Fraud Archives

Maryland resident charged with making false statements on federal job applications

The Department of Justice reported yesterday that Karen M. Lancaster, of Upper Marlboro, MD, has been charged with four counts of making false statements, three counts of submitting false documents and one count of engaging in a concealment scheme in connection with her multiple job applications to U.S. federal government agencies.

According to the indictment, Lancaster was employed in various positions with the U.S. Department of Defense (DoD) from 1991 until March 2005. She subsequently was notified by DoD that she was being fired due to performance failures. In October 2006, according to the indictment, Lancaster reached a settlement with DoD whereby she was allowed to resign, retroactive to March 2005.

Between 2006 and 2008, Lancaster applied for jobs at the U.S. Departments of State, Commerce and Defense, as well as with the SEC. The indictment states that as part of the application processes, Lancaster allegedly submitted documents that falsified and concealed information about her criminal history, employment history and suitability for employment with the federal government. Specifically, Lancaster allegedly concealed and falsified informatabout her prior arrests, charges, convictions and prison terms, the unfavorable circumstances under which she had resigned from prior federal employment, the roles and responsibilities she had at previous federal jobs; and her salary history.Lancaster will be arraigned on March 25, 2011, in U.S. District Court in Alexandria. The maximum penalty for each count of making a false statement, submitting a false document and engaging in a concealment scheme is five years in prison. Lancaster also faces a maximum fine of $250,000 per count.

The Department of Justice notes that an indictment is merely an accusation, and a defendant is presumed innocent unless proven guilty in a court of law.

March 17th, 2011|Categories: Employment Decisions|Tags: Fraud, Resume|

Tyson Foods charged with violations of the Foreign Corrupt Practices Act

The Securities and Exchange Commission (SEC) today charged Tyson Foods Inc. with violating the Foreign Corrupt Practices Act (FCPA) by making illicit payments to two Mexican government veterinarians responsible for certifying its Mexican subsidiary’s chicken products for export sales.

The SEC alleged that Tyson de Mexico concealed the improper payments by putting two veterinarians’ wives on its payroll but they performed no work for the company. The spouses were later removed from the payroll and their payments were processed with invoices issued for “services.” Tyson de Mexico paid the veterinarians, who were responsible for certifying Tyson’s chicken products for export and served as official Mexican government veterinarians at Tyson facilities, a total of $100,311. It was not until two years after Tyson Foods officials first learned about the subsidiary’s illicit payments that its counsel instructed Tyson de Mexico to cease making the payments.

The SEC further charged that in connection with these improper payments, Tyson Foods failed to keep accurate books and records and failed to implement a system of effective internal controls to prevent salary payments to phantom employees and the payment of illicit invoices. The improper payments were recorded as legitimate expenses in Tyson de Mexico’s books and records, and included in Tyson de Mexico’s reported financial results for fiscal years 2004, 2005 and 2006. Tyson de Mexico’s financial results were, in turn, a component of Tyson Foods’ consolidated financial statements filed with the SEC for those years.

Without admitting or denying the SEC’s allegations, Tyson Foods consented to the entry of a final judgment ordering disgorgement plus pre-judgment interest of more than $1.2 million and permanently enjoining it from violating the anti-bribery, books and records, and internal controls provisions of the FCPA. The proposed settlement is subject to court approval.

In a related criminal action announced today, the Department of Justice (DOJ) charged Tyson Foods with conspiring to violate the FCPA and violating the FCPA. The DOJ and Tyson Foods agreed to resolve the charges by entering into a deferred prosecution agreement. Tyson Foods also agreed to pay a $4 million criminal penalty.

February 12th, 2011|Categories: Criminal Activity|Tags: Department of Justice, FCPA, Fraud, SEC|

FBI arrests lecturer for lying about credentials

Various media sources reported last week that the FBI arrested William G. Hillar, 66, who for a decade posed as a retired Green Berets colonel with wide-ranging military expertise and established himself as a lecturer, workshop leader and trainer in the public and private sectors. Hillar was charged in the U.S. District Court in Maryland with one count of mail fraud for payment he received from the Monterey Institute of International Studies in July 2010, according to published reports. He faces a maximum prison sentence of 20 years if convicted. News reports quoted U.S. Attorney Rod Rosenstein saying that “Hillar was living a lie and based his entire career on experiences he did not have and credentials he did not earn. He was never a colonel, never served in the U.S. Army, never was deployed to exotic locales and never received training in counter-terrorism and psychological warfare.”

Media reports further stated that Hillar’s alleged deception was exposed in November 2010 after several Monterey Institute of International Studies students questioned the authenticity of his military exploits and knowledge of international human trafficking. Their suspicions prompted the Institute to ask Hillar to document his background. But Hillar cut off all communications and took down his “Bill Hillar Training” Web site. Immediately after Hillar became the subject of a criminal investigation, the Institute said it was changing its policy to require full background checks on lecturers and anyone involved in teaching.

