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FY2006 Examples of Corporate Fraud Investigations

The following examples of corporate fraud investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted.

Former Vice President of Taxation at Tyco Pleads Guilty to Filing a False Corporate Tax Return

On September 20, 2006, in Palm Beach, FL, Raymond Scott Stevenson pleaded guilty to a one count criminal Information charging him with filing a false corporate tax return. Stevenson admitted to intentionally failing to report more than $170 million in income on Tyco International Ltd.’s 1999 corporate tax return, which would have resulted in an additional tax liability of approximately $50 to $60 million. Stevenson was Tyco’s top tax advisor and served as Tyco’s Vice President in charge of taxation, where his responsibilities included overseeing the preparation and filing of Tyco’s corporate tax returns. Pursuant to his plea agreement, Stevenson has agreed to cooperate with the United States and the IRS in any on going investigations. Sentencing is scheduled for November 29, 2006.

Father and Son Sentenced for Roles in Racketeering and Money Laundering Case

On September 6, 2006, in Savannah, GA, Martin J. Bradley, Jr., and Martin J. Bradley III, father and son, were sentenced for their roles in a massive healthcare fraud case. Specifically, Bradley III was sentenced to 25 years in prison to be followed by three years of supervised release, and ordered to pay $27.8 million in restitution to victims and a $5 million fine. In addition, Bradley III agreed to forfeit $39.5 million. Bradley, Jr. was sentenced to 225 months in prison to be followed by three years supervised release and fined $1.5 million. The Bradleys were the owners and officers of Bio-Med Plus, Inc. (Bio-Med), a prescription drug wholesaler corporation. On March 31, 2006, Martin J. Bradley III and Martin J. Bradley, Jr. were convicted by a jury of racketeering, money laundering, conspiracy, and other federal charges. Additionally, Bradley, Jr. was also convicted of two counts of failure to report a foreign financial interest. According to court documents, the case arose out of an investigation into the unlawful purchase and sale of prescription drugs, primarily blood derivatives used in the treatment of cancer, AIDS, hemophilia and other critical care illnesses. The evidence at trial showed that from 1996 through 2002, Bradley III, Bradley, Jr. and Bio-Med Plus were engaged in the buying and selling of tens of millions of dollars worth of fraudulently obtained prescription drugs, including drugs already paid for by the Florida and California Medicaid programs. In addition to the Bradleys, Bio-Med was ordered to pay over $27 million in restitution, a $21,200 assessment, and $26,500,000 fine. Another defendant convicted with the Bradleys, Albert Tellechea, was sentenced to 60 months in prison to be followed by three years of supervised release, and ordered to pay $3,294,077 in restitution, as well as a $100 assessment and $100,000 fine.

Defendant in SureWest Fraud is Sentenced; Ordered to Pay $2 Million in Restitution

On August 22, 2006, in Sacramento, CA, Henry M. Kaiser was sentenced to 12 months and one day in prison for his role in a scheme to misappropriate $25 million from SureWest Communications, a publicly traded company based in Roseville, California. Kaiser was also ordered to pay $2 million in restitution and a $25,000 fine. Kaiser pleaded guilty in April 2004 to interstate transportation of money obtained by fraud and conducting a monetary transaction in criminally derived property. At the time he entered his guilty plea and in a sentencing memorandum filed last week, Kaiser admitted that he and Larry J. Wells used their San Francisco based venture capital company, Quivira Ventures, and their relationship with a key SureWest employee, to divert the funds from SureWest. Jeffrey Wells, a senior treasury analyst for SureWest Communications, had access to large amounts of SureWest’s funds. Beginning in January 2003, Wells wire transferred SureWest funds to Quivira in amounts of up to $25 million. Kaiser admitted that at the time these transfers were made he knew that Wells did not have authority to make such transfers and knew that there was no documentation memorializing any agreement between SureWest and Quivira Ventures regarding the money. Kaiser also admitted that in order to cover up the scheme, Quivira would periodically return the misappropriated funds to SureWest so that SureWest auditors would not discover that the funds were missing. However, Wells would typically return these funds to Quivira a short time later. After receiving the SureWest funds, Kaiser and a co-conspiractor transferred the funds to various Quivira Ventures accounts, including accounts in Europe. Then in September 2003, the Union Bank of Switzerland transferred $2,000,000 of those funds out of Quivira’s control and into an account under the name of “Lybra” at Banca di Roma in Luxembourg.

Chicago Businessman Sentenced for Failure to Pay Taxes

On May 16, 2006, in Chicago, IL, Donald Boroian, president of Francorp Inc., was sentenced to 12 months and one day in prison and two years supervised release. Boroian pleaded guilty in March 2006 to one count of failing to report $388,752 in income from Francorp for the 1998 tax year and failing to pay approximately $108,850 in tax. Boroian also admitted that he did not report an additional $875,337 during a four year period.

