Former Law Enforcement Officers Sentenced for Theft of Government Funds

JACKSON, MS—Two former law enforcement officers were sentenced today by U.S. District Judge Tom S. Lee for theft of government funds and property.
Zach Robinson, a former deputy with the Hinds County Sheriff’s Office, and Kent Daniels, a former Jackson Police officer and investigator for the Hinds County District Attorney’s Office, were each sentenced to 12 months in federal prison. They were also ordered to pay joint restitution in the amount of $21,996.
In March 2013, Robinson and Daniels pled guilty to robbing a motel room that they believed was being used by a drug dealer. They took $23,000 and seven iPads that had actually been placed in the room by the FBI.
This case was investigated by the Federal Bureau of Investigation and prosecuted by Assistant U.S. Attorneys Jerry Rushing and Mike Hurst.

Bank Employee Charged with Bank Fraud

MCALLEN, TX—Edna Edith Sepulveda, 39, of McAllen, has surrendered to federal authorities following the return of an indictment alleging she perpetrated more than $200,000 in bank fraud, United States Attorney Kenneth Magidson announced today.
The indictment was returned July 9, 2013, and she made her initial appearance today, at which time she was permitted release upon posting bond.
According to the indictment, Sepulveda was a former employee of Inter National Bank of McAllen. Beginning in January 10, 2006, she allegedly devised a scheme to take money from Inter National Bank by fraudulent means. She then placed the funds into the accounts of her parents allegedly intended for her own personal use, according to the allegations. The total amount of loss to Inter National Bank is $232,351.19.
If convicted, Sepulveda faces up to 30 years in federal prison, as well as a $1 million fine.
This case is being investigated by the FBI with the cooperation of Inter National Bank. Assistant United States Attorney Jason C. Honeycutt is prosecuting the case.
An indictment is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless convicted through due process of law.

Former CEO and Former CFO of ArthroCare Corp. Charged with Orchestrating $400 Million Securities Fraud Scheme

WASHINGTON—The former chief executive officer and former chief financial officer of ArthroCare Corp., a publicly traded medical device company based in Austin, Texas, were charged for their alleged leading roles in a $400 million scheme to defraud the company’s shareholders and members of the investing public by falsely inflating ArthroCare’s earnings by tens of millions of dollars, announced Acting Assistant Attorney Mythili Raman of the Department of Justice’s Criminal Division and U.S. Attorney Robert Pitman of the Western District of Texas.
A 17-count indictment was unsealed today in the U.S. District Court for the Western District of Texas against Michael Baker, the former chief executive officer and director of ArthroCare, and Michael Gluk, the former chief financial officer of ArthroCare. Both defendants surrendered to authorities this morning.
The indictment, which was returned on July 16, 2013, charges Baker and Gluk with one count of conspiracy to commit wire and securities fraud, 11 counts of wire fraud, and two counts of securities fraud; it charges Baker alone with three counts of false statements. The indictment also seeks forfeiture of assets held by Baker and Gluk.
“Truthful corporate earnings reports are critical to the soundness of our financial system,” said Acting Assistant Attorney General Raman. “Today’s indictment alleges that those at the top of ArthroCare deceived investors and regulators by manipulating the company’s reports to inflate its stock, ultimately causing hundreds of millions in losses in shareholder value. The Criminal Division will continue to aggressively pursue corporate executives who undermine our financial markets for personal gain.”
According to the indictment, from at least December 2005 through December 2008, Baker, Gluk, and other senior executives and employees of ArthroCare allegedly falsely inflated ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare’s distributors. According to court documents, Baker, Gluk, and other ArthroCare employees determined the type and amount of product to be shipped to distributors based on ArthroCare’s need to meet Wall Street analyst forecasts, rather than distributors’ actual orders. Baker, Gluk, and others then allegedly caused ArthroCare to “park” millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would then report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.
The indictment alleges that ArthroCare’s distributors agreed to accept shipment of millions of dollars of product in exchange for substantial, upfront cash commissions; extended payment terms; and the ability to return product, as well as other special conditions, allowing ArthroCare to falsely inflate its revenue by tens of millions of dollars.
Baker, Gluk, and others allegedly used DiscoCare, a privately owned Delaware corporation, as one of the distributors to cover shortfalls in ArthroCare’s revenue. According to the indictment, at Baker and Gluk’s direction, ArthroCare shipped product to DiscoCare that far exceeded DiscoCare’s needs.
In addition, Baker, Gluk, and others allegedly lied to investors and analysts about ArthroCare’s relationships with its distributors, including its largest distributor, DiscoCare. According to the indictment, Baker and Gluk caused ArthroCare to acquire DiscoCare specifically to conceal from the investing public the nature and financial significance of ArthroCare’s relationship with DiscoCare.
The indictment further alleges that when Baker was deposed by the U.S. Securities and Exchange Commission about the DiscoCare relationship in November 2009, he lied again on multiple occasions.
According to court documents, between December 2005 and December 2008, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.
If convicted, Baker and Gluk would face a maximum prison sentence of 25 years for the conspiracy charge, 20 years for each count of wire fraud, and 25 years for each securities fraud count. Baker faces five years for each count of false statements.
An indictment is merely a charge, and the defendants are presumed innocent until proven guilty.
This case was investigated by the FBI’s Austin Resident Agency. The case is being prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorneys Henry P. Van Dyck and William Chang of the Criminal Division’s Fraud Section. The Department recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

Martha Mae Mitchell Pleads Guilty in U.S. Federal Court

The United States Attorney’s Office announced that during a federal court session in Great Falls, on July 16, 2013, before U.S. Magistrate Judge Keith Strong, Martha Mae Mitchell, a 57-year-old resident of Box Elder and an enrolled member of the Chippewa Cree Tribe, pled guilty to assault resulting in serious bodily injury. Sentencing has been set for October 22, 2013. She is currently detained.
In an Offer of Proof filed by Assistant U.S. Attorney Danna R. Jackson, the government stated it would have proved at trial the following:
On January 23, 2013, Mitchell became frustrated when a 9-month-old child would not stop crying. Mitchell told law enforcement that she twisted the baby’s legs and both arms, causing injuries to them. Mitchell further told law enforcement that she was “shocked and disgusted” at herself. The crime occurred within the exterior boundaries of the Rocky Boy’s Indian Reservation.
Medical evidence would have shown that the victim suffered fractures to all four of the baby’s limbs. The victim was hospitalized for a week