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Chuck Gallagher
3/23/2008 5:44 PM
It doesn't seem that White Collar Crime takes a holiday - even if it is Saint Patrick's Day and Holy Week combined. Wonder if that confounds Irishmen around the world? Sorry, I digressed - back to the week in review.
Ft. Lauderdale, Florida: Seven were indicted on a credit-card fraud and identity theft scheme. They were: Dondre Green, Widley Francois, Michael Georges, Nigel Sookdeo, David Berry, Caddrick Spivey and Monique Thomas. Dondre Green, a U.S. Mail Carrier, stole credit cards out of the mail entrusted to him as a postal carrier, from victims who lived on his delivery routes. Thereafter, these credit cards were delivered to co-conspirators who recruited “shoppers” to make purchases at local businesses utilizing the stolen credit cards. Often, these “shoppers” would make either large purchases of gift cards from the Target Department store, where they were assisted by other co-conspirators who were Target employees. These co-conspirators overrode Target’s internal security controls, or would purchase other goods and services utilizing counterfeit Florida Driver’s licenses in conjunction with the stolen credit cards. Ultimately, the scheme’s participants were responsible for fraud losses in excess of $150,000. Keep in mind, an indictment is not a finding of guilt and all are presumed innocent until found guilty.
San Francisco, California: Stephanie Jensen, the former human resources vice president at Brocade Communications Systems, Inc. of San Jose, California, was sentenced to four (4) months in prison and ordered to pay a $1,250,000 fine stemming from her fraudulent backdating of stock options at Brocade. Now, let me state that while four months in prison seems insignificant - it is not. This former Human Resources person is now a convicted felon and is facing a huge fine along with the discomfort of prison. Also, keep in mind, in August 2007, former CEO Gregory Reyes was convicted after trial for criminal charges stemming from the same wrongful conduct.
San Francisco, California: W. Scott Harkonen, M.D., the former CEO of InterMune, Inc., was indicted on wire fraud and felony Food, Drug, and Cosmetic Act charges for his role in the creation and dissemination of false and misleading information about the efficacy of InterMune’s drug Actimmune (Interferon gamma-1b) as a treatment for idiopathic pulmonary fibrosis. According to the indictment, defendant Harkonen promoted and caused the promotion by InterMune of Actimmune as a safe and effective treatment for IPF, despite the lack of FDA approval, in order to sell more Actimmune and to generate revenues and profits from sales of Actimmune for InterMune. The cost of Actimmune for one IPF patient for one year was approximately $50,000 and the vast majority of InterMune’s sales of Actimmune were for the unapproved, off-label use of treating IPF. The full press release from the US Attorneys office is here. While an indictment is not guilt - this is one doctor whose passion for "good" may have been overwhelmed by "greed."
Atlanta, Georgia: 12 years in federal prison and $29 million in restitution is what Travis E. Correll, age 31, of Atlanta was sentenced to for his role in a massive Ponzi scheme. From late 2001 to December 2005, CORRELL operated an investment program known as “Horizon Establishment,” which offered high monthly rates of return to investors. CORRELL falsely represented that he would invest investors’ principal in high-yield programs with foreign banks, which were regulated differently than United States financial institutions, thus enabling such foreign banks to pay extraordinarily generous returns. CORRELL promised the investors that they would receive a monthly return on their investments of between 4 and 8 percent, and ultimately be refunded their invested principal. In less than 5 years, he took in over $100 million in investment money from private individual investors. Almost from the beginning, CORRELL operated Horizon as a “Ponzi” scheme, using investment money received from later investors to pay substantial returns to some of the early investors. Federal investigators estimate that CORRELL recirculated approximately $71 million to investors, resulting in losses of approximately $29 million.
Named after Charles Ponzi, a ponzi scheme is a fraudulent investment operation where high returns are promised to investors and usually paid out of other investors money rather than from profits generated from the investment promised.