Aspen Developer gets 15 Month Prison Term for Obstructing a Tax Audit

On April 28, 2006, in Denver, CO, George Gradow was sentenced to 15 months in prison and ordered to pay $128,185 to the Internal Revenue Service after pleading guilty to obstructing a tax audit. According to the court documents, Gradow destroyed, altered and/or created false documents to hide financial information from an IRS revenue agent. In court documents, Gradow admitted that he tried to conceal his company’s 1999 tax underpayment by destroying original documents and by changing interest rates and due dates on promissory notes and real estate lease documents as well as changing lease terms.

Owner of California Lumber Company Sentenced to 15 Months in Prison

On April 25, 2006, in San Francisco, CA, Lee Nobmann, the CEO and owner of Golden State Lumber (GSL), was sentenced to 15 months in prison, fined $40,000 and ordered to pay $330,000 in restitution. Nobmann pleaded guilty on Dec. 8, 2005, admitting that he had his company pay for his personal expenses and deduct the funds as the company’s business expenses from 1996 to 2000. Nobmann also acknowledged that he received rebate checks from vendors and deposited them into his personal bank account and did not report the payments as income for the company or as income on his personal income tax returns. As a result, his company underreported its income by approximately $1.1 million and he did not report the income on his personal income tax returns. Nobmann illegally avoided paying approximately $330,000 in taxes. The illegal activity came to light when he fired the CFO of GSL. Shortly after his termination, the CFO called the IRS to report Nobmann for tax evasion.

Local Businessman Sentenced to Eight Years in Fuel Tax Scheme

On Friday, April 7, 2006, in Alexandria, LA, Steve Lacombe received a 98 month prison sentence and was ordered to pay restitution of $2.7 million to the IRS for selling tax free fuel for taxable uses and not paying federal excise tax to the government. The fuel distributor admitted that he installed trap devices in his company’s trucks to prevent red dye from mixing with the fuel and then sold the tax free fuel to truck stops and gas stations. According to the superseding Indictment, Lacombe filed returns claiming gross receipts in excess of $15.2 million and $12.3 million for tax years 1998 and 1999, respectively. The investigation disclosed that Lacombe received additional income of $326,109.75 and $477,099.56 for the 1998 and 1999 tax years, which was not reported to the IRS. The conspiracy between Lacombe and a co-conspirator, Richard Young began in early 1994 and continued until 2003.

Former President of Tools and Metals Inc. (TMI) Sentenced to More Than 7 Years in Prison

On March 27, 2006, in Fort Worth, TX, Todd Brian Loftis was sentenced to 87 months in prison and ordered to pay $20,000,000 in restitution. In December 2005, Loftis pleaded guilty to a one-count Information, charging conspiracy to defraud the Government with false and fraudulent claims. Loftis admitted that from 1998 through 2004, as President and Chief Operating Officer of Tools and Metals, Inc. (TMI), he, along with others conspired to defraud the U.S. Department of Defense and Lockheed Martin Aeronautics by obtaining payments from Lockheed and the Department of Defense by making false and fraudulent billings. TMI and Loftis realized approximately $20 million in profits on these fraudulent sales to the government.

Defendant Sentenced to 13 Years in Federal Prison for $400 Million Payphone Investment Fraud

On February 23, 2006, in Atlanta, GA, Charles E. Edwards was sentenced to 13 years in prison to be followed by 3 years of supervised release, and was ordered to pay $320,397,837 in restitution following his September conviction on charges of wire fraud, money laundering, and conspiracy to commit money laundering. The evidence showed that from 1996 through September 2000, Edwards, the founder of ETS Payphones, Inc. (ETS), raised capital to grow his coin-operated payphone business by using a network of independent insurance agents to sell payphones to investors throughout the United States for $5,000 to $7,000 per phone. Edwards convinced investors to buy payphones and lease them back to ETS for what Edwards claimed would be a recession-proof, guaranteed profit of approximately 14 percent per year. Edwards promised he would buy back their phones upon request, when, in fact, the company did not have the financial ability to do so. The scheme defrauded approximately 12,000 nationwide investors out of more than $400 million. The evidence also showed that in July 2000, just two months before ETS filed bankruptcy; Edwards personally assured investors that ETS was financially sound and had made a profit of nearly $8,700,000 the previous year. In truth, ETS was never profitable and always needed to obtain money from new investors to make the monthly lease payments to existing investors. Edwards siphoned off approximately $21 million of the fraud proceeds for himself and his wife, also using a significant portion of the fraud proceeds to promote the scheme to defraud by paying commissions to the many sales agents who sold the payphones to the victims, and by attempting to create an aura of legitimacy for himself and for his company by the use of private jets, luxury automobiles, and beach-front homes at Sea Island and St. Simons Island, Georgia. In addition, the evidence showed that Edwards engaged in a series of unusual and convoluted financial transactions, which served no legitimate business purpose and were intended solely to conceal and disguise the source, location, ownership, nature, and control of the proceeds involved in those transactions.

