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Felon Sentenced for Fraudulently Obtaining over $419K in Covid Aid while on Probation

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Maryland Felon Sentenced to 18 Months in Federal Prison for Fraudulently Obtaining More Than $419,000 in COVID-19 CARES Act Loans While on Probation for a Previous Federal Conviction

The Defendant Made False Statements on the Applications to Obtain the Loans, Then Misappropriated Some of the Funds to Pay Her Personal Expenses, including a Car, a Boat, a Vacation, and Tickets to Sporting Events

Greenbelt, Maryland – U.S. District Judge Deborah J. Boardman sentenced Sherrie Lynne Bryant, age 55, of Bowie, Maryland, yesterday to 18 months in federal prison, followed by three years of supervised release, for wire fraud, relating to the submission of fraudulent Coronavirus Aid, Relief, and Economic Security (“CARES”) Act loan applications, and for violating her probation from a previous federal conviction for obstruction of an audit.

The sentence was announced by United States Attorney for the District of Maryland Erek L. Barron and Special Agent in Charge Darrell Waldon of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office.

Financial assistance offered through the CARES Act, which was enacted in March 2020 to provide emergency financial assistance to Americans suffering from the economic effects caused by the COVID-19 pandemic, included forgivable loans to small businesses for job retention and certain other expenses, through the Paycheck Protection Program, and Economic Injury Disaster Loan (EIDL) and/or an EIDL advance to help businesses meet their financial obligations, both administered through the Small Business Administration (SBA).  An EIDL advance did not have to be repaid, and small businesses could receive an advance of up to $10,000, even if they were not approved for an EIDL loan.

According to her plea agreement, Bryant was the managing member of NOW LLC.  The company’s stated purpose was to “provide mentoring, education and training to underserved populations.  Also, to provide vocational rehabilitation and mental health support services to: children, youth and adults.”  In reality, NOW LLC has been awarded contracts for “janitorial services” for Amtrak at the New Carrollton, Maryland and Baltimore-Washington International Airport Amtrak stations.  They have also applied for SBA loans through various programs and cited their business as “construction and contractors.”  A review of checks from NOW LLC’s operating account indicate that they may be outsourcing janitorial work to subcontractors.

On March 30, 2020, Bryant submitted an EIDL loan application for $89,500, which falsely stated that NOW LLC earned approximately $475,610 in gross revenues during the prior 12 months and incurred cost of goods sold of $276,614 during the same time frame.  Further, Bryant falsely answered “No” to the question concerning whether she had been convicted…or been placed on any form of parole or probation.  In fact, Bryant was on probation for a previous federal conviction at the time she submitted the application.

As detailed in the plea agreement, Bryant received a $10,000 EIDL advance and was subsequently approved for, and received, loan proceeds of $89,400.  On April 22, 2021, Bryant submitted a request for a modification of the EIDL, specifically, approval to increase the loan amount to $388,000, based on the certifications in her prior EIDL application.  The loan increase was approved and on June 28, 2021, Bryant received additional loan proceeds of $298,500.

In the meantime, on April 28, 2020, Bryant also applied for, and subsequently received, PPP loan proceeds totaling $21,200.  Bryant again falsely responded to the question that asked, “within the last five years, for any felony, has the Applicant…(1) been convicted; (2) pleaded guilty; (3) pleaded nolo contendere; (4) been placed on pretrial diversion; or (5) been placed on any form of parole or probation (including probation before judgment)?”  Bryant answered “No” to that question, knowing that she was on federal supervised release at the time the application was submitted.

Bryant admitted that she fraudulently obtained at least $419,100 in COVID-19 CARES Act loan proceeds.  Bryant misappropriated a portion of the funds for her personal use, including paying for her car and a boat, paying for a vacation, and paying for tickets to sporting events.

For more information on the Department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.  Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline at 866-720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.

United States Attorney Erek L. Barron commended the IRS-CI for its work in the investigation.  Mr. Barron thanked Assistant U.S. Attorneys Kelly O. Hayes and Joseph Wenner, who prosecuted the case.

For more information on the Maryland U.S. Attorney’s Office, its priorities, and resources available to help the community, please visit www.justice.gov/usao/md.

Press Release by DOJ.

