U.S. District Court in Miami orders new trial based on discovery violation for Electronically Stored Information

In United States v. Stirling, available here,

Judge Altonaga of the U.S. District Court for the Southern District of Florida in Miami found that even though the government technically complied with its discovery obligations under Federal Rule of Criminal Procedure 16(a)(1)(B) by furnishing an exact replica of defendant’s hard drive to the defense, because the government’s discovery production in this case so seriously impaired the defendants trial strategy, a new trial was nevertheless warranted.

The relevant facts of this case are fairly straightforward.  As Judge Altonaga summarized:

"Stirling proceeded to trial on April 24, 2012, and at his trial, testified in his defense. His defense consisted of duress, in particular, that he had participated in the charged crimes because of threats to himself and his family by Colombian drug traffickers. After Stirling testified, on the morning of the last day of trial, May 2, 2012, the Government turned over to the defense for the first time a 214-page log consisting of Skype chats downloaded from Stirlings computer. An exact replica of Stirlings laptop computer which was seized from the vessel had been provided to the defense in discovery prior to trial. The Skype chats were not readily available by opening the folders appearing in the hard drive or disk; rather, the Government used the services of an FBI computer analyst, Jeffrey Etter, who, after downloading a program, was able to recover various chats from the username “beenthere42.” That username belonged to one of the Co-Defendants."

"In rebuttal, and over defense objection, the Government called Agent Etter to testify and introduced the Skype log, containing communications between Sirling and his Co-Defendant. Those communications had a devastating impact. They contradicted many of Stirlings statements made during his testimony, and irreparably damaged his credibility and his duress defense. Defense counsel was severely limited in her ability to cross-examine Agent Etter, or rehabilitate Stirling, as the defense case was over. More importantly, defense counsel, unaware of the existence of the Skype chats before the Defendants decision was made to testify, was unable to properly prepare her client and competently advise him."

Not surprisingly, Stirling was convicted.

Under Federal Rule of Criminal Procedure 33, Judge Altonaga ordered a new trial in "the interest of justice," even though the government had warned the defense that if Stirling took the stand and testified falsely, there was [unidentified] evidence on the computer which the Government would use in its rebuttal to impeach him. Finding that this was not like those where courts have refused to require the government to identify evidence within a larger mass of disclosed evidence (commonly referred to as a "data dump"), Judge Altonaga wrote that the standard of Federal Rule of Civil Procedure 34(b)(2)(E)(ii), available

here, should also apply in criminal cases and should require the Governmentto produce ESI in a "reasonably usable form." Judge Altonaga held that "technical compliance with its discovery obligations under Federal Rule of Criminal Procedure 16 (a)(1)(B) by the furnishing of an exact replica of the hard drive" was insufficient under the Rules. The prosecution "never told defense counsel that incriminating Skype chats could be extracted from the disk or that they even existed."

Judge Altonaga agreed with the defendant that "production of something in a manner which is unintelligible is really not production," and went on to remark that "[i]f, in order to view ESI, an indigent defendant such as Stirling needs to hire a computer forensics expert and obtain a program to retrieve information not apparent by reading what appears in a disk or hard drive, then such a defendant should so be informed by the Government, which knows of the existence of the non-apparent information. In such instance, and without the information or advice to search metadata or apply additional programs to the disk or hard drive, production has not been made in a reasonably usable form. Rather, it has been made in a manner that disguises what is available, and what the Government knows it has in its arsenal of evidence that it intends to use at trial."

The Stirling case teaches that although the government may have the upper hand when it comes to computer forensics and its discovery obligations under the Federal Rules of Criminal Procedure, the government must nevertheless disclose the evidence contained within electronic media so that technologically unsophisticated defendants are not surprised by the evidence the government has in its possession. 

The attorneys at Fuerst Ittleman have extensive experience litigating criminal and civil cases against the federal government.  You can reach us by email at: contact@fidjlaw.com, or by telephone at: 305.350.5690.

Eleventh Circuit vacates sentence in criminal tax case based on impermissible grouping under the U.S. Sentencing Guidelines

On May 4, 2012, the U.S. Court of Appeals for the Eleventh Circuit vacated a sentence handed down by the U.S. District Court for the Middle District of Florida in United States of America, v. Register, case no. 11-12773.

The facts of the case are as follows:

The Defendant was the owner and operator of Criminal Research Bureau, Inc. (“CRB”), a provider of background-check services for employers. To manage the CRB payroll, the Defendant used a payroll processing company, PrimePay, that prepared employee paychecks and submitted the necessary quarterly paperwork to the IRS. The Defendant, in turn, was responsible for paying the withheld taxes over to the IRS. From the first quarter of 2003 through the fourth quarter of 2007, federal income taxes and Federal Insurance Contributions Act (“FICA”) taxes totaling $316,220 were withheld from the wages of CRB employees, yet the Defendant never remitted the

vast majority of those funds to the IRS.

In addition, the Defendant falsified his individual federal income tax returns during this period for tax years 2003 to 2006. In 2003 and 2004, the Defendant was not on the CRB payroll; instead, he paid his personal expenses directly from the company bank account. Initially, the Defendant filed no federal returns at all for these years. However, in order to qualify for a mortgage, the Defendant ultimately filed his 2003 and 2004 returns late. In doing so, the Defendant generated Form W-2s that falsely indicated that the Defendant had been paid wages and that federal taxes had been withheld. The Defendant then used those figures to complete his Form 1040s for both years, enabling him to fraudulently collect refunds of $4,444.50 for tax year 2003 and $7,479.13 for tax year 2004. In 2005 and 2006, the Defendant added himself to the CRB payroll as an employee with an annual salary of $234,000. Again, however, the Defendant falsified his Form 1040s to indicate that federal taxes had been withheld from his salary when in fact none had been withheld. As a result, the Defendant collected refunds of $6,689.12 for tax year 2005 and $10,780 for tax year 2006 when, in reality, he owed $45,098 and $40,905 for those tax years respectively.

On December 8, 2010, Mr. Register was indicted on thirteen counts of willful failure to pay over taxes in violation of 26 U.S.C. § 7202, available here. Each count charged that federal income taxes and FICA taxes had been withheld from the wages of CRB employees during a particular quarter but were never paid over to the IRS.  The thirteen failure-to-pay-over counts in the indictment covered the period from the fourth quarter of 2004 through the fourth quarter of 2007.

The Defendant was also indicted on four counts of filing false individual federal income tax returns in violation of 26 U.S.C. § 7206(1), available here. Each count charged that the Defendant had falsely stated on his return for a particular year that federal income tax had been withheld when, in fact, he knew that it had not. The four filing-false-returns counts in the indictment covered the 2003 through 2006 tax years.

The Defendant pleaded guilty to seventeen counts of tax-related offenses. The first thirteen concerned his failure to pay over to the IRS federal taxes that had been withheld from the wages of his companys employees. The remaining four concerned the falsification of his individual federal income tax returns. After accepting his plea and holding a sentencing hearing, the district court sentenced him to twenty-seven months in prison. On appeal, the Defendant challenged the district courts calculation of the applicable guideline range under the United States Sentencing Guidelines Manual (“Guidelines” or “U.S.S.G.”).  Specifically, he argued that the district court erred by refusing to group all of his counts into a single group pursuant to U.S.S.G. § 3D1.2(b) or (d), available here,  as “counts involving substantially the same harm.”