According to media reports, Hillar’s client list included approximately 40 agencies and schools across the country, ranging from FBI and army units to local and state police agencies between Idaho and Georgia. Federal officials said evidence shows that Hillar was paid more than $100,000 for teaching and speaking engagements during his facade.

So what was Hillar’s actual military record? News reports said that from 1962 to 1970 he served in the Coast Guard as an enlisted sailor and reached the rank of radarman 3, according to FBI Special Agent David Rodski.

Hillar said he plans to return to teaching once released, according to media reports.

February 2nd, 2011|Categories: Criminal Activity|Tags: FBI, Fraud, U.S District Court|

Prime Bank Frauds

Prime bank schemes generally claim that investors’ funds will be used to purchase and trade “prime bank” financial instruments on clandestine overseas markets, and generate huge returns. However, neither these instruments, nor the markets on which they allegedly trade, exist. To legitimize the schemes, the promoters distribute documents that appear complex, sophisticated and official. They frequently tell investors that they have special access to programs that otherwise would be reserved for top financiers on Wall Street, or in London, Geneva and other world financial centers. Possible profits of 100% or more with little risk also are touted.

The fraudsters target individuals and entities, including municipalities, charitable associations and other non-profit organizations. They advertise in national newspapers, such as USA Today and The Wall Street Journal, and often avoid using the term “prime bank note” in their spiel. In fact, investors are told that the programs do not involve prime bank instruments so that they appear legitimate.

The Office of the Comptroller of the Currency (OCC) posted the following warning signs of “prime bank” investment fraud:

Excessive guaranteed returns

Promises of unrealistic returns, of 20% to 200% monthly, at no risk, are the hallmarks of prime bank fraud.

Fictitious financial instruments

Despite credible-sounding names, the “financial instruments” at the heart of any prime bank scheme simply do not exist. Fraudsters frequently claim that the offered financial instrument is issued, traded, guaranteed, or endorsed by the World Bank (Department of Institutional Integrity or Operations Evaluation Department), International Monetary Fund (IMF), Federal Reserve, Department of Treasury, International Chamber of Commerce (ICC), or an international central bank.

Extreme secrecy

Fraudsters maintain that the transactions must be kept confidential by all parties, making client references unavailable. They describe the transactions as the best-kept secret in the banking industry, and assert that, if asked, bank and regulatory officials would deny knowledge of such instruments. Investors may be prompted to sign nondisclosure agreements.

Exclusive opportunity

Fraudsters claim that the investment opportunities are by invitation only, available to a handful of special customers, and historically reserved for the wealthy elite.

Complex presentations

Explanations often are vague about who is involved in the transaction or where the money is going. Fraudsters cover up the lack of specificity by stating that the financial instruments are too technical or complex for non-experts to understand.

January 12th, 2011|Categories: Criminal Activity, Risk Management|Tags: Fraud|

Historical investment fraud sweep compels numerous civil and criminal actions

On December 6, 2010, the Financial Fraud Enforcement Task Force announced the conclusion of Operation Broken Trust, the largest investment fraud sweep ever conducted in the United Stated. Started August 16, 2010, the operation captured 343 criminal defendants and 189 civil defendants who were involved in fraud schemes that harmed more than 120,000 victims throughout the country. The criminal cases involved more than $8.3 billion in estimated losses and the civil cases more than $2.1 billion. Eighty-seven defendants have been sentenced to prison, including several who will serve more than 20 years.

The sweep focused on fraudsters who offered “investment opportunities” that were either completely fictitious or not structured as advertised. An overwhelming number of these were high-yield investment frauds and Ponzi schemes. Others involved commodities fraud, foreign exchange fraud, market manipulation (pump-and-dump schemes), real estate investment fraud, business opportunity fraud, and affinity fraud. Some of the perpetrators filed for bankruptcy in an attempt to avoid claims by victimized investors. In many instances, the criminals were trusted people within their communities—neighbors, co-workers, fellow church members—who betrayed that trust in order to line their own pockets.

December 10th, 2010|Categories: Criminal Activity|Tags: Fraud, Operation Broken Trust, Ponzi|

Common securities fraud schemes on the Internet

Pump and Dump: These types of schemes are quick manipulations of the stock price. The schemers buy thinly traded stocks and then transmit optimistic messages about the stocks, which cause investors to buy, thus driving up the price. The ownership interest that the schemers have in the particular stock is not disclosed. The schemers then sell the stock for significant gains. Their messages are transmitted through official looking e-mails, bulletin board posts or Web sites.

Dump and Diss: This is the pump and dump scheme in reverse. The schemers short-sell a stock and then transmit negative messages to investors causing the investors to sell, which in turn drives down the price. No disclosure is made of the negative position that the schemers have in the stock. They then buy the lower valued stock to fill their earlier sell orders and make a profit on the difference.