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Creator of CoinDeal Crypto Scheme and Seven Others Charged Over Alleged $45 Million Fraud

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KaratCoin Cryptocurrency

Orchestrator used investors’ funds to buy cars, real estate, and a boat

Washington D.C. — The Securities and Exchange Commission today charged Neil Chandran, Garry Davidson, Michael Glaspie, Amy Mossel, Linda Knott, AEO Publishing Inc, Banner Co-Op, Inc, and BannersGo, LLC for their involvement in a fraudulent investment scheme named CoinDeal that raised more than $45 million from sales of unregistered securities to tens of thousands of investors worldwide.

According to the SEC’s complaint filed in the U.S. District Court for the Eastern District of Michigan, Chandran, Davidson, Glaspie, Knott, and Mossel falsely claimed that investors could generate extravagant returns by investing in a blockchain technology called CoinDeal that would be sold for trillions of dollars to a group of prominent and wealthy buyers. From at least January 2019 to 2022, Chandran, Davidson, Glaspie, Knott, and Mossel allegedly disseminated false and misleading statements to investors regarding the purported value of CoinDeal, the parties involved in the supposed sale of CoinDeal, and the use of investment proceeds. According to the complaint, no sale of CoinDeal ever occurred and no distributions were made to CoinDeal investors. The complaint further alleges that the defendants collectively misappropriated millions of dollars of investor funds for personal use, and that Chandran used investor funds to purchase items such as cars, real estate, and a boat.

“We allege the defendants falsely claimed access to valuable blockchain technology and that the imminent sale of the technology would generate investment returns of more than 500,000 times for investors,” said Daniel Gregus, Director of the SEC’s Chicago Regional Office. “As alleged in our complaint, in reality this was all just an elaborate scheme where the defendants enriched themselves while defrauding tens of thousands of retail investors.”

In June 2022, the U.S. Department of Justice indicted Chandran in the U.S. District Court for the District of Nebraska on three counts of wire fraud and two counts of monetary transaction in unlawful proceeds for his involvement in CoinDeal.

The SEC’s complaint charges:

  • Chandran, Davidson, Glaspie, Knott, Banner Co-Op, and BannersGo with violating the antifraud and registration provisions of the Securities Act and Exchange Act;
  • Davidson, Glaspie, Knott, Banner Co-Op, and BannersGo with aiding and abetting certain of Chandran’s violations of the antifraud provisions of the Exchange Act; and
  • Mossel and AEO Publishing with aiding and abetting Glaspie’s violations of the antifraud and registration provisions of the Securities Act and Exchange Act.

The SEC’s complaint seeks disgorgement plus pre-judgment interest, penalties, and permanent injunctions against all defendants; officer and director bars against Chandran, Davidson, Glaspie, Knott, and Mossel; and a conduct-based injunction against Chandran.

The SEC’s ongoing investigation is being conducted by Dante A. Roldán, Steven Tremaglio, Caryn Trombino, and Lynette Nichols-Newman, and supervised by Ana D. Petrovic and Paul A. Montoya, all of the Chicago Regional Office. The litigation will be led by Michael D. Foster, also of the Chicago Regional Office. The SEC appreciates the assistance of the Michigan Department of Licensing and Regulatory Affairs and Florida Office of Financial Regulation.

The SEC’s Office of Investor Education and Advocacy has issued investor alerts on the red flags of investment fraud.

Press Release by SEC.

Four Individuals Charged in Crypto Scheme Targeting Spanish-Speakers

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Forcount Trader Systems’ creator and promoters orchestrated $8.4 million fraud

Washington D.C., Dec. 14, 2022 — The Securities and Exchange Commission today charged Francisley Valdevino Da Silva, Juan Antonio Tacuri Fajardo, Ramon Antonio Perez Arias, and Jose Ramiro Coronado Reyes for their roles in creating and promoting Forcount Trader Systems, Inc., a fraudulent crypto asset pyramid scheme that raised more than $8.4 million from hundreds of retail investors primarily from Spanish-speaking communities throughout the United States and other countries.

According to the SEC’s complaint, from approximately July 2017 to November 2020, Brazilian national Da Silva and U.S.-based promoters Tacuri, Perez, and Coronado enticed and defrauded investors out of millions of dollars with the promise of guaranteed returns resulting from investments in “memberships” in Forcount Trader Systems. These memberships purportedly gave investors an interest in profits from Forcount’s supposed crypto asset trading and mining operations. Investors could also participate in Forcount’s referral program, which, as the complaint alleges, incentivized recruiting new victims. The complaint alleges that the defendants knew or were reckless in not knowing that Forcount had no crypto asset trading and mining operations and that the only way the scheme could continue was by increasing the investor base. The defendants allegedly accelerated Forcount’s inevitable collapse by misappropriating investor funds to buy themselves homes, cars, and luxury goods.