At the sentencing hearing on May 31, 2011, the Defendant and the United States again agreed that all of the counts should be grouped for sentencing. The district court, however, disagreed with both parties and sided with the probation officer. The district court rejected the argument that the counts should all be grouped together under U.S.S.G. § 3D1.2(b), because they did not involve the same criminal objective or the same victim. And the district court rejected the alternative argument that the counts should all be grouped together under  U.S.S.G. § 3D1.2(d), because it “seem[ed] unusual” to aggregate the losses for two different offenses merely because the offense level for each is determined largely on the basis of the total amount of loss.

Therefore, the district court concluded that the total offense level was 16, which yielded a guideline range of 21 to 27 months. (If the district court had actually grouped together all seventeen counts, Registers total offense level would have been 15 instead of 16, yielding a guideline range of 18 to 24 months.) The Defendant and the United States each sought a sentence at the low end of the guideline range. The district court, however, sentenced Register to 27 months, the top of the range, on each of the seventeen counts, all to run concurrently.

The 11th Circuit observed that under the Sentencing Guidelines, counts are to be grouped together for purposes of calculating the appropriate guideline range whenever they involve “substantially the same harm.” U.S.S.G. § 3D1.2. Section 3D1.2(d) provides, in pertinent part, that counts involve substantially the same harm “[w]hen the offense level is determined largely on the basis of the total amount of harm or loss, the quantity of a substance involved, or some other measure of aggregate harm.” 

The 11th Circuit further noted that subsection (d) includes a list of guidelines covering offenses predetermined to meet its requirements and provides that they “are to be grouped.”U.S.S.G. § 3D1.2(d). Nevertheless, when the counts involve offenses to which different guidelines apply, grouping is not automatic even if all of the applicable guidelines are included in this list. United States v. Harper, 972 F.2d 321, 322 (11th Cir. 1992) (per curiam), available

here. Rather, “[c]ounts involving offenses to which different offense guidelines apply are grouped together under subsection (d) if the offenses are of the same general type and otherwise meet the criteria for grouping under this subsection.” U.S.S.G. § 3D1.2(d) cmt. n.6. “The Ëœsame general type of offense is to be construed broadly.” Id. In addition, cases have required that the offenses not only be similar in a general sense but also “closely related” on the facts of the particular case.

In determining that the Defendants tax related counts should have been grouped together, the 11th Circuit stated as follows:

As an initial matter, we have no difficulty concluding that Registers offenses otherwise meet the criteria for grouping under [subsection (d)]. The applicable guideline for the failure-to-pay-over counts is § 2T1.6, entitled “Failing to Collect or Truthfully Account for and Pay Over Tax,” and the applicable guideline for the filing-false-returns counts is § 2T1.1, entitled “Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents.” Inasmuch as both guidelines are expressly included in the “are to be grouped” together list, they clearly “otherwise meet the criteria” for grouping under subsection (d). See U.S.S.G. § 3D1.2(d).

The 11th Circuit further held that:  “Although Registers failure-to-pay-over counts under § 7202 and filing-false-returns counts under § 7206(1) are governed by different guidelines, we conclude that the underlying offenses are Ëœof the same general type.” Both are tax offenses governed by the Internal Revenue Code and Part T of the Sentencing Guidelines. The “measure of aggregate harm” is the same in both, since each involves a monetary objective. See U.S.S.G. § 3D1.2 cmt. n.6 ex. 3 (“The defendant is convicted of five counts of mail fraud and ten counts of wire fraud. Although the counts arise from various schemes, each involves a monetary objective. All fifteen counts are to be grouped together.”). And while the guidelines themselves may be different, notably, the base offense level for both is determined by looking up the amount of tax loss in the same Tax Table located at § 2T4.1. Moreover, on the facts of this case, grouping the offenses serves § 3D1.2s principal purpose of combin[ing] offenses involving closely related counts.”

Based on this analysis, the 11th Circuit determined that all 17 of the Defendants counts should have been grouped together, resulting in a lower sentencing guideline range.  As a result, the 11th Circuit vacated the Defendants sentence  and remanded the case to the district court for resentencing.

The attorneys at Fuerst Ittleman, PL have extensive criminal and civil tax litigation experience at both the trial and the appellate levels.  You can contact an attorney by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.

Fifth Circuit reverses District Court and holds that taxpayer did not disclose listed transaction which extended the statute of limitations on assessment

On April 26, 2012, the United States Court of Appeals for the Fifth Circuit issued its opinion in  Bemont Investments, LLC et al. v. United States of America, case # 10-41132. 

The facts are as follows:

On October 13, 2006, the IRS issued Final Partnership Administrative Adjustments (“FPAAs”) to Bemont and BPB (the “taxpayers” or “partnerships”) for tax years 2001 and 2002. An FPAA is the partnership equivalent of a statutory notice of deficiency to an individual or nonpartnership entity. The FPAAs disallowed losses from a foreign currency hedging transaction claimed on Bemonts 2001 partnership return and BPBs 2002 return. Both FPAAs also imposed four, alternative, non-cumulative penalties: (1) a 40% penalty for underpayment attributable to a gross valuation misstatement, (2) a 20% penalty for underpayment attributable to negligence, (3) a 20% penalty for underpayment attributable to a substantial understatement of income tax, and (4) a 20% penalty for underpayment attributable to a substantial valuation misstatement, all under 26 U.S.C. § 6662, available here.

The partnerships timely commenced actions for readjustment of partnership items by filing petitions in the district court.

Before trial, the court granted the partnerships motion for partial summary judgment, under Federal Rule of Civil Procedure 56, available here, holding that the government was foreclosed from imposing the valuation misstatement penalties (items (1) and (4) above). The remainder of the case proceeded to trial. After a bench trial, the court determined that the FPAA issued to Bemont for 2001 was time-barred, precluding the tax assessment and penalties related to that tax year. The court upheld the disallowance of losses reported by the partnerships and the imposition of penalties against them (items (2) and (3) above) for 2002. Both sides appealed.

The transaction underlying this dispute is described by the IRS as a “Son of BOSS” tax shelter; see our prior blog entries on this issue here. This type of shelter creates tax benefits in the form of deductible losses or reduced gains by creating an artificially high basis in partnership interests.  The IRS classified such schemes as abusive tax shelters; see Notice 2000-44, 2000-2 C.B. 255, available here. The notice designated such shelters as “listed transactions” for purposes of Treasury Regulation §§ 1.6011-4T(b)(2) and 301.6111-2T(b)(2). A listed transaction is one the IRS has determined to be a tax avoidance transaction. Treas. Reg. § 1.6011-4T.  In general, the taxpayer must file a disclosure statement with any tax return that includes gains or losses from a listed transaction. 26 U.S.C. § 6011, available here.

