Justia White Collar Crime Opinion Summaries

Elsass and his companies, FRG, and STS, were charged with violations of the Tax Code, including claiming theft-loss deductions for losses that did not involve criminal conduct, claiming those deductions before it was clear that there was no reasonable prospect of recovery, falsely characterizing theft losses as losses incurred in a trade or business to artificially inflate refunds, claiming theft-loss deductions to which taxpayers were not entitled because the losses were incurred by deceased relatives, negotiating customers’ tax-refund checks and depositing them into defendants’ bank accounts, falsely indicating that Elsass was an attorney in good standing, making deceptive statements to customers that substantially interfered with the administration of the tax laws, promoting an abusive tax shelter through false or fraudulent statements about the tax benefits of participation, and aiding and abetting the understatement of tax liability. The district court held that there was no genuine issue as to whether Elsass and FRG had engaged in each of these prohibited practices and enjoined them from serving as tax-return preparers. While it granted summary judgment to STS with respect to all claims except on, because STS is wholly owned by Elsass, it enjoined STS to the same extent as Elsass and FRG. The Sixth Circuit affirmed. View "United State v. Elsass" on Justia Law

In 2000 the SEC charged First Choice and others with fraud. The district court appointed a receiver to take charge of the defendants’ assets for victims of the $31 million fraud. The receiver found that some assets had been used to acquire oil and gas leases in Texas and Oklahoma and attempted to sell them and use the proceeds to compensate the victims. Over the next 14 years, third parties sought to establish ownership interests in the leases. In this case, CRM sought to contest the receiver’s proposed sale of oil leases in Osage, Oklahoma, which it claims to have operated since 2002. The district court denied CRM’s motion to intervene and approved the sale. The Seventh Circuit affirmed, noting that CRM knew as early as 2004 that the receiver was claiming the leases, but waited until the protracted and expensive receivership was finally moving toward an end and the receiver’s assets were dwindling to take action. View "Sec. & Exch. Comm'n v. First Choice Mgmt. Servs., Inc." on Justia Law

Defendant, the former CEO and board chairman of Duane Reade, appealed the district court's award of restitution after he was convicted of one count of conspiracy to make false statements and four counts of securities fraud. The court affirmed the district court's determination that Oak Hill should be awarded restitution as a "non-victim," and Duane Reade's employees' attorneys fees were properly subject to restitution; the court vacated and remanded for further proceedings as to whether Duane Reade's payment of fees and costs to Paul, Weise and Cooley constitute "necessary" expenses under the Victims and Witnesses Protection Act (VWPA), 18 U.S.C. 3663; and, on remand, the district court is free to exercise its discretion as to whether "determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process." View "United States v. Cuti" on Justia Law

Abair emigrated from Russia in 2005 and married an American citizen. Abair owned an apartment in Moscow. After her divorce, Abair sold the apartment and deposited the proceeds with Citibank Moscow. She signed a contract to buy an Indiana home for cash. Citibank refused to transfer funds because her local account was in her married name and the Moscow account used her birth name. Over two weeks Abair withdrew the daily maximum ($6400) from Citibank ATMs and deposited $6400 to $9800 at her local bank. A deposit on Tuesday, May 31 followed the Memorial Day weekend and was posted with one made on Saturday, pushing her “daily” deposit over the $10,000 trigger for reporting, 31 U.S.C. 5313(a). Abair was charged with structuring financial transactions to evade reporting. IRS agents testified that during her unrecorded interview, Abair, who is not fluent in English, revealed knowledge of the reporting rules. Abair testified that she was aware of the limit when she spoke with the agents, but had learned about it after making the deposits, when she asked why identification was required. She said her deposit amounts were based on how much cash would fit in her purse. Abair was convicted and agreed to forfeit the entire proceeds. The Seventh Circuit remanded, finding that the government lacked a good faith basis for believing that Abair lied on tax and financial aid forms and that the court erred (Rule 608(b)) by allowing the prosecutor to ask accusatory, prejudicial questions about them. On the record, Abair is at most a first offender, according to the court, which expressed “serious doubts” that forfeiture of $67,000 comports with the “principle of proportionality” under the Excessive Fines Clause.View "United States v. Abair" on Justia Law

Sentinel specialized in short-term cash management, promising to invest customers’ cash in safe securities for good returns with high liquidity. Customers did not acquire rights to specific securities, but received a pro rata share of the value of securities in an investment pool (Segment) based on the type of customer and regulations that applied to that customer. Segment 1 was protected by the Commodity Exchange Act; Segment 3 customers by the Investment Advisors Act and SEC regulations. Despite those laws, Sentinel lumped cash together, used it to purchase risky securities, and issued misleading statements. Some securities were collateral for a loan (BONY). In 2007 customers began demanding cash and BONY pressured Sentinel for payment. Sentinel moved $166 million in corporate securities out of a Segment 1 trust to a lienable account as collateral for BONY and sold Segment 1 and 3 securities to pay BONY. Sentinel filed for bankruptcy after returning $264 million to Segment 1 from a lienable account and moving $290 million from the Segment 3 trust to the lienable account. After informing customers that it would not honor redemption requests, Sentinel distributed the full cash value of their accounts to some Segment 1 groups. After filing for bankruptcy Sentinel obtained bankruptcy court permission to have BONY distribute $300 million from Sentinel accounts to favored customers. The trustee obtained district court approval to avoid the transfers, 11 U.S.C. 547; 11 U.S.C. 549. The Seventh Circuit, noting the unique conflict between the rights of two groups of wronged customers, reversed. Sentinel’s pre-petition transfer fell within the securities exception in 11 U.S.C. 546(e); the post-petition transfer was authorized by the bankruptcy court, 11 U.S.C. 549. Neither can be avoided.View "Grede v. FCStone LLC" on Justia Law

Doolittle was a registered securities broker/dealer, and a registered investment advisor. He or his corporations held licenses, permits, or certificates to engage in real estate and insurance brokerage and tax preparation. Around 1990 his primary business became “trust deeds investments,” in which he “would arrange groups of investors together to buy those loans or to fund those transactions for different types of individuals and institutional borrowers.” After investors lost money, Doolittle was convicted and sentenced to 13 years in prison for three counts of theft by false pretenses; six counts of theft from an elder or dependent adult; nine counts of false statements or omissions in the sale of securities; selling unregistered securities; and sale of a security by willful and fraudulent use of a device, scheme, or artifice to defraud The appeals court reversed in part, holding that Doolittle’s challenge that the trial court’s implied finding of timely prosecution was not supported by substantial evidence required remand with respect to two of the charges. A further hearing may be necessary with respect to applicability of a sentence enhancement for aggregate losses over $500,000. Doolittle’s conviction for sale of unregistered securities and sale of securities by means of a fraudulent device did not rest on the same conduct as his convictions for fraud against specific victims; his sentence on the former counts therefore does not offend the proscription against duplicative punishment. View "People v. Doolittle" on Justia Law

The Federal Trade Commission (FTC) filed a complaint alleging that Defendants fraudulently marketed and sold debt-related services, failed to provide those services, and retained money as upfront fees in violation of the FTC Act, 15 U.S.C. 45(a); the Telemarketing Sales Rule, 16 C.F.R. 310; and the Mortgage Assistance Relief Services Rule, 12 C.F.R. 1015. The FTC also sought a temporary restraining order and a preliminary injunction, and provided more than 1,000 pages of exhibits. Defendants sought to stay proceedings, asserting that a criminal investigation had been launched into their business activities, as evidenced by a raid conducted by the Royal Canadian Mounted Police that resulted in seizure of records they claim were necessary to defend against the FTC’s allegations. The district court denied the motion; the FTC and Defendants entered into a stipulated preliminary injunction. Defendants later renewed the motion for a stay, claiming that they were unable to access critical records. Without explanation, the district court denied the motion and later granted the FTC’s motion for summary judgment, ordering Defendants to jointly pay restitution in the amount of $5,706,135.48 to injured consumers. The Sixth circuit affirmed, finding clear evidence of the violations. View "Fed. Trade Comm'n v. E.M.A. Nationwide, Inc." on Justia Law

In 2001, Mirando pleaded guilty to mail fraud, money laundering, and tax evasion relating to the 1995 and 1996 tax years. Following his 2003 release from prison, the IRS assessed additional tax, interest, and penalties for the 1995 and 1996 tax years and for unpaid tax liabilities for 2000 and 2004. In 2007, Mirando was indicted for conspiracy to defraud the United States and four counts of tax evasion, one for each of the 1995, 1996, 2000, and 2004 tax years. He again pleaded guilty. The parties stipulated that as of June 2007, the total tax liability, including interest and penalties, amounted was $448,776.13. Mirando made payments to the IRS before entering his plea, totaling $467,686.04, inexplicably paying $18,909.91 more than the agreed amount. He was sentenced to 50 months’ imprisonment. In 2008, Mirando and his ex-wife filed amended returns, claiming refunds for the taxable years 1995, 1996, and 2000 in the amounts of $38,871, $54,112, and $32,332, respectively. The IRS denied the claims. Mirando filed a tax refund suit. The IRS argued that judicial estoppel barred Mirando from challenging the amount; Mirando argued that the government waived its estoppel argument because it failed to assert it as an affirmative defense. The Sixth Circuit affirmed the district court’s entry of summary judgment in favor of the IRS.View "Mirando v. U.S. Dep't of Treasury" on Justia Law

In 2009 Betty and Wayne submitted a tax return on behalf of a Betty Phillips Trust, signed by Betty, who was listed as the trustee, claiming income of $47,997. A second return on behalf of a Wayne Phillips trust, was signed by Wayne, but Betty was listed as trustee. This return reported income of $1,057,585. Both returns claimed that all income had gone to pay fiduciary fees, so that the trusts had no taxable income. The Wayne Trust claimed a refund of $352,528. The Betty Trust claimed $15,999. The IRS issued a check for $352,528. They endorsed the check and deposited it into a joint account. The returns were fraudulent. The IRS had no record of any taxes being paid by the trusts. In December, the IRS served summonses. That month, the couple withdrew $244,137 remaining from their refund proceeds using 13 different locations. They followed the same strategy the next year, but did not receive checks. A jury convicted Betty of conspiracy to defraud the government with respect to claims (18 U.S.C. 286), and of knowingly making a false claim to the government (18 U.S.C. 287.1). The district court sentenced her to 41 months’ imprisonment and ordered them to pay $352,528 in restitution. The Seventh Circuit affirmed, rejecting claims that the court improperly admitted evidence, and that the government constructively amended the indictment and violated Betty’s right against self‐incrimination.View "United States v. Phillips" on Justia Law

Durham, Cochran, and Snow took control of Fair Finance Company, a previously well-established and respected business, and used money invested in Fair to support their lavish lifestyles and to fund loans to related parties that would never be repaid. When auditors raised red flags, the auditors were fired. When Fair experienced cash-flow problems, it misled investors and regulators so it could keep raising capital. One of the company’s directors, under investigation in a separate matter, alerted the FBI that Fair was being operated as a Ponzi scheme. The FBI seized Fair’s computer servers and, after an investigation uncovered more than $200 million in losses to thousands of victims, many of them elderly or living on modest incomes, arrested the three. A jury convicted them of conspiracy, securities fraud, and wire fraud. The Seventh Circuit affirmed, except with respect to Durham’s wire fraud convictions. The government failed to enter into the trial record key documentary evidence supporting those counts. The court rejected arguments relating to sufficiency of the evidence; sufficiency of the wiretap application; the court’s refusal to give a proposed theory-of-defense jury instruction on the securities fraud count; alleged prosecutorial misconduct during the rebuttal closing argument; and claimed sentencing errors. View "United States v. Durham" on Justia Law