“As the complaint alleges, Da Silva, Tacuri, Perez, and Coronado deceived investors, most of whom were members of Spanish-speaking communities, with false promises of high returns on crypto-asset related investments,” said Thomas P. Smith, Jr., Co-Acting Regional Director of the New York Regional Office. “Protecting investors from fraudulent pyramid schemes where promoters pitch high returns and complex commission structures is part of the SEC’s mission to make markets fair and open to all.”

The SEC’s complaint, filed in federal district court in the Southern District of New York, charges the defendants with violating the anti-fraud and registration provisions of the federal securities laws. The complaint seeks permanent injunctive relief, conduct-based injunctions preventing the defendants from participating in multi-level marketing or crypto asset offerings, disgorgement of ill-gotten gains and prejudgment interest, civil penalties, and officer-and-director bars.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Da Silva and Tacuri.

The SEC’s ongoing investigation is being conducted by Shannon Keyes and Christopher Mele of the SEC’s New York Regional Office. It has been supervised by Hane L. Kim of the SEC’s Retail Strategy Task Force and Mr. Smith. The litigation will be conducted by Ms. Keyes and Mr. Mele. The Commission appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York; the El Dorado Task Force and Securities Investigations Group of Homeland Security Investigations (“HSI”) New York; HSI Brasilia; HSI Orlando; HSI Tampa;  the Brazilian Federal Police; the Bureau of Financial Investigations of Florida Office of Financial Regulation; the Bureau of Insurance Fraud, Property & Casualty in the Division of Investigative and Forensic Services of the Florida Department of Financial Services; the New York City Sheriff’s Office; and the New York City Police Department.

The SEC’s Office of Investor Education and Advocacy and Enforcement’s Retail Strategy Task Force direct investors to resources on detecting and avoiding pyramid schemes and a Spanish language investor alert, Esté al tanto de los Esquemas de Pirámides haciéndose pasar por Programas de Mercadeo de Niveles Múltiples. Investors can find additional information about pyramid schemes at Investor.gov.

Press Release by SEC.

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Rapper Who Boasted in Music Video About Committing COVID Fraud Sentenced to Over 6 Years in Prison on Fraud, Gun and Drug Crimes

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covid recession

A rapper who boasted in a YouTube music video about getting rich quickly by scamming a COVID relief program was sentenced today to 77 months in federal prison.

Fontrell Antonio Baines, 33, a.k.a. “Nuke Bizzle,” of Memphis, Tennessee, was sentenced by United States District Judge Michael W. Fitzgerald, who also ordered him to pay $704,760 in restitution to the California Employment Development Department (EDD).

Today’s sentence was imposed in connection with three criminal cases. Baines pleaded guilty on July 11 to one count of mail fraud and, in a separate case, to one count of unlawful possession of a firearm and ammunition by a convicted felon. He also pleaded guilty on August 30 to possession of oxycodone with intent to distribute in a case transferred from the Western District of Tennessee. Baines has been in federal custody since his arrest in October 2020.

From July 2020 to September 2020, Baines unlawfully exploited the Pandemic Unemployment Assistance (PUA) provisions of the CARES Act to obtain unemployment insurance money – ultimately more than $700,000 – to which he was not entitled.

As the COVID-19 pandemic’s grip tightened, Congress implemented the PUA provisions to expand access to unemployment benefits to self-employed workers, independent contractors, and others who would not otherwise be eligible for them.

Baines defrauded the program to obtain unemployment benefits administered by the EDD in the names of third parties, including identity theft victims. The applications for benefits also included false statements about the work histories and in-state residences of the named applicants. Through his fraud, Baines turned the taxpayer-funded program into “his personal piggybank,” according to a sentencing memorandum filed by federal prosecutors.

The applications for these benefits listed addresses in Beverly Hills and Koreatown to which Baines had access. As a result, Baines was able to take possession of and use the debit cards that EDD pre-loaded with the unemployment benefits obtained through the fraudulent applications.

For example, Baines used the identity of a Missouri man who briefly attended school – but never worked – in California to apply for unemployment benefits. In September 2020, Baines used a debit card issued based on the fraudulent PUA claim filed in the Missouri man’s name to withdraw approximately $2,500.

Baines filed 92 fraudulent PUA claims with EDD, resulting in attempted losses to EDD and the United States Treasury of approximately $1,256,108 and actual losses of at least $704,760.