German Bank HVB Admits Criminal Wrongdoing and Agrees to Pay $29 Million as Part of Deferred Prosecution Agreement

On February 14, 2006, in New York City, NY, German Bank Bayerische Hypo- und Vereinsbank AG (HVB) admitted to criminal wrongdoing and agreed to pay $29,635,125 in fines, restitution and penalties as part of an agreement to defer prosecution of the bank in relation to its participation in the implementation of fraudulent tax shelters devised by the accounting firm KPMG and others.

Business Man to Serve 27 Months for Failure to Remit Payroll Taxes in Excess of $3 Million

On January 30, 2006, in Toledo, OH, Tony M. Tate was sentenced to serve 27 months in prison, followed by three years supervised release for willful failure to pay employment taxes. Tate as co-owner, Vice-President, and operator of American Digital Technologies Corporation, Inc (ADT) was charged in April 2005 with willfully failing to account for and pay to IRS $3,213,753 in payroll taxes. The taxes represented both the payroll taxes withheld from the salaries of ADT employees in the amount of $2,350,603 and the contributory payroll taxes in the amount of $863,150 that ADT was required to pay to the IRS. According to his plea agreement, Tate admitted he was responsible for ADT’s compliance with its federal tax obligations. Tate further admitted he willfully caused ADT not to file 13 quarterly federal payroll tax returns (forms 941) for the calendar quarter ending December 1998 through the calendar quarter ending December 2001.

Metabolife International Inc. Sentenced for Filing False Corporate Tax Returns

On December 16, 2005, in San Diego, CA, Metabolife International Inc. was sentenced and ordered to pay a criminal fine of $600,000 for filing false corporate income tax returns. Metabolife pleaded guilty on October 5, 2005. According to the plea agreement, William Bradley, one of the owners of Metabolife, willfully caused Metabolife to file corporate income tax returns which failed to include: (1) $231,644 in income from “off-the books” accounts; (2) $335,066 in corporate income that was falsely classified as repayment of shareholder loans; and (3) $500,000 in overstated “sales returns and allowances” that was, in reality, distributed to Metabolife’s principals. As a result of omitting these items, Metabolife evaded the payment of over $339,000 in income taxes.

Chicago Businessman Sentenced to 63 Months in Prison

On November 21, 2005, in Chicago, IL, Rodney Dixon was sentenced to 63 months in prison and ordered to pay $10,331,407 in restitution. Dixon was a business man who operated Lucrad International and posed as a religious communications mogul. Lucrad International sold religious and music recordings nationwide. Dixon pleaded guilty to five counts of mail and wire fraud and one count money laundering. Dixon pleaded to inflating the company’s net worth to defraud six equipment-leasing companies and a Texas bank of millions of dollars.

Metabolife and Owner Plead Guilty to Tax Charges

On October 5, 2005, in San Diego, CA, William Robert Bradley, one of the owners of Metabolife International, Inc., and the corporation Metabolife International, Inc. pleaded guilty to tax charges. According to the plea agreements, Bradley evaded paying the taxes by a variety of complex methods and schemes, including the diversion of corporate profits, improper classification of corporate income, failing to report personal income from his towing company, and utilizing a charitable foundation to conceal and disguise income. Further, according to the plea agreements, Bradley, acting as an agent of Metabolife, knowingly and willfully caused Metabolife to subscribe to false corporate federal income tax return for calendar year 1997 and 1998. Metabolife knew that its 1997 and 1998 corporate tax returns failed to include: (1) $231,644.41 in income from the “off-the-books” accounts; (2) $335,066.61 in corporate income that was falsely classified as repayment of shareholder loans; and (3) $500,000 in overstated “sales returns and allowances” that was, in reality, distributed to Metabolife’s principals. As a result of omitting these items, Metabolife evaded the payment of $339,221.23 in income taxes. As an outcome of the plea agreements, the defendants have agreed to pay over $6 million in back taxes, penalties and interest.

FY2005 Examples of Corporate Fraud Investigations

Franchisees Can Learn From Others’ Mistakes

By RICHARD GIBSON - Startup Journal (Wall Street Journal Center for Entrepreneurs)
Dow Jones Newswires

These familiar warnings aren’t enough to keep many people from stumbling into scams involving franchises. So, to remind people to watch their step, the Federal Trade Commission periodically publicizes a collection of cases involving allegedly illegal pitches to potential franchisees and other aspiring entrepreneurs.