Honolulu, Hawaii: Now...as a white collar crime speaker, I written about and seen alot, but this one has to be the report of the week. Patricia Pendleton, age 79, to 5 years probation and six months of home detention with electronic monitoring following her guilty plea to improperly receiving social security benefits from 2002 to 2006. Pendleton was also ordered to make restitution in the amount of approximately $46,000. Yes...that's age 79. Now I can safely say that six months of home detention won't be too hard, but $46,000 in restitution from someone who appears to be living off of social security - well, that's tough. I can't help wonder (assuming she had other family) what they must be thinking? Anyway, here's the scoop - Pendleton was sentenced for using two different identities and social security numbers in order to receive social security pensions resulting in an overpayment of approximately $50,000 to her. She had received widowers benefits based upon her marriage to a deceased former wage contributor to the social security system. These benefits were electronically deposited into a First Hawaiian Bank account. Pendleton also received benefits based upon her own wage earner contributions to the social security system but under a fictitious name and a falsely acquired social security number which were electronically deposited into an American Savings Bank account.
But there's more! This was conceived and in place years ago. Pendleton, a former tax auditor for the state and private industry, started using the fraudulent identity and falsely acquired social security number in the 1960s and began collecting the benefits in the late 80s and early 90s while in her 60s. Hum...well isn't that interesting.
Chicago, Illinois: The United States, 23 states, and the District of Columbia will receive $36.7 million from CVS Caremark Corp., of Woonsocket, Rhode Island, to settle Medicaid prescription-drug-fraud claims initiated by a whistleblower, federal and state officials announced today. CVS Caremark, which operates over 6,000 retail pharmacies throughout the United States, allegedly substituted capsules of Ranitidine (generic Zantac) for tablets solely to significantly increase the cost and profit rather than for any legitimate medical reason. The settlement covers CVS Caremark’s submission of reimbursement claims to Medicaid programs from April 2000 through December 2006. The officials noted that CVS Caremark did not admit liability as part of the settlement.
The individual, or so-called “relator,” who initiated the case by filing his own separate lawsuits, will receive a share of the settlement from both the United States and the states that have their own whistleblower statutes. Relator Bernard Lisitza, will receive $4,309,330.74 as his share of the federal and state settlements. Wow...I never know that being a whistleblower was so profitable.
Louisville, Kentucky: White collar crime doesn't seem to be limited by age. Willie Collins, age 76, was sentenced to 2 years and 1 day in federal prison for his participation in a mortgage fraud scam. Collins pled guilty to charges related to his involvement in the stealing of the identity of the owners of homes in Indian Hills and the Cherokee Triangle to facilitate three fraudulent loan closings on the properties. He, along with James C. Hardison, Freddie Johnson, and Marilyn Rainey, were able to effectuate their scheme by also stealing the identity of a Southern Indiana man so that Hardison could pose as a buyer at the closing, while Rainey posed as the actual owner of the property. Using these stolen identities, Hardison, Rainey, and Collins participated in multiple closings on these properties. At the closing on the Indian Hills home, they attempted to obtain a loan in the amount of approximately $403,000. At the first closing on a home in the Cherokee Triangle, they were able to obtain approximately $290,000 in loan proceeds. They obtained a second loan from a different lender on the same Highlands home, but were arrested by the Louisville Metropolitan Police Department (LMPD) before they could withdraw these funds. Hardison’s role in the scheme was to arrange the loans and pose as the buyer of the property. Johnson’s role in the scheme was to recruit Rainey to pose as the buyer of the property and to recruit Collins to open a bank account in Louisville so that they could cash the check that they obtained from the closing.
Johnson and Rainey were sentenced on November 2, 2007. Johnson was sentenced to 6 years and 3 months imprisonment, plus 5 years supervised release; and Rainey was sentenced to 2 years and 1 day imprisonment, plus 5 years supervised release following incarceration. Johnson was also ordered to pay restitution to Homecoming Financial in the amount of $303,704.57.
St. Bernard, Louisiana: Failure to file tax returns is a criminal offense and generally results in an active prison sentence. Clifford E. Clayton, age 63, of St. Bernard, Louisiana pled guilty to failure to file tax returns for 1999, 2000 and 2001. According to the factual basis, the defendant knew that he was required to file returns and that he received sufficient wages which were in excess of the minimum filing requirement requiring the defendant to file tax returns at the time required by law. Specifically the defendant’s taxable income for 1999 was $717,104 resulting in a tax due of $281,855; for 2000 was $483,860 resulting in tax due of $145,815; and for 2001 was $411,671, resulting in a tax due of $181,057. Much like Wesley Snipes who is scheduled to be sentenced for his conviction for failure to file tax returns, Clayton is facing a maximum term of imprisonment of three years.