According to court documents, Baines bragged about his ability to defraud the EDD in a music video posted on YouTube and in postings to his Instagram account. In the music video called “EDD,” Baines boasts about doing “my swagger for EDD” and, holding up a stack of envelopes from EDD, getting rich by “go[ing] to the bank with a stack of these” – an apparent reference to the debit cards that came in the mail.

In addition, in October 2020 at his Hollywood Hills residence, Baines illegally possessed a semi-automatic pistol with 14 rounds of ammunition. Baines was prohibited from possessing the firearm and ammunition because of his prior felony convictions, including a conviction in 2011 in Tennessee state court for unlawful possession of a controlled substance with intent to sell and a conviction in Nevada federal court in 2014 for being a felon in possession of a firearm.

Lastly, Baines also trafficked narcotics. On January 31, 2020, at Memphis International Airport. Baines attempted to check a bag containing various controlled substances, including oxycodone, promethazine with codeine, alprazolam and more than seven pounds of marijuana.

The United States Department of Labor – Office of Inspector General; the United States Postal Inspection Service; IRS Criminal Investigation; and the California Employment Development Department investigated this matter. The United States Marshals Service, the Las Vegas Metropolitan Police Department, and the United States Attorney’s Office for the Western District of Tennessee provided substantial assistance.

Assistant United States Attorneys Ranee A. Katzenstein, Chief of the Major Frauds Section, and Alexander B. Schwab, also of the Major Frauds Section, prosecuted this case.

Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud Hotline at (866) 720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.

Press release by the DOJ.

New York Diagnostic Testing Facility Owners Sentenced for Health Care Fraud Scheme

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Two New York diagnostic testing facility owners were sentenced today to three years in prison for their roles in a more than $18 million health care fraud scheme.

According to court documents, Tea Kaganovich, 50, and Ramazi Mitaishvili, 62, both of Brooklyn, are a married couple that co-owned several diagnostic testing facilities in Brooklyn. The couple paid over $18 million in kickbacks for the referral of beneficiaries who submitted themselves to diagnostic testing and other purported medical services. Kaganovich and Mitaishvili also falsely reported to the IRS that the illegal kickback payments were legitimate business expenses and therefore submitted tax forms that under-reported business income and claimed deductions to which they were not entitled.

Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division; U.S. Attorney Breon Peace for the Eastern District of New York; Acting Special Agent in Charge Susan Frisco of the Department of Health and Human Services, Office of Inspector General’s (HHS-OIG) Office of Investigations; Assistant Director in Charge Michael J. Driscoll of the FBI New York Field Office; and Special Agent in Charge Thomas Fattorusso of the IRS Criminal Investigation (IRS-CI) New York Field Office made the announcement.

The HHS-OIG, FBI, and IRS-CI investigated the case.

Assistant Chief Debra Jaroslawicz and Trial Attorney Sarah Wilson Rocha of the Justice Department’s Fraud Section prosecuted the case. Assistant U.S. Attorney Tanisha Payne handled forfeiture matters.

The Fraud Section leads the Criminal Division’s efforts to combat health care fraud through the Health Care Fraud Strike Force Program. Since March 2007, this program, comprised of 15 strike forces operating in 24 federal districts, has charged more than 4,200 defendants who collectively have billed the Medicare program for more than $19 billion. In addition, the Centers for Medicare & Medicaid Services, working in conjunction with the Office of the Inspector General for the Department of Health and Human Services, are taking steps to hold providers accountable for their involvement in health care fraud schemes. More information can be found at https://www.justice.gov/criminal-fraud/health-care-fraud-unit.

Press release by the DOJ.

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Murrieta Man Sentenced to 5 Years in Prison for Misusing COVID-Relief Business Loans on Personal Expenses Such as Luxury Cars

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covid recession

LOS ANGELES – A Riverside County man was sentenced today to 60 months in federal prison for using hundreds of thousands of dollars from the Paycheck Protection Program (PPP) for personal expenses such as luxury cars after he obtained a COVID-business relief loan for more than $7 million on behalf of his pothole-repair company.

Oumar Sissoko, 59, of Murrieta, was sentenced by United States District Judge John F. Walter, who also ordered him to pay $499,827 in restitution.

On April 15, at the conclusion of a three-day trial, a jury found Sissoko guilty of four counts of wire fraud.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal law enacted in March 2020 and is designed to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses, through the PPP. In April 2020, Congress authorized more than $300 billion in additional PPP funding.