The FTC’s latest effort is called Project Fal$e Hope$, a compilation of more than 100 cases pursued last year by state and federal authorities. The Fal$e Hope$ cases range from fly-by-night fleeces operated by ex-felons and professional con men to paperwork stumbles by established franchisers, or so-called administrative violations. But in all cases, laws were broken or regulations ignored. Each case is unique and instructive in its own way, but there are also some broad lessons to be learned… [MORE]

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by James Hossack 03/09/07

Microsoft co-founder Bill Gates is still the richest man in the world, but his lead over other entrepreneurs is narrowing, according to Forbes magazine’s list of billionaires published Thursday.

Despite Gates leading the rich list for a 13th straight year with a tidy nest egg of 56 billion dollars, US investment guru Warren Buffett’s personal fortune climbed to 52 billion, halving the software mogul’s lead.

There were now a record 946 billionaires in the world, up more than 150 from last year, with Forbes attributing the increase to a commodities boom, the march of technology and the relative weakness of the US dollar.

The list’s total net worth grew 35 percent from last year to a staggering 3.5 trillion dollars, with Mexican telecoms mogul Carlos Slim Helu jumping into third place with a massive 19 billion dollar increase in his net worth.

“This growth in the billionaires list is a mere reflection of a dynamic global economy. More people are better off on this Earth than ever before,” said Steve Forbes, the magazine’s editor in chief, unveiling the list.

“This boom goes beyond commodities. One of the things that has facilitated this global boom, bringing hundreds of millions of people into the global economy is, of course, technology,” he added.

“This is the richest year in human history.”

While the 20th annual list was dominated as usual by US businessmen, Russian oligarchs and Asian entrepreneurs — especially those from India and China — were increasingly making their presence felt.

Some 36 Indian billionaires led by steel magnate Lakshmi Mittal now featured on the list boasting a total wealth of 191 billion dollars between them, knocking out Japan after two decades as the leading Asian power on the list.

Japanese businessman Yoshiaki Tsutsumi, whose real estate assets once made him the richest man in the world, slid off the list all together, with Softbank chief Masayoshi Son taking the top Japanese spot with 5.8 billion dollars.

But even India’s dominance would be overturned if China and Hong Kong were lumped together with their total of 41 billionaires, led respectively by Hong Kong property magnate Li Ka-shing and China’s paper manufacturer Yan Cheung.

“It was a sizzling year in Asia. Both India and China saw huge gains,” said Forbes associate editor Luisa Kroll, who oversaw the report. “It seems we just can’t get away from billionaires.”

In Europe, the most excitement came from Russia and Spain, Kroll explained, with 10 new Spanish names on the list and 19 Russian newcomers.

“The Russians are, on average, 46 years old. That’s 16 years younger than the average 62-year-old billionaires,” she said.

Forbes, however, urged some caution, saying some of the fortunes in the former Soviet Union did not appear sustainable in the long term.

“If there is a fall-off of commodity prices … does it have the breadth and depth to take up the slack?” he asked of the Russian economy.

Oil kingpin and Chelsea football club owner Roman Abramovich remained the top dog in Russia with 18.7 billion dollars, with his 52 billionaire countrymen owing their fortunes mainly to oil, steel, mining and metals.

The richest woman on the list was Liliane Bettencourt, 84, of France, the daughter of L’Oreal founder Eugene Schueller, who ranked at number 12 with 20.7 billion dollars.

While the average age for the richest was 62, the youngest billionaire was a German, Albert von Thurn Und Taxis, only 23 years old, who inherited his wealth that includes 30,000 hectares (74,000 acres) of woodland. He still lives with his mother and older sisters, in a family castle in Regensburg.

Another of the youngest billionaires was entirely self-made, China’s William Ding, 36, who started his company, NetEase, as an Internet portal and then shifted the focus to online gaming.

In the Middle East, Turkey emerged with the most billionaires, beating Saudi Arabia into second place and Israel into third.

Howard Schultz of Starbucks was a new entrant to the list. Former Disney chief Michael Eisner also made his debut, thanks mostly to his rising stock in the company.

Other familiar faces were Google executives Larry Page and Sergey Brin, now worth 16.6 billion dollars each, Dell founder Michael Dell worth 15.8 billion and former Italian prime minister Silvio Berlusconi with 11.8 billion.

Google’s rise was emblematic of the rapid growth in fortunes of more than just a handful of entrepreneurs in recent years.

“In the last five years … despite all the turmoil in the world, all the conflict in the world, the global economy in real terms expanded over 25 percent. Never in history has there been such an advance,” said Steve Forbes.