To address the problem of taxpayers and promoters who fail to comply with the disclosure requirements, Congress extended the usual three-year statute of limitations for the issuance of a deficiency notice or FPAA in cases involving undisclosed listed transactions until one year after the taxpayer or his tax shelter advisor has complied with the notice requirements; see 26 U.S.C. § 6501(c)(10), available here.

In this case, the partnerships filed the disclosure statements required by Notice 2000-44 and 26 U.S.C. § 6011 with their tax returns affected by participation in the transactions.  In April 2005, the IRS audited one of the partnerships indirect partners 2002 tax return and inquired about a $46 million loss allocated from one of the partnerships. The accountant who had prepared the indirect partners income tax return gave the IRS agent a copy of the agreement assigning the direct partners rights under the swaps to Bemont. The agreement listed all four swaps – two long and two short. The accountant also provided copies of the confirmation letters for the long swaps but did not provide further detail on the short swaps. No adjustments were made by the IRS to the indirect partners return for that year.

On October 13, 2006, after the ordinary three-year statute of limitations for examining the partnerships 2001 returns had expired, the IRS issued FPAAs to the partnerships. The FPAA issued by IRS to Bemont covered the 2001 tax year, disallowing the losses from the swaps and determining that Bemonts partners had no basis in the partnership. The FPAA issued by IRS to BPB dealt with the 2002 tax year, and disallowed the losses from the swaps and determined that the BPB partners had no basis.

The district court found that subpart (A) of § 6501(c)(10) did not apply because neither the partnerships nor Beal provided the required disclosure with their respective returns and because the accountant did not furnish complete information about the swaps during the audit of the indirect partners 2002 tax return. The accountant provided full disclosure regarding the long swaps, but did not disclose the offsetting short swaps.  The district court also found that an IRS summons to Deutsche Bank (a material advisor to the partnerships) revealed information to the IRS no later than July 2005 which identified Bemont and BPB as participating in a Son of Boss shelter and that the information provided substantially complied with the statute and applicable regulations issued by the IRS as set forth in 26 C.F.R. § 301.6112-1T. More specifically, the district court found that by July 2005, the IRS had information that identified BPB and Bemont, and as to these entities, the account number for the buy and sell, the foreign exchange amount, the foreign exchange rate, the amount of U.S. dollars involved, the trade and sell dates, and the percentage sold. Based on these findings, the district court held that the FPAA issued to Bemont in October 2006 was too late and the IRS was time barred from assessing additional taxes or related penalties for the 2001 tax year.

On appeal, the Fifth Circuit reversed the district court ruling that the disclosures made by Deutsche Bank were sufficient as a matter of law to meet the disclosure requirements of 26 U.S.C. section 6011, and as a result the statute of limitations was extended pursuant to 26 U.S.C. section 6501(c)(10.  The Fifth Circuit based its conclusion on the fact that the disclosure was (i) not provided by the partnerships, and (ii) was not in a form that enabled the IRS to indentify the information related to the listed transaction “without undue delay or difficulty.”  The Deutsche Bank disclosures included 226 CDs that captured 2.2 million pages of documents.  In essence, the 5th Circuit held that the disclosure was tantamount to providing the information to the IRS that forced the IRS to identify a “needle in a haystack.”

The full opinion can be viewed here.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating tax shelter cases at both the trial level and the appellate level.  You can contact us by email at contact@fidjlaw.com or by calling us at 305.350.5690.

Third Circuit Court of Appeals Affirms Trust Fund Tax Convictions

In United States v. DeMuro, ___ F.3d ___, available here, the taxpayers were convicted of "conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, available here, commonly referred to as a “Klien” conspiracy, and 21 counts of failure to account and pay over employment taxes (employee income tax and employee FICA withheld), in violation of 26 U.S.C. § 7202, available here. The language of Section 7202 provides as follows: “Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $ 10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

The Internal Revenue Code requires that employers withhold and pay over to the IRS income tax and social security taxes (a/k/a “FICA” taxes) collected from the employees.  These withheld  funds are referred to as "trust fund taxes" because the employer withholds the amount and keeps them “in trust” for the employee until the employer remits it to the IRS.  There is no explicit requirement that the trust fund taxes be segregated from a general operating account, all that is required is that the correct amount is remitted to the IRS on a timely basis.

There are provisions of the Internal Revenue Code that address trust fund taxes. This includes trust fund taxes penalty IRC Section 6672, available here, for responsible person to ensure that the IRS gets the trust fund taxes, and IRS Section 7512, available here, which authorizes the IRS to establish a special trust account for the employer to deposit the trust fund taxes.

As an aside, the Internal Revenue Code section 6672(a) states:

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 [IRC Sec. 6653] or part II of subchapter A of chapter 68 [IRC Sections 6662 et seq.] for any offense to which this section is applicable.

As these statutory provisions make clear, section 6672(a) substantially tracks section 7202, and make available to the government criminal penalties for those that failure to collect and/or remit employment taxes.

But Section 7202 addresses the employer who fails to remit the trust fund taxes to the IRS.  That section is not altogether clear that an individual who did not have the direct legal obligation to remit trust fund taxes could be convicted.  In contrast, in a Klein conspiracy, all of the persons who conspired to defraud the United States “ regardless of whether the conspiracy was successful “ by failing to remit trust fund taxes would be criminally liable.  As such, a Klein conspiracy count wraps all the actors in the conspiracy without regard to individual levels of culpability and provides the government with a substantive criminal charge that has greater reach. 

In DeMuro, a IRC Section 7512 trust account was established.  The proof introduced at trial was that the taxpayers improperly disbursed funds and shut down the account without the permission of the IRS.  In the taxpayers case, the taxpayers corporation withheld the trust fund taxes, but were not remitted to the IRS.  The evidence produced at trial demonstrated that the taxpayers not only had the ability to withhold, but instead of remitting the trust fund taxes to the IRS, they spent their money on a lavish lifestyle.

On appeal, the taxpayers argued that the evidence of their lavish lifestyle was admitted in error.  However, the Third Circuit rejected that claim, holding instead that “personal spending can be relevant to rebut a defendant’s defense that he has not acted willfully."  The Third Circuit held as follows:  "the District Court did not abuse its discretion in finding the evidence of the DeMuros’ personal spending to be relevant to the jury’s assessment of willfulness in light of the DeMuros’ defensive arguments at trial."  

The Court also rejected the argument that the evidence of lavish lifestyle was unfairly prejudicial under Federal Rule of Evidence 403, available here. The Third Circuit addressed Rule 403 by quoting the D.C. Circuit in United States v. Gratmon, 146 F.3d1015, 1021 (D.C. Cir. 1998): “Rule 403 does not provide a shield for defendants who engage in outrageous acts, permitting only the crimes of Caspar Milquetoasts to be described fully to a jury. It does not generally require the government to sanitize its case, to deflate its witnesses’ testimony, or to tell its story in a monotone.”

The taxpayers also argued that the introduction of FRE 404(b) ("bad acts" evidence) was improper.  The specific evidence in dispute was that the taxpayers  had withheld trust fund taxes, but other monies that should have been remitted to third parties for the benefit of the employees, e.g.,  employees’ health insurance, retirement and child support payments.  The Third Circuit rejected this argument, detailing how the trial court did not abuse its discretion to admit this evidence.   The taxpayers additionally argued that details of their interaction with the IRS should have been admissible to show their lack of willfulness required for the Section 7202 counts.  The Court also rejected this argument, finding no abuse of discretion.