Insider Trading: The recipients of non-public information use the insider information to trade ahead of the information’s release, and subsequently realize profits.
Unregistered Offerings: Purported issuers of securities offer and/or sell securities through the Web without being registered or exempt from federal and state securities laws.
Pre-IPO Offerings: Purported issuers offer and/or sell shares of their company to investors based on the premise that the company soon will be going public. Some of these companies do not exist or are marginally successful.

Private Placement Offerings: Purported issuers offer and/or sell shares of their company with the usual promise of high returns, with the help of slick promotional materials. The companies turn out to be nonexistent.

Prime Bank Offerings: Purported sellers offer and/or sell interests in some type of prime bank instrument. The investors are advised to put their money into the prime banks of Europe in a program that generally is available only to the very wealthy, but because there is a “shortage” for the particular program, it is being offered for a smaller minimum investment. Prime bank instruments do not exist.

July 30th, 2010|Categories: Criminal Activity|Tags: Fraud, Insider Trading, Internet, Pump and Dump, Scam|

Resources for information about fraud

Fraud is defined as any act, expression, omission, or concealment calculated to deceive another to his or her disadvantage. Fraud can be committed through many methods, including mail, wire, telephone, written instruments, and the Internet. State and federal statutes criminalize fraud, but not all cases rise to the level of criminality. Prosecutors have the discretion in determining which cases to pursue. Victims may also seek redress in civil court. Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) false statement of a material fact, (2) knowledge by the defendant that the statement is untrue, (3) intent by the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.

Below are several Web sites that provide information about various types of fraud, including tips for protecting yourself and filing formal complaints.

July 25th, 2010|Categories: Commercial Transactions Due Diligence|Tags: Civil Judgments, Department of Justice, FBI, Fraud, FTC, White Collar Crime|

Do you know how to spot online scams?

To educate consumers about online scams, the Federal Trade Commission (FTC) set up a Web site for Esteemed Lending Services, an online company that looks reliable and reputable, and promises easy advance-fee loans to anyone. But the company and the site are fictitious, designed to tip you off to the signs of loan scams. The FTC also has other “phony sites” for scam awareness for products such as diet aids (FatFoe) and made-up diabetes treatment (Glucobate.) Remember that as part of our investigation strategies for business transactions, SI includes Web site reviews to detect incredulities, too-good-to-be-true statements, boasts of unrealistic investment returns, and even wording that is unfitting for the particular industry.

July 14th, 2010|Categories: Commercial Transactions Due Diligence|Tags: Fraud, FTC, Lending, Scam|

A career in fraud

A prospective client investigation was ordered on a company and its president, but the preliminary information on the president was enough to reject the subject or any company under his direction from the possible business engagement. Initial court searches uncovered a 2001 criminal misdemeanor conviction for possession of a false identification to be used to defraud. The index did not provide much information and the file was destroyed by the court, so SI’s analyst turned to media sources to dig deeper. Sure enough, one article referenced guilty pleas entered in 2002 by the subject and his business partner for hiring imposters to take the Series 7 securities brokers’ examination for them. Each was sentenced to a year of probation and fined $5,000. Other articles from 2002 reported three civil cases for fraud in locations where the subject appeared to have no residential history, and further disclosed that the subject and his partner had been statutorily disqualified from working for a broker licensed by the National Association of Securities Dealers, ordered to disgorge profits and interest totaling $4,649,125 and each were fined $15,000 in civil penalties in 2006. Articles also linked the subject to a con artist who had admitted to defrauding Jewish organizations and individuals of $80 million during the 1990s. Most recently, the FDIC had executed a written agreement with the subject and (the same) business partner after they allegedly failed to seek FDIC approval before making an investment in an unregistered bank holding company. On the whole, this company president had been engaged in fraudulent behavior for nearly a decade and no amount of legal or regulatory action appeared to change his mode of operation.

March 26th, 2010|Categories: Commercial Transactions Due Diligence|Tags: Criminal Records, FDIC, Fraud, Investigation, Misrepresentation, prospective client|

Updating investigations as part of your risk management strategy

As part of its standard risk management program, our client requested background investigations of two individuals in connection with an engagement continuation. SI had conducted investigations of these subjects three years prior when our client initially began its consulting engagement with them. No negative information was located in the previous investigations; however, our client quickly learned the value of conducting periodic updates.

The new investigation revealed recently filed federal indictments charging both subjects with aiding and abetting in the evasion of taxes owed on their salaries between 2006 and 2008, amounting to more than $450,000 each. The government also charged that subject #1 directed his wife to evade income taxes on her salary between 2004 and 2007 by claiming as many as 99 exemptions on her W-4. Additionally, searches of the State Real Estate Board disclosed a pending disciplinary action against subject #2 for “misstating a material fact” that “included fraud.” Both subjects had filed personal Chapter 7 bankruptcies in December 2008 and had been named as debtors in multiple judgments and tax liens for amounts ranging from $35,000 to $2,300,000. The subjects had begun their start-up company three years earlier with clean records, but in short-order they had become a liability to our client.

September 15th, 2009|Categories: Criminal Activity|Tags: Fraud, Risk Management, Taxes|