Sissoko obtained a $7.25 million loan for his downtown Los Angeles-based company, Road Doctor California LLC, after submitting a PPP loan application in April 2020.

In the loan application, Sissoko claimed that Road Doctor was in the process of hiring 450 full-time employees and would have average monthly payroll expenses of $2.9 million. When he applied for the loan, Sissoko acknowledged the funds would be used to retain workers and maintain payroll, or make mortgage interest payments, lease payments and utility payments.

In the days after the PPP loan was funded on May 1, 2020, Sissoko misappropriated hundreds of thousands of dollars of the loan proceeds to use for impermissible purposes, including purchasing a Mercedes-Benz for $113,000, paying off a loan on a BMW, and buying an Apple computer for more than $5,000.

The illegal uses of the loan also included a non-refundable down payment of approximately $100,000 to purchase a company located in New Hampshire and the attempted transmission of approximately $150,000 to accounts in the African nation of Mauritania associated with a mineral-exploration company for which Sissoko purported to serve as CEO.

On March 24, a federal jury deadlocked on the charges against Sissoko and a mistrial was declared. A second trial resulted in Sissoko’s criminal conviction.

Assistant United States Attorney Carolyn S. Small of the Major Frauds Section and DOJ Trial Attorney Theodore Kneller of the Criminal Division’s Fraud Section are prosecuting this case. Assistant United States Attorney Jonathan S. Galatzan, Chief of the Asset Forfeiture and Recovery Section, is providing substantial assistance, including with the seizure and forfeiture of two luxury automobiles purchased with PPP loan funds.

Anyone with general information about allegations of attempted fraud involving COVID-19 can report it by calling the Justice Department’s National Center for Disaster Fraud Hotline at (866) 720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.

Press release by DOJ.

Elizabeth Holmes Sentenced To More Than 11 Years For Defrauding Theranos Investors Of Hundreds Of Millions

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SAN JOSE – Elizabeth A. Holmes was sentenced today to 135 months (11 years, 3 months) in federal prison for defrauding investors in Theranos, Inc. of hundreds of millions of dollars, announced United States Attorney Stephanie M. Hinds, Federal Bureau of Investigation Special Agent in Charge Robert K. Tripp, Food and Drug Administration (FDA) Assistant Commissioner for Criminal Investigations Catherine A. Hermsen, and U.S. Postal Inspection Service (USPIS) San Francisco Division Acting Inspector in Charge Kevin Rho. The sentence was handed down by United States District Judge Edward J. Davila.

“Silicon Valley has seen the rise of companies whose inventions have changed the world and, through intellectual prowess, hard work, and sheer determination, this region continues to innovate,” said U.S. Attorney Stephanie M. Hinds. “Capital investment is critical to that innovation. When fraud is perpetrated on those providing the necessary capital, it staunches investment and can cripple an industry. For almost a decade, Elizabeth Holmes fabricated and spread elaborate falsehoods to draw in a legion of capital investors, both big and small, and her deceit caused the loss of hundreds of millions of dollars. Her sentence reflects the audacity of her massive fraud and the staggering damage she caused.”

“Frauds such as the one perpetrated by Holmes can erode investor confidence which impacts our capital markets. Today’s sentence should serve as a warning that deceiving investors will not be tolerated. The FBI is committed to investigating corporate fraud and working with our partners to help keep our capital markets working effectively,” said FBI Special Agent in Charge Robert K. Tripp. “The FBI and our partners worked tirelessly on this multi-year case and are proud justice has been served as a result.”

“Today’s announcement should serve as a reminder that fraud related to medical products will not be tolerated,” said FDA Assistant Commissioner for Criminal Investigations Catherine A. Hermsen. “The FDA will continue to work with our law enforcement partners to bring to justice those who place profits above public health.”

“Postal Inspectors worked closely with our partners at the U.S. Attorney’s Office, the FDA Office of Criminal Investigations, and the FBI to bring this case to court,” said USPIS San Francisco Division Acting Inspector in Charge Kevin Rho. “USPIS remains committed to protecting consumers and investors from fraud.”

