipal bonds industry, which is being conducted by the Antitrust Division’s New York Field Office, the FBI and IRS Criminal Investigation.   The department is coordinating its investigation with the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York.

Three former employees of Beverly Hills, Calif.-based Rubin/Chambers, Dunhill Insurance Services Inc. (CDR) have pleaded guilty to bid-rigging and fraud conspiracies in relation to the ongoing investigation.   Four other individuals have pleaded guilty to charges related to the ongoing investigation.   In addition, three former financial services executives were indicted on July 27, 2010, for participating in fraud schemes and conspiracies related to the bidding for investment agreements.   In October 2009, CDR, two of its employees and one former employee were charged for participating in bid-rigging and fraud conspiracies and related crimes.   The CDR trial is scheduled to begin on Sept. 12, 2011.

Today’s guilty plea is 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.   For more information on the task force, visit www.StopFraud.gov.

Anyone with information concerning bid rigging and related offenses in any financial markets should contact the Antitrust Division’s New York Field Office at 212-264-0390 or visit www.justice.gov/atr/contact/newcase.htm, or the FBI at 212-384-5000.