Ms. DeMuro also argued that the trial courts decision to exclude evidence supporting her “innocent spouse defense,” i.e. evidence showing that even if her husband was liable, she was not. The trial court excluded the evidence because "it was irrelevant to whether the wife was responsible for paying the trust fund taxes; 2) it had the potential to confuse the jury; and 3) the  statement was inadmissible hearsay."  The Court on appeal sustained the exclusion.

But the taxpayers were successful in their theory that the trial court improperly applied a 2-level enhancement for abuse of position of trust, pursuant to the U.S. Sentencing Guidelines § 3B1.3.  (The Sentencing Guidelines are available here.) That enhancement was based only on the taxpayers  failure to meet the obligation imposed under the special IRS trust account.  The Third Circuit stated:  "Our inquiry is whether the DeMuros were in positions of trust vis-a-vis the IRS based on their positions as signatories of the trust fund account set up to benefit the IRS."  The Court applied the following factors: (i) the special trust fund did not have the factor of difficulty to detect the breach of trust; (ii) the taxpayers had little authority (they had power, but not authority) over the trust fund; and (iii) the IRS did not rely upon the integrity of the taxpayers, having established the special trust fund because it did not rely upon their integrity.  Based on the analysis of these factors, the Court reversed for resentencing without the enhancement.

The attorneys at Fuerst Ittleman, PL have extensive civil and criminal tax litigation experience before the U.S. District Courts, the U.S. Tax Court, and the U.S. Circuit Courts of Appeal.  You can contact us by calling 305.350.5690, or by emailing us at contact@fidjlaw.com.

Eleventh Circuit Court of Appeals Creates Deeper Circuit Split Over Pre-Trial Restraint of Assets

The 11th Circuit Court of Appeals, based in Atlanta, issued its opinion on April 26, 2012, in the case of United States of America v. Kaley, ___ F.3d___, available here; (“Kaley II”).  The Defendants challenged a district courts order denying their motion to vacate a pretrial protective order restraining their assets. This is the second time the case came before the 11th Circuit.  In United States v. Kaley, 579 F.3d 1246 (11th Cir. 2009) (“Kaley I“), available

here, the 11th Circuit reversed the district courts order which had concluded that the Kaleys were not entitled to a pretrial evidentiary hearing on their motion to vacate the protective order, and remanded the matter for further proceedings. On remand, the district court determined that the Kaleys were entitled to a pretrial, post-restraint hearing, but that the only question to be addressed at the hearing was whether the restrained assets were traceable to or involved in the conduct charged in the indictment. At the hearing, the Kaleys did not present any evidence regarding traceability, and the district court declined to set aside the protective order.

The relevant facts are as follows:

In January 2005, Kerri Kaley, then a sales representative with Ethicon Endo-Surgery, was informed she was the target of a grand jury investigation in the Southern District of Florida. Kaley was suspected of stealing prescription medical devices (“PMDs”) from hospitals and then selling them on the black market. Kaley retained counsel in the investigation. Kaleys husband, Brian Kaley, who was also under investigation, retained a separate attorney. Together, the two attorneys informed the Kaleys that their legal fees to take the case through trial would be approximately $500,000. To obtain funds to pay those fees, the Kaleys applied for and obtained a home equity line of credit of $500,000 on their residence and used the proceeds to buy a certificate of deposit (“CD”).

On February 6, 2007, the grand jury returned a seven-count indictment against the Kaleys.  Count One charged a conspiracy to transport PMDs in interstate commerce while knowing them to have been stolen, in violation of 18 U.S.C. § 371, available here. Counts Two through Six charged five substantive 18 U.S.C. § 2314 offenses, available here and Count Seven charged obstruction of justice, in violation of 18 U.S.C. § 1512(b)(3), available here. The indictment also sought criminal forfeiture of all property traceable to the § 2314 offenses, including the CD.

On February 7, 2007, the Government moved the district court ex parte for a protective order restraining the Kaleys from transferring or otherwise disposing of the property listed in the forfeiture count, and a magistrate judge, concluding that the indictment established probable cause that the property was “traceable to” the Kaleys commission of the § 2314 offenses, granted the motion the same day.

On March 5, 2007, the Kaleys moved the district court to vacate the February 7th protective order. They contended that the order prevented them from retaining counsel of their choice in violation of their Sixth Amendment right to the representation of counsel. A magistrate judge heard this motion too on April 6th and sustained the protective order; however, he limited the protective orders scope (insofar as it applied to the CD) to $140,000.

On April 10, 2007, the grand jury returned a superseding indictment. This indictment replicated the first seven counts of the first indictment and added an additional count — a charge that the Kaleys had conspired to launder the proceeds of the § 2314 offenses, in violation of 18 U.S.C. § 1956(h), available here. This indictment also sought the criminal forfeiture of the CD and the Kaleys residence on the theory that those assets were “involved in” the Kaleys commission of the § 1956(h) offense. On April 17th, the Kaleys renewed their motion to vacate the February 7th protective order (as amended by the order of April 6th), and expressly requested a pretrial, post-restraint evidentiary hearing.  The magistrate judge heard the motion on April 27th. He questioned whether the indictment alone provided probable cause to restrain the defendants assets and ordered the prosecutor to submit an affidavit supporting probable cause. The prosecutor responded by filing, in secret and under seal, an affidavit executed by the FBI case agent.

On May 1, 2007, the magistrate judge issued two orders. In the first order, he found probable cause — based on the indictment and the case agents affidavit — that the CD and the Kaleys residence were “involved in” the violations of § 1956(h) and § 2314. In the second order, he amended the February 7th protective order to include within its scope the full value of the CD and the Kaleys residence. On May 2nd, the magistrate judge issued a third order denying the Kaleys motion to vacate the protective order and to hold a pretrial, post-restraint evidentiary hearing.

The 11th Circuit in Kaley I, held under United States v. Bissell, 866 F.2d 1343 (11th Cir. 1989), available here, that a defendant whose assets are restrained pursuant to a criminal forfeiture charge in an indictment, rendering him unable to afford counsel of choice, is entitled to a pretrial hearing only if the balancing test enunciated in Barker v. Wingo, 407 U.S. 514 (1972), available here, is satisfied. Id. at 1353. The 11th Circuit in Kaley I concluded that the district court incorrectly applied that test, and reversed and remand the case for further consideration consistent with the opinion in Kaley I.

However, Judge Tjoflat wrote a specially concurring opinion that asserted that the 11th Circuits decision in Bissell, was dicta, and hence not binding on the Kaley I court.  Judge Tjoflat stated:  “In the absence of binding precedent, the panel should have looked to the general requirements of procedural due process.” See United States v. E-Gold Ltd., 521 F.3d 411, 415 (D.C. Cir. 2008) (using this approach to determine whether a post-restraint, pretrial hearing was due), available here. (Andrew Ittleman of Fuerst Ittleman, PL was counsel of record in the E-Gold case before the D.C. Circuit Court.)

