Four Arrested in FEMA Fraud Scheme

A joint investigation between the Federal Bureau of Investigation (FBI) and the Federal Emergency Management Agency (FEMA) resulted in the arrest of four individuals earlier this morning for allegedly submitting false and fraudulent applications to obtain Hurricane Sandy Disaster Relief funds. Darnell Ellis, Diana Shkolnik, Robert Gesuele, and Edward Valentin (the defendants) independently submitted fraudulent disaster relief applications and received benefits from the federal government, which they would not otherwise be entitled.
The arrests were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; George Venizelos, Assistant Director in Charge, FBI, New York Field Office; and FEMA Regional Administrator Jerome Hatfield.
Disaster relief assistance is made available after the president of the United States declares that a major disaster has occurred in a specified area. Assistance to individuals is available under the Individuals and Household Assistance Program (IHP), which provides grants funded by the United States government to people in the affected area when losses are not covered by insurance and property has been damaged or destroyed. To qualify for disaster assistance, in addition to registering with FEMA, the applicant must provide basic personal data and the location of the damaged dwelling. The applicant is also asked to verify that the damaged dwelling was in fact his or her primary residence and that he or she was unable to live in his or her primary residence due to disaster-related conditions.
As detailed in their respective complaints, each defendant claimed in their FEMA relief applications that their primary residences were affected by Hurricane Sandy, and as a result, they were seeking financial assistance. Contrary to their claims, the investigation identified that at the time they submitted their FEMA applications, defendants Ellis, Shkolnik, and Valentin were not living in the storm-affected residences identified in their paperwork. The fourth defendant, Gesuele, submitted a FEMA application for a residence he was illegally occupying and did not rent or own. In total, the defendants received tens of thousands of dollars in disaster relief funding to which they were not entitled.
FBI Assistant Director in Charge George Venizelos stated, “At a time when individuals were displaced from their primary residences and businesses due to the affects of Hurricane Sandy, the defendants saw an opportunity to make money. They submitted false claims to FEMA and lined their pockets with money intended to help those who legally qualified for assistance under the IHP. The FBI, along with its law enforcement partners, to include FEMA, will continue to investigate and bring to justice those who defraud the government for their own personal gain.”
“In the aftermath of Hurricane Sandy, FEMA Region 2 responded to those affected and provided both material and financial support. Relief funds meant to assist individuals, businesses, and communities are essential in order to restore normalcy. This process is hampered by those few who wish to defraud and siphon relief and disaster funds away from those who were most at need. FEMA R2 will continue to work with our close federal partners, including the FBI and the Department of Homeland Security-Office of the Inspector General, to identify fraud and misuse of disaster relief funds and to leverage each such violation as a clear message of deterrence to anyone considering the misuse of relief and disaster funds,” said FEMA Regional Administrator Jerome Hatfield.

Ouachita County Judge and Construction Company Owner Indicted for Bribery and Conspiracy to Defraud FEMA

FORT SMITH, AR—Conner Eldridge, United States Attorney for the Western District of Arkansas, and Randy Coleman, Special Agent for the Federal Bureau of Investigation, announced today that James Michael Hesterly, age 49 of Camden, Arkansas, and Harry Clemons Jr., age 39 of Bearden, Arkansas, were indicted for a scheme to award a Federal Emergency Management Agency (FEMA) disaster-relief contract to Clemons in return for a contribution to Hesterly’s 2010 reelection campaign for Ouachita County Judge. Hesterly has been the county judge of Ouachita County Arkansas for the past 10 years. Harry Clemons is the owner and operator of Clemons Construction. A federal grand jury handed down the indictment in Fort Smith.
As alleged in documents filed in court, beginning in March 2010, Hesterly and Clemons conspired to award Clemons a contract to clean up debris in Ouachita County in exchange for a payment to Hesterly to his reelection campaign. The debris was the product of two tornados that struck the county in October of 2009. In furtherance of this conspiracy, Clemons arranged for two other bidders to submit intentionally inflated bids to Hesterly through fax. Clemons then met with Hesterly at his office and submitted a bid on behalf of himself and another company for the contract in the amount of $120,730, a total amount below the inflated bids. Hesterly accepted Clemons’s bid on March 26, 2010, and, on April 8, 2010, applied for federal funds from FEMA to help Ouachita County pay for the contract. Hesterly represented to FEMA that Clemons was the lowest bidder among the three bids that he had received. In order to promote open competition, federal regulations require that the contract be awarded through a sealed bidding process and in compliance with all applicable state law. While state law requires the bid to be advertised for 10 days, the bid in this case was advertised for one day. No sealed bidding process took place. In August 2010, Clemons submitted documentation to Hesterly stating that all work on the contract had been complete and requested a payment of $69,865 for Clemons Construction. That same month, Hesterly certified to the state of Arkansas and FEMA that the work set forth in the contract had been completed. On October 13, 2010, Hesterly signed an order allowing Clemons’s claim for payment to go through. Later that month, Clemons received a check from Ouachita County for $69,865.
The indictment charges both men with one count of conspiracy to defraud an agency of the United States and two counts of bribery concerning a program receiving federal funds. The maximum term of imprisonment for conspiracy is five years. The maximum term of imprisonment for bribery is 10 years per count.
This case was investigated by the FBI. Assistant United States Attorney Kenny Elser represented the United States.
Hesterly and Clemons are scheduled to be arraigned tomorrow, January 18, 2013, at the federal courthouse in El Dorado, Arkansas, at 10 a.m.
The charges in an indictment are only allegations. A person is presumed innocent unless he or she is proven guilty beyond a reasonable doubt in a court of law.