Holmes, 38, of Woodside, Calif., founded Theranos in 2003 and held the positions of Chairperson and Chief Executive Officer. Theranos, now defunct, was a blood testing company based in Palo Alto and Newark, Calif. Evidence at her jury trial showed that for more than a decade, Holmes claimed that Theranos had developed a revolutionary blood analyzer, variously referred to as the Theranos Sample Processing Unit (TSPU), Edison, and minilab. She asserted that the Theranos proprietary blood analyzer device could run any blood test that was run by conventional labs, all from a blood sample drawn via a fingerstick rather than the traditional draw from a vein. She asserted the Theranos analyzer produced results that were better, cheaper, and more accurate than existing methods and at a speed faster than ever before possible.

Trial evidence demonstrated that Holmes knew the analyzer was not producing accurate and reliable results. Holmes understood that at best it could only perform a few basic tests and was slower than existing devices. She knew that it could not successfully compete with the established conventional machines. Evidence showed that Holmes repeatedly had to resort to using conventional machines to obtain the blood test results that the Theranos analyzer was supposed to perform, though she led investors and the public to believe that Theranos was conducting most or all of its tests using its own analyzer.

Evidence showed that Holmes, despite being aware of the Theranos analyzer’s failure to perform, was able to induce dozens of investors, many of whom were prominent public figures, to invest hundreds of millions of dollars in Theranos. She used direct communications, marketing materials, statements to the media, financial statements, models, and other information to reach potential investors and induce investments. Holmes consistently provided glowing but false representations to investors and potential investors about the analyzer’s progress and capabilities. She falsely represented to investors that multiple major pharmaceutical companies had comprehensively evaluated Theranos and had validated its technology, and she provided investors with reports bearing logos from pharmaceutical companies, falsely suggesting the pharmaceutical companies endorsed Theranos. Holmes misrepresented to investors that Theranos had a profitable, revenue-generating business relationship with the U.S. Department of Defense and that the Theranos technology had been deployed to the battlefield to treat wounded soldiers. In truth, Holmes knew the technology was never deployed in the battlefield and that Theranos had acquired little revenue from military contracts for trial-runs of the analyzer. Holmes also falsely represented to investors that Theranos would dramatically increase its number of Wellness Centers within stores operated by its partner Walgreens from a few dozen to 900, despite knowing that the relationship with Walgreens was stagnating.

Trial evidence demonstrated that Holmes also misrepresented the dire financial status of Theranos to investors and its prospects for future earnings. In examples at trial, Holmes represented to one investor in 2010 that the projected revenue for Theranos in 2011 was $223 million, when she knew that Theranos’ revenue was dropping precipitously, from $2.8 million in 2009 to less than $600,000 in 2011. Holmes misrepresented to other investors that Theranos, which had zero revenue in 2012 and 2013, was projected to generate over $100 million in revenue in 2014 and to reach nearly $1 billion in 2015. She knew when she made these representations that Theranos would at best generate only modest revenue in 2014 and 2015.

In its memorandum filed for the sentencing hearing, the government pointed to evidence that Holmes’ fraud was immensely successful. Projecting altruistic motives, Holmes raised hundreds of millions of dollars by duping investors of all experience levels to invest in Theranos. She fooled investors new to the healthcare and bio-tech sector as well those with deep sophistication and experience in that arena. By the end of 2014, her stock in Theranos was valued at more than $4 billion. She enjoyed a lavish life while carrying out her fraudulent scheme, living in a $15 million mansion and traveling in a Theranos-paid private jet. She gained a national profile, adorning the cover of Fortune, Forbes, Inc., Glamour, and T: The New York Times Style Magazine. Holmes dined at the White House, joined the Board of Fellows of Harvard Medical School, and was named by Time as one of the 100 Most Influential People in the World. But as the government describes, her scheme not only deprived investors of vast sums of money, it also placed numerous others at risk of great physical harm. Wanting to paint Theranos as a legitimate enterprise, Holmes offered Theranos blood tests to the public, and Theranos’ flawed technology was used on patients with serious medical conditions. As a result, Theranos sent out inaccurate results to patients being screened for cancer, to women monitoring their pregnancies, and to one victim who was led to believe she had the precursor virus to AIDS, among many other examples. Theranos itself eventually concluded a patient impact existed for every test run on patients and voided all tests with its analyzer. The government points out that Holmes was undeterred and again choose deceit over candor by downplaying the extent of the patient impact to investor-victims and continuing forward with her elaborate fraud.

Federal criminal charges were initially filed against Holmes on June 14, 2018. On July 28, 2020, a federal grand jury returned a superseding indictment charging her with two counts of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349, and ten counts of wire fraud, in violation of 18 U.S.C. § 1343. Of the two conspiracy counts, one alleged Holmes conspired to defraud investors and the second alleged Holmes conspired to defraud patients who used Theranos services. Some of the ten counts of wire fraud alleged Holmes committed fraud on individual investors while others alleged Holmes defrauded patients who were induced to purchase Theranos services.