Coon Rapids, Minnesota: O.K., I don't know where that is either, but white collar crime is there too! It seems that Mark W. Gillick, age 52, was convicted and sentenced to 33 months in federal prison for defrauding investors of more than $800,000. Gillick fraudulently offered and sold what he represented as the stock of Virtual Assistant Corp., a privately-held company that manufactured medical devices, between December of 2002 and April of 2005. Gillick was responsible to assist others in starting the corporation, but was not authorized by the company to issue and sell its stock.
Gillick contacted investors by telephone, e-mail and in person in order to persuade them to invest, and provided investors with false documents in support of the scheme. Gillick instructed investors to make checks payable to both himself and the company, which he deposited into his personal checking account, and used to purchase homes and cars, pay college tuition and travel. When investors asked for their money back, Gillick told them the funds were not available for various reasons.
Jefferson City, Missouri: This case has an interesting twist. Seems that Clayton J. Deardorff, age 30, had been incarcerated in state prison. Well, Deardorff, seeing an opportunity to serve the inmate population, partnered with Erica Daniece Kelley, age 29, who was formerly employed by the Missouri Department of Revenue, in an effort to steal identities in order to - provide cell phone service to state prison inmates. Wow! Now, not proud of this fact, but having been an inmate in federal prison - all we had access to was a monitored collect call system. So, I am amazed that any inmate would somehow have access to a cell phone or that anyone would think that providing such a service would make sense. If anyone knows of inmates with cell phones please comment!
And finally, as I am tired of the volume this week - perhaps there will be a follow up.
New York, New York: Former KPMG partner ROBERT PFAFF was indicted with participating in a conspiracy to defraud the IRS by concealing fee income received by PFAFF and his co-conspirators from tax shelter transactions. PFAFF was also charged for conspiring to defraud a company located in Saipan (part of the Commonwealth of the Northern Mariana Islands ("CNMI")) (the "Saipan Company") of the right to the honest services of its employees, by sharing tax shelter fee
income with officers of that company who failed to disclose those secret payments to the Saipan Company’s Board of Directors.
According to the indictment and the news release from the US Attorney's office:
PFAFF and his co-conspirators employed a number of fraudulent means in order to conceal the receipt of tax shelter fee income by PFAFF and his co-conspirators from the IRS and other taxing authorities, including the tax authorities in the CNMI, and in order to allow the Saipan co-conspirators to defraud the Saipan Company and its shareholders of their intangible right to the honest services of its officers and employees. PFAFF and his co-conspirators' efforts to conceal the tax shelter fee income included causing millions of dollars of tax shelter fee income to be sent from bank accounts in the United States and the CNMI to bank accounts in Manila, Philippines (the "Philippines bank accounts") -- accounts which were controlled by the Philippines co-conspirator and others. PFAFF and his coconspirators requested that the Philippines co-conspirator, in exchange for fees, disburse the tax shelter fee income from the Philippines bank accounts in accordance with instructions of PFAFF and his co-conspirators, including instructions that checks and demand drafts be drawn on, and wire transfers be made from, the Philippines bank accounts and directed to individuals and entities designated by PFAFF and others. PFAFF and his coconspirators also created false and fictitious documentation to make it appear that the fee income PFAFF received from via the Philippines co-conspirator was part of a series of loans rather than income to PFAFF -- which income he failed to report on his tax returns. PFAFF also provided false testimony to the IRS regarding PFAFF's receipt of fee income stemming from the tax shelter transactions. Further, PFAFF and his co-conspirators caused the payment of the tax shelter fee income to PFAFF to be concealed from KPMG, in violation of KPMG’s partnership bylaws and/or rules and procedures, and caused the payment of the tax shelter fee income to the Saipan co-conspirators to be concealed from the Saipan Company.
Every choice has a consequence.
In the middle of a rising career, Gallagher lost everything because he made some bad choices. He has since rebuilt his career and his life back to immense success. With more vulnerability than the average keynoter, Gallagher shares with his audiences his life journey, the consequences of his unethical choices, and how life gives you second chances when you make the right choices.
Having captured the attention of audiences from coast to coast, Chuck is an inspirational motivational speaker with a dynamic ethics message. As a business ethics speaker and sales motivational speaker, Chuck’s business and personal experiences over 30 years provides a powerful framework for presentations, workshops and consulting. Understanding the business and ethical challenges facing organizations today, whether corporate, government or association, Chuck, as a motivational keynote speaker, delivers a message that focuses on the pressing issues tailored to the client’s need.
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