After remand, an evidentiary hearing was conducted on July 29, 2010, and the district court heard arguments from the parties regarding the hearings proper scope. The Kaleys explained that they were not contesting whether the restrained assets were traceable to or involved in the conduct charged in the indictment, but instead were taking the position that the protective order should be vacated because the underlying facts did not support the crimes charged in the first place. The government responded that, in light of this Courts decisions in Bissell and Kaley I, it was not required to offer substantive evidence from its case against the Kaleys in order to establish the evidentiary foundation of the criminal charges, and that the only purpose of the hearing was to determine whether the restrained assets were traceable to or involved in the conduct charged in the indictment. 

On October 24, 2010, the district court issued an order denying the Kaleys motion to vacate the protective order. Citing language taken from Bissell and Kaley I, the district court concluded that the only relevant inquiry at the hearing was whether the restrained assets were traceable to or involved in the alleged criminal conduct. Because the Kaleys did not attempt to challenge traceability in any way — arguing only that the governments underlying case had no merit “ the district court denied their motion to vacate the protective order. On October 27, 2010, the Kaleys filed their second appeal from the district courts order.

On appeal in Kaley II, the 11th Circuit examined the scope and purpose of the forfeiture statute, 21 U.S.C. section 853, available here. The 11th Circuit noted that Section 853 does not require a hearing for the issuance or continuation of a post-indictment restraining order. Under subparagraph (1)(B), to obtain such a restraining order before the filing of an indictment requires “notice to persons appearing to have an interest in the property and opportunity for a hearing.” Id. § 853(e)(1)(B). But, in sharp contrast, subparagraph (1)(A), dealing with post-indictment restraining orders, contains no such requirement. See id. § 853(e)(1)(A).  Since the statute itself imposes no hearing requirement, the only pretrial hearing required is one provided under the Due Process Clause.

The question before the 11th Circuit in Kaley II was what exactly what  the hearing requires. Kaley I suggested that the defendants cannot challenge the underlying indictment itself, and the 11th Circuit expressly so held. The basis for the decision was a line of U.S. Supreme Court cases that held that the grand jurys function cannot be usurped by the Courts; see Costello v. United States, 350 U.S. 359 (1956), available here; United States v. Williams, 504 U.S.  36, 54-55 (1992), available here; Bank of Nova Scotia v. United States, 487 U.S. 250, 261 (1988), available here; United States v. Calandra, 414 U.S. 338, 344-45 (1974), available here. Thus, according to the 11th Circuit, an indictment valid on its face is not subject to challenge on the ground that the grand jury acted on the basis of inadequate or incompetent evidence.  In other words, in the 11th Circuit a criminal defendant cannot challenge the governments position that assets are forfeitable if the evidence presented to the grand jury was sufficient for the grand jury to indict.

However, the 11th Circuits decision in Kaley II is in direct and express conflict with the 3rd, 8th, 2nd, and D.C. circuits.  The 11th Circuit recognized as such by stating that:

The Third and Eighth Circuits have held otherwise, concluding that a court must hold a full hearing at which “the government must demonstrate that it is likely to convince a jury, beyond a reasonable doubt, . . . that the defendant is guilty of [the statutory violation] and . . . that the profits or properties at issue are subject to forfeiture.” United States v. Long, 654 F.2d 911, 915 (3d Cir. 1981), available here; United States v. Lewis, 759 F.2d 1316, 1324 (8th Cir. 1985) (following Long), available here.  See also United States v. Monsanto, 924 F.2d 1186 (2d Cir. 1991) (en banc), available here. The 11th Circuit also stated that:  “The D.C. and Ninth Circuits, like the Second Circuit in Monsanto, have held that the postrestraint hearing must address whether there is probable cause to believe that the defendant is guilty of the crime that makes the assets forfeitable. United States v. E-Gold, Ltd., 521 F.3d 411, 419 (D.C. Cir. 2008); United States v. Roth, 912 F.2d 1131, 1134 (9th Cir. 1990)” available here.

Judge Edmondson, like Judge Tjoflat before him, authored a concurring opinion, see slip op. at 30, and remarked that: “I concur in todays result. I concur because I cannot say with strong confidence that my colleagues on the panel are incorrect in the way they see the law working. But I concur with deep doubts. And if I were deciding the case alone, I expect I would reach a different result and write something largely in line with United States v. Monsanto, 924 F.2d 1186 (2d Cir. 1991) (en banc), and United States v. E-Gold, Ltd., 521 F.3d 411 (D.C. Cir. 2008).”  Judge Edmondson continued:  “I have voiced my doubts, but I cannot firmly conclude that the legal position my experienced, able colleagues have taken is definitely erroneous. Therefore, I do not dissent, although I am uneasy that the limits that we set today for the hearing essential to continue a pretrial restraint on property might well be too limiting under the Constitution.”

The takeaway from Kaley I and Kaley II, is that, as it currently stands, a criminal defendants ability to contest pretrial the governments use of the federal forfeiture statute is limited, but varies from circuit to circuit.  As the concurring opinions in Kaley I and Kaley II demonstrate, there is a clear circuit split, one which appears will have to be settled by the U.S. Supreme Court.  Also the concurrences in Kaley I and Kaley II show the good possibility that the 11th Circuit may be willing to re-examine its position by the full (en banc) court. 

The attorneys at Fuerst Ittleman, PL have extensive litigation experience before the U.S. District Courts and the U.S. Circuit Courts of Appeal regarding criminal forfeitures.  You can contact us by calling 305.350.5690, or by emailing us at contact@fidjlaw.com.

“Fairness in Disclosure of Evidence Act of 2012” introduced as a Senate Bill in response to numerous Brady violations

On March 15, 2012, Senator Lisa Murkowski, R-Alaska, profile available here, together with Senator Daniel Inouye, D-Hawaii, profile available here, Senator Kay Bailey Hutchinson, R-Texas, profile available here, Senator Mark Begich, D-Alaska, profile available here, and Senator Daniel Akaka, D-Hawaii, profile available here, introduced the Fairness in Disclosure Act of 2012.  The bill comes in the wake of the Department of Justices failure to turn over exculpatory evidence in the prosecution of U.S. Senator Ted Stevens, see generally here and here.

The U.S. Supreme Court in Brady v. Maryland, 373 U.S. 83 (1963), available here, held that the prosecution has a constitutional obligation to disclose to the defense any and all exculpatory material.  The Bill, as introduced, sets forth a statutory framework for the prosecution to abide by.  The bill defines the term “prosecution team” as an executive agency involved in criminal prosecutions, including law enforcement agencies, see Section 2(a)(2), and imposes a duty to turn over information that “may reasonably appear to be favorable to the defendant,” including information that relates to guilt and sentencing, see Section 2(a)(1).  The Bill imposes a duty to disclose favorable information within the possession and control of the prosecution team or information that is or should be known based on due diligence of the prosecution, see Section 2(b).

The Bill also provides that the prosecution shall provide the information to the defendant “without delay after arraignment and before the entry of any guilty plea” and  “as soon as is reasonably practicable upon the existence of the covered information becoming known, without regard to whether the defendant has entered or agreed to enter a guilty plea,” see Section 2(c). 

Additionally, the Bill provides for remedies for violations of the Act, which may include: “(i) postponement or adjournment of the proceedings; (ii) exclusion or limitation of testimony or evidence; (iii) ordering a new trial; (iv) dismissal with or without prejudice; or Ëœ(v) any other remedy determined appropriate by the court.” Section 2(h).  The Bill also provides for teeth in enforcement by allowing a defendant to recover costs for litigating the discovery violation, see Section 2(h)(2). 

The full text of the bill can be found here.

Brady violations are quite common, notwithstanding the Supreme Courts repeated decisions reversing convictions for the prosecutions failure to turn over exculpatory evidence.  For instance, on January 10, 2012, the Supreme Court in Smith v. Cain, available here, reversed Smiths conviction because under Brady, evidence is material if there is a reasonable probability that, had the evidence been disclosed, the result of the proceeding would have been different.  A reasonable probability means that the likelihood of a different result is great enough to  undermine the confidence in the outcome of the trial.  In Smiths case the eyewitnesss testimony was the only evidence linking Smith to the crime, and the eyewitnesss undisclosed statements contradicted his testimony. The eyewitnesss statements were plainly material, and the prosecutions failure to disclose those statements to the defense violated Brady.

Brady violations are common issues in criminal prosecutions, and the “Fairness in Disclosure of Evidence Act of 2012” appears to be Congresss response to violations against one of their own.  If the Bill were to be passed as it currently stands, it would change the landscape of criminal defense and criminal prosecutions. 

The attorneys at Fuerst Ittleman, PL have extensive experience litigation white collar criminal cases before Federal and State courts at both the trial and appellate levels.  You can contact an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.

Lawyers fired, Bank recants testimony after it is discovered that Bank altered document used at federal trial

After being held liable for $67 million in damages by a federal jury for aiding and abetting the fraud committed by attorney Scott Rothstein and his law firm, Rothstein, Rosenfeldt & Adler, TD Bank, headquartered in Canada, may be sanctioned by a federal judge and its trial counsel held in contempt for altering a document used at trial and representing to the Court that other documents did not exist.

From 2005 to 2009 TD Bank was the banker for the Rothstein law firm, the accounts of which Rothstein used to execute a $1.2 billion Ponzi scheme. Victims of the scheme have brought civil suits against TD Bank and others for banking the Rothstein firm and otherwise complying with the Rothstein scheme.  Coquina Investments wasone of those victims and filed suit against TD Bank for fraud.

Coquina Investments, in its motion for sanctions, has asked Judge Cooke for monetary penalties, referral of the bank to the Justice Department for investigation, and referral of the Greenberg Traurig law firm to the Florida Bar for an ethics investigation.

Recently, TD Bank, in response to the motion for sanctions filed by Coquina Investments, seen here,

admitted to U.S. District Judge Marcia Cooke in Miami that a document used at trial had been altered, but blamed a copying error. That response is here.

The document was a “Customer Due Diligence form” that had been altered to hide the fact that Rothstein was considered a “high risk” client by TD Banks compliance department for money laundering activity. The document was important to the issues at trial, because TD Banks money laundering expert testified that the bank had no reason to believe that Rothstein was laundering money, when the document revealed that the exact opposite was true. Also, lawyers for the bank had represented to Judge Cooke that a document entitled “Standard Investigative Protocol,” outlining the steps taken by anti-money laundering officials of the Bank, did not exist, when it in fact did.  No reason was given for why neither TD Bank nor its counsel produced the document at trial. As a result, TD Bank recanted those representations to the Court, fired its trial counsel, and obtained new counsel. Judge Cooke has set a May 17th hearing to decide whether the bank should be sanctioned and its former lawyers held in contempt of court for making incorrect representations regarding the altered document.

Donna Evans, the Greenberg Traurig partner who represented the bank at trial made the misrepresentations to the Court, is apparently no longer with the firm.

This case highlights the importance of due diligence in reviewing corporate records when producing documents for discovery in a civil lawsuit, or for use otherwise as evidence.  The sanctions availableif documents are destroyed, altered or otherwise misrepresented to not exist include dismissal of lawsuits, striking of defenses, preclusion of the use of certain evidence, and monetary sanctions. Experienced counsel, like those at Fuerst Ittleman, are always on the lookout to make sure a clients records have been adequately searched before responding to requests for production of documents in a civil case.You can contact us by email at contact@fidjlaw.comor by calling us at 305.350.5690.

Second Circuit Court of Appeals Reverses Convictions for Tax Evasion and Fraud

On April 30, 2012, the U.S. Court of Appeals for the Second Circuit reversed  convictions for two counts of tax evasion, and vacated convictions for mail fraud on the grounds that the mail fraud and tax evasion counts were improperly joined.  The Second Circuit remanded the case to the U.S. District Court for the Eastern District of New York.  The case is United States of America, v. Litwok, and the 2nd Circuits decision is available here.

The fact are as follows.

A superseding indictment charged Litwok with mail fraud in connection with a false insurance claim relating to her house on in East Hampton, New York.  Litwok transferred nominal ownership of two of her houses to a close friend, under whose name the homes were insured by a subsidiary of Chubb Insurance Company.  Chubb received claims for damage to both homes, and claims for lodging while one of the homes was being repaired.  Chubb issued a check for the lodging “ which ultimately became the basis for the mail fraud count.

In addition to the evidence of mail fraud, the Government presented the following evidence relating to the tax evasion counts. From 1994 to 1997, Litwok operated a number of private equity companies from her East Hampton house, including Kohn Investment I LP, which she managed through Kohn Investment Management, Inc. Litwok routinely commingled her corporate and personal funds and used funds she received from her corporate investors to pay for personal expenses and gifts. Although she owed nearly $1.5 million in taxes from 1995 through 1997 based on her personal income, Litwok failed to file a single personal tax return for those years.

Three of Litwoks former accountants testified at trial. But only one accountant, Peter Testaverde, testified about work related to any of the years relevant to the tax evasion charges. Testaverde explained that Litwok had retained his accounting firm from September 1995 to September 1996 to calculate the losses and income for Kohn Investment I LP and to prepare 1995 K-1 tax forms, which provide investors with information necessary to file their own tax returns, including their portion of the partnership income. Testaverde confronted Litwok after discovering over $2.3 million in excess personal compensation based on a review of various brokerage account statements, among other documents. In response, Litwok attacked the accuracy of the account statements from her companys brokerage firm that Testaverde had relied on to calculate her compensation. She then blocked Testaverde from contacting the brokerage firm to verify the information, as would have been the normal practice. When Testaverde tried to notify Litwoks companys partners that he (Testaverde) could not prepare their K-1 forms because Litwok had prohibited him from contacting the brokerage firm, Litwok attempted to stop him. One of Litwoks two other accountants testified that his firm prepared Litwoks tax returns for 1992 and 1993, prior to the period charged in the Indictment, but she never filed them. One of these accountants, Lawrence Goldstein, also confronted Litwok, to no effect, about what appeared to be $1 million in excess personal compensation, and refused her repeated demands to adjust his accounting for her 1994 partnership tax return.

In March 2003 Litwok was charged by indictment with mail fraud relating to the lodging reimbursement claim and tax evasion for the years 1995 through 1997. The case was tried before a jury in February 2009. In May 2010, after the jury convicted Litwok on all counts, the District Court sentenced her principally to two years imprisonment and ordered her to pay $23,551 in restitution. Litwok began serving her sentence in September 2010. By order dated September 8, 2011, the Second Circuit released Litwok on bail pending the disposition of this appeal, after noting that the parties had “agreed that the appeal presents Ëœa close question or one that very well could be decided the other way.”

The Second Circuit held that evidence was sufficient to sustain the mail fraud conviction, but vacated and remanded because the wire fraud charge had been improperly joined with the tax charges.  Under Federal Rule of Criminal Procedure 8(a), available here, criminal charges may be joined if "of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan."  

In Litwoks case, there was no relation between the tax charges and the wire fraud charges, other than perhaps both involved fraud which permitted the Government to combine the arguments.  The Second Circuit found that Litwok was prejudiced by the improper joinder, reasoning as follows:

The Government argues that the evidence of Litwok’s failure to file tax returns for her investment companies and her improper personal use of business funds had virtually no impact on the jury’s consideration of the mail fraud count. We disagree. The evidence of the 1995 tax evasion charged in Count Two included testimony about Litwok defrauding her investors of millions of dollars for personal compensation. At trial and in its closing argument, the Government was able to point to that and other evidence to describe Litwok as "a cheat, a liar, and a thief" and to otherwise contend that Litwok had a propensity to engage in fraudulent activity. Because none of the evidence of the 1995 tax evasion was related to the 1997 mail fraud offense, it would not have been admitted in a trial involving only that offense; yet it inevitably colored the jury’s view of Litwok’s role in the mail fraud scheme. The prejudice, in our view, went both ways: although the evidence of Litwok’s involvement in the fraud related to the Aborigine Way claim would have been inadmissible in a trial involving only the 1995 tax evasion count since it did not support that charge in any way, it surely affected the jury’s consideration of that count.

As to the tax evasion charges, the Second Circuit held that for tax evasion counts of conviction under 26 U.S.C. § 7201, available here, the Government was required to prove three elements at trial: “(1) the existence of a substantial tax debt, (2) willfulness of the nonpayment, and (3) an affirmative act by the defendant, performed with intent to evade or defeat the calculation or payment of the tax.” See, United States v. Josephberg, 562 F.3d 478, 488 (2d Cir. 2009), available here. The Second Circuit concluded that there was sufficient proof that Litwok engaged in an affirmative act to evade taxes in 1995.  In contrast, the Second Circuit concluded that there was insufficient evidence of any such act relating to the calendar years 1996 and 1997.

For 1995, the Second Circuit noted that the most significant testimony was that of Peter Testaverde. Testaverde testified that Litwok barred him from verifying the accuracy of the trading account statements that she claimed were inaccurate and thereby prevented him from preparing 1995 K-1 tax forms for Kohn Investment I LPs partners “ including its general partner, Kohn Investment Management, which Litwok owned. Without K-1 tax forms, the companys partners could not determine their income and file their returns. Based on Testaverdes testimony, a rational juror could find that Litwok actively prevented the filing of her returns that year. On a sufficiency challenge, her conduct constitutes an affirmative act sufficient to sustain her conviction on Count Two.

For 1996 and 1997, the Second Circuit noted that there was no evidence at trial of any affirmative act beyond a mere failure to file tax returns for calendar years 1996 and 1997.

Ultimately, the Second Circuit concluded by reversing the convictions for the 1996 and 1997 tax evasion counts, and vacated and remanded for retrial on the 1995 tax evasion count and the mail fraud count, with the counts severed from each other.

The attorneys at Fuerst Ittleman, PL have extensive experience litigating criminal and civil tax and fraud cases at both the trial and the appellate levels.  You can contact us by email at contact@fidjlaw.com or by calling us at 305.350.5690.

59 individuals indicted in the Southern District of Florida in response to Medicare Fraud Strike Force investigation

On May 1, 2012,  Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, Christopher B. Dennis, Special Agent in Charge, U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG), and Henry Gutierrez, Postal Inspector in Charge, U.S. Postal Inspection Service, Miami Division, announced that fifty-nine (59) South Florida residents were charged for their alleged participation in various schemes to defraud Medicare out of more than $137 million.

The charges in South Florida are part of a nationwide takedown by Medicare Fraud Strike Force operations in seven cities that resulted in charges against 107 individuals, including doctors, nurses and other licensed professionals, for their alleged participation in Medicare fraud schemes involving approximately $452 million in false billing. This coordinated takedown involved the highest amount of false Medicare billings in a single takedown in Strike Force history.

The specific indictments include:

U.S. v. Odalys Fernandez, Kelvin Soto, Yumidia Naranjo, Jose Guerra, Yanuris Lima, and Servando Raya, Case No. 12-20230-CR-Ungaro

In this six defendant case, two registered nurses employed by Ideal Home Health (Odalys Fernandez and Kelvin Soto) are charged with conspiracy to commit health care fraud for purportedly providing services, such as skilled nursing and physical therapy, to homebound beneficiaries.

U.S. v. Eulises Escalona, Case No. 12-20293-CR-Lenard

This indictment charges Eulises Escalona with one count of conspiracy to commit health care fraud, one count of conspiracy to defraud the United States and to receive and pay health care kickbacks, and five counts of payment of health care kickbacks stemming from a $42 million home health care fraud scheme.

U.S. v. Rodolfo Nieto, Jr., Case No. 12-20290-CR-Altonaga

This indictment charges Rodolfo Nieto, Jr., owner and operator of Ronat Home Health Care, Inc. (Ronat), with one count of conspiracy to defraud the United States and to receive and pay health care kickbacks and three counts of receipt of kickbacks for his participation in a $60 million home health care fraud scheme.

U.S. v. Maggie Leon, Yuderkis Pena Garcia and Eduardo Vilau, Case No. 12-20274-CR-Seitz

In this case, defendants Maggie Leon, Yuderkis Pena Garcia and Eduardo Vilau, owners of Leon Medical and Leah Medical, were charged with conspiracy to commit health care fraud and health care fraud for submitting false claims to private insurance companies that were Medicare Advantage contractors under Part C of the Medicare program.

U.S. v. Ricardo Martinez, Case No. 12-20316-CR-Martinez

This indictment charges defendant Ricardo Martinez with health care fraud and paying kickbacks to patients.

U.S. v. Yaquelin Colls, Pedro Colls, and Jesus Fernandez, Case No. 12-20315-CR-Seitz

This indictment charges defendants Yaquelin Colls, Pedro Colls, and Jesus Fernandez with conspiracy to commit health care fraud, substantive health care fraud, conspiracy to pay health care kickbacks, and substantive charges of paying kickbacks.

U.S. v. Roberto L. Valdes Gonzalez, Francisca Gema Valdez, Gilberto Faure, and Alberto Sotolongo, Case No. 12-20275-CR-Moore

In this case, defendants Jose L. Valdes Gonzalez, a/k/a “Roberto Gonzalez,” Alberto Sotolongo, a/k/a “Ruben,” Gilberto Faure, and Francisca Gema Valdes were charged with conspiracy to commit health care fraud and substantive counts of health care fraud in connection with the operation of Ilva Pharmacy, Inc.

U.S. v. Alina De Armas, Case No. 12-20282-CR-Zloch

In this case, defendant Alina De Armas is charged with health care fraud and with paying kickbacks to patients.

U.S. v. Isaura Bou-Melendez and Gricel Font, Case No. 12-20113-CR-MGC

In this case, Isaura Bou-Melendez and Gricel Font are charged with conspiracy to commit health care fraud. Bou and Font, licensed therapists, owned and operated a comprehensive outpatient rehabilitation facility, Font & Bou Rehab Associates, Inc.

U.S. v. Maritza Claudia Fernanda Lorza Ramirez, and James Arley Velasco Gonzalez, Case No. 12-60090-CR-KMW

This indictment charges defendants Maritza Lorza Ramirez and James Velasco Gonzalez with conspiracy to commit money laundering and substantive counts of money laundering.

U.S. v. Orlando Conrado Piedra Jr., Case No. 12-60091-CR-KMW

This indictment charges Orlando Piedra, an accountant, with conspiracy to commit money laundering and substantive counts of money laundering.

U.S. v. Armando “Manny” Gonzalez, John Thoen, Wondera Eason, Paul Thomas Layman, Alexandra Haynes, Serena Joslin, Ivon Perez, Daniel Martinez, Raymond Rivero, Case No. 12-20291-CR-Altonaga

Armando “Manny” Gonzalez, John Thoen, Wondera Eason, Paul Thomas Layman, Alexandra Haynes, and Serena Joslin are charged with one count of conspiracy to commit health care fraud through a company called Health Care Solutions Network (HCSN).

U.S. v. Sarah Da Silva Keller, Case No. 12-20289-CR-Cooke

Sarah Da Silva Keller is charged with one count of conspiracy to commit health care fraud.

U.S. v. Alba Serrano, Case No. 12-20285-CR-Seitz

Alba Serrano is charged with one count of conspiracy to commit health care fraud.

U.S. v. Bobby Ramnarine, Case No. 12-20288-CR-Middlebrooks

Bobby Ramnarine is charged with one count of conspiracy to commit health care fraud.

U.S. v. Giuseppe Pellerito, Case No. 12-20292-CR-Cooke

In this case, defendant Giuseppe Pellerito is charged with conspiracy to receive health care kickbacks and substantive counts of receiving kickbacks.

U.S. v. Hassan Collins, Case No. 12-20286-CR-Moore

Hassan Collins is charged with one count of conspiracy to pay and receive health care kickbacks.

U.S. v. Jean Luc Veraguas, Case No. 12-20287-CR-Moreno

Jean-Luc Veraguas is charged with one count of conspiracy to commit health care fraud.

U.S. v. Pablo Orama, Vivian Augustine, a/k/a Vivian Salazar, Ariane Marchioro Amorim, Jose Orelvis Ortega, Marlen Diosdada Garcia, Ivon Perez, Marianela Terrero, Jose Abreu-Gonzalez, Elba M. Caicedo, Carlos A. Herrera, Marisela Sherwood, Nancy Diaz, Daymi Fuentes Gil, Olga Martinez Rodriguez, Yuria Perez Rivero, and Joel Loyola, Case No. 12-20265-CR-Middlebrooks(s)

In this case, sixteen defendants are charged with conspiracy to pay and receive health care kickbacks and substantive counts of paying and receiving kickbacks in connection with a federal health care program.

U.S. v. Jorge Luis Reyes and Waldo Gonzalez, Case No. 12-14030-CR-Moore

This indictment charges Jorge Luis Reyes and Waldo Gonzalez, owners of a medical clinic that purported to treat HIV-positive Medicare beneficiaries at locations in Miami-Dade and St. Lucie Counties.

U.S. v. Manotte Bazile, Case No. 12-20284-CR-Lenard

Defendant Manotte Bazile, a former social worker and licensed intern at Biscayne Milieu, was charged with health care fraud conspiracy for purportedly treating patients who did not qualify for PHP treatment.

U.S. v. Roselyn Nicole Charles, Case No. 12-20283-CR-Ungaro

Defendant Roselyn Nicole Charles, a former patient recruiter at Biscayne Milieu, was charged with conspiracy to pay health care fraud kickbacks.

The full U.S. Attorneys Office press release is available here

https://www.justice.gov/usao/fls/PressReleases/120502-01.html

The attorneys at Fuerst Ittleman have extensive federal criminal experience at the trial and appellate levels, including fraud and health care fraud.  You can contact an attorney for a confidential meeting by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.

IRS halts fraudulent tax refund scheme involving stolen identities and fake income tax returns

On May 1, 2012, the U.S. Attorneys Office for the South District of Florida reported that a IRS and FBI undercover operation targeting identity theft tax refund fraud had resulted in the filing of criminal charges against a group of South Florida residents. Charged in the complaint are Regina Carroll, 37, of Miami, Lanny Fried, 34, of Miami Lakes, former NFL player Louis Gachelin, 31, of Miramar, former NFL player William Joseph, 32, of Miramar, Guy Maxineau, 35, of Miami, Castra Pierre-Louis, 34, of Miami, and Gunie Similien, 32, of Miami. Each defendant allegedly negotiated between 11 and 35 fraudulently obtained tax refund checks, ranging in total value from $70,000 to $120,000.

The Carroll complaint is available here.

The Fried complaint is available here.

The Gachelin complaint is available here.

The Joseph complaint is available here.

The Maxineau complaint is available here.

The Pierre-Louis and Similien complaint is available here.

According to the complaints, from February 2012 to April 2012, the FBI operated a financial services store (the store) in North Miami to accept fraudulently obtained tax refund checks from individuals looking to cash those checks. Undercover FBI agents worked at the store and charged large fees, ranging from 35% to 45 % of the face value of the checks, for their check cashing services. According to the complaints, individuals would come to the store to cash the fraudulently obtained tax refund checks using false identification documents in the name of taxpayer victim whose refund had been stolen. Often, the defendants would forge the victims signature on the back of the check while inside the store. Many of the victim taxpayers whose names appear on the refund checks have already filed identity theft affidavits with the IRS.

During the three month undercover operation, the defendants negotiated with undercover agents at the store to cash approximately $500, 0000 in fraudulently obtained tax refund checks. The conversations and transactions between the customers and undercover agents at the store were audio and video recorded by the FBI. The FBI paid the thieves from official FBI funds and none of the tax refund checks were actually cashed.

The full press release is available here.

The story has been reported in the local South Florida media such as the Miami Herald, available here.

The attorneys at Fuerst Ittleman have extensive experience litigating cases involving income tax evasion and fraud at both the trial and the appellate levels.  You can contact an attorney for a confidential meeting by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.