On January 3, 2022, after a nearly four-month trial, a federal jury convicted Holmes of one count of conspiracy to commit fraud on investors and three counts of committing fraud on individual investors which involved wire transfers totaling more than $140 million. The jury acquitted Holmes of the patient-related fraud conspiracy count and on three counts of fraud against individual patients. The jury could not reach a unanimous verdict with respect to three individual investor fraud counts. An additional count of wire fraud relating to a Theranos patient had been dismissed during trial.

In addition to the 135 month prison term, U.S. District Judge Davila sentenced Holmes to three years of supervision following release from prison. The parties were instructed to meet and agree on a future date for a hearing to determine the restitution amount to be paid by Holmes. No fine was assessed. Holmes was ordered to surrender on April 27, 2023, to begin serving her prison sentence.

Assistant U.S. Attorneys Robert S. Leach, Jeff Schenk, John C. Bostic, and Kelly Volkar are prosecuting the case with the assistance of Madeline Wachs, Lakisha Holliman, Sara Slattery, Elise Etter, Susan Kreider, and Leeya Kekona. The prosecution is the result of an investigation by the FBI, USPIS, and the FDA Office of Criminal Investigations.

Press release by DOJ.

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Chief Information Officer of pharmaceutical company Viatris charged with inside trading

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SEC Charges Pharmaceutical Co. Chief Information Officer in $8 Million Insider Trading Scheme

Washington D.C. — The Securities and Exchange Commission today announced insider trading charges against Ramkumar Rayapureddy, Chief Information Officer of pharmaceutical company Viatris Inc., which was formerly known as Mylan N.V.

The SEC’s complaint, filed in the United States District Court for the Western District of Pennsylvania, alleges that, from at least September 2017 through July 2019, Rayapureddy, a resident of Pennsylvania, tipped his friend and former colleague, Dayakar Mallu, material nonpublic information about Mylan’s unannounced drug approval by the U.S. Food & Drug Administration, financial results, and an impending merger with a division of Pfizer Inc. The complaint further alleges that Mallu generated gains totaling nearly $8 million and avoided losses by trading Mylan securities based upon Rayapureddy’s tips and shared a portion of his profits with Rayapureddy through cash payments in India. The SEC previously charged Mallu in connection with this investigation.

“As the officer of a public company, Rayapureddy had a duty to safeguard material nonpublic information concerning significant Mylan events, but, as our complaint alleges, he violated this duty by tipping his friend in exchange for cash kickbacks,” said Nicholas P. Grippo, Regional Director of the SEC’s Philadelphia Regional Office. “The SEC remains committed to finding, investigating, and charging public company executives who engage in insider trading.”

The SEC’s complaint charges Rayapureddy with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks a permanent injunction, disgorgement, a civil penalty, and an officer and director bar.

In a parallel action, the Department of Justice’s Fraud Section today announced criminal charges against Rayapureddy.

The SEC’s investigation was conducted by Christine R. O’Neil, Matthew B. Homberger, and Brian R. Higgins of the Philadelphia Regional Office and John S. Rymas of the Market Abuse Unit. It was supervised by Brendan P. McGlynn, Scott A. Thompson, and Mr. Grippo. The litigation will be led by Christopher R. Kelly and Gregory Bockin. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Options Regulatory Surveillance Authority.

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Press release by the SEC.

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SEC Charges Halal Capital Founder with Multimillion Dollar Fraudulent Scheme That Targeted Muslim Community

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"Fraud Key" by Got Credit is marked with CC BY 2.0.

Washington D.C. — The Securities and Exchange Commission today charged Jebara Igbara, the founder of Halal Capital LLC, in connection with a more than $8 million scheme that targeted investors from the New York metropolitan area’s Muslim community.

According to the SEC’s complaint filed in federal court in Brooklyn, Igbara (a.k.a. Jay Mazini) started Halal Capital in October 2019 with the goal of sharing his purported investment expertise with members of his Muslim community. As part of his alleged scheme, Igbara offered investors promissory notes that claimed to offer guaranteed, significant returns on investments in Halal Capital. The complaint alleges that Igbara obtained about $8 million from investors and promised to invest the funds in Quran-compliant investments, such as being pooled for the purchase of wholesale goods for resale, including electronics and personal protective equipment (“PPE”). However, Igbara misappropriated all of the investor’s funds to make Ponzi-like payments to Halal Capital investors or for his personal use, including to purchase luxury vehicles and expensive jewelry or to pay off gambling debts.

“As alleged in the complaint, more than a dozen investors in the Muslim community were targeted in this Ponzi-like scheme whose purpose was to enrich the defendant,” said Sheldon Pollock, Associate Director of the SEC’s New York Regional Office. “The Division of Enforcement remains steadfast in pursuing fraud where individuals seek to exploit the trust from fellow members in a community.”

The SEC’s complaint charges Igbara with violations of the antifraud provisions of the federal securities laws. Igbara has consented to the entry of a judgment that imposes a permanent injunction and monetary relief to be determined at a later date. The settlement is subject to court approval.

In a parallel action concerning the same conduct, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Igbara.

The SEC’s Office of Investor Education and Advocacy reminds investors to thoroughly research investments and warns them about making investment decisions based solely on shared affinity. Additional information is available at investor.gov.

The SEC’s investigation was conducted by Brian A. Kudon and Sandeep Satwalekar, and the litigation is being handled by Messrs. Kudon and Satwalekar. The matter is being supervised by Mr. Pollock. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the Internal Revenue Service.

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Press release by the SEC.

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SEC Charges Mattel with Financial Misstatements and Former PwC Audit Partner with Improper Professional Conduct

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Administrator
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"Numbers And Finance" by kenteegardin is marked with CC BY-SA 2.0.

Washington D.C. — The Securities and Exchange Commission today announced that California-based Mattel Inc. has agreed to pay $3.5 million to settle charges relating to misstatements in its third and fourth quarter 2017 financial statements. Separately, the SEC is initiating litigation against Joshua Abrahams, a former audit partner at PricewaterhouseCoopers LLP, or PwC, to determine whether he engaged in improper professional conduct and violated auditor independence rules.

According to the SEC’s order, Mattel understated the tax-related valuation allowance for the third quarter of 2017 by $109 million and overstated the tax expense for the fourth quarter of 2017 by the same amount. As a result, Mattel’s third quarter and fourth quarter 2017 net loss and net loss per share were understated by 15% and overstated by 63%, respectively. In addition, the SEC’s order finds that, at the time, Mattel had no internal control specifically related to calculating a valuation allowance. As explained in the order, until Mattel’s November 2019 restatement, the $109 million tax expense error remained uncorrected, and the lack of internal control for financial reporting related to the error remained undisclosed. As alleged, neither Mattel’s CEO nor audit committee was informed of the $109 million error.

The SEC’s separate order against Abrahams alleges that he violated numerous professional standards in the third quarter 2017 interim review and the 2017 annual audit of Mattel’s financial statements. According to the order, Abrahams failed to verify that the uncorrected $109 million error was documented, despite knowing of it, and failed to communicate the error to Mattel’s audit committee. The order further alleges that Abrahams failed to maintain independence by providing prohibited human resource advice to Mattel, including suggesting to Mattel’s then-CFO which candidate would be the best fit for a senior position at the company, as well as who should not be hired. The matter involving Abrahams will be scheduled for a public hearing before the Commission to decide if the Enforcement Division has proven the allegations in the order and what, if any, remedial actions are appropriate.

“An auditor’s adherence to professional standards and independence is critical to preserving investors’ trust in a company’s financial statements,” said Alka N. Patel, Associate Director of the Los Angeles Regional Office. “Auditors who advise their clients on who to hire will have an interest in the success of such hires and could therefore be less critical of their effectiveness, all of which undermines the auditor’s independence.”

The SEC’s order against Mattel finds that it violated the negligence-based antifraud provisions and the reporting, books and records, and internal controls provisions of the securities laws. Without admitting or denying these findings, Mattel agreed to a cease-and-desist order and to pay a $3.5 million civil penalty. The SEC’s order also notes that, in determining to accept Mattel’s settlement offer, the Commission took into account the company’s cooperation with the SEC’s investigation and its remediation.

The SEC’s investigation was conducted by Tony Regenstreif and Lorraine Pearson and was supervised by Victoria A. Levin and Rhoda Chang. The litigation against Abrahams will be led by Stephen Kam and supervised by Gary Y. Leung.

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Press release by the SEC.

Featured image: by kenteegardin is marked with CC BY-SA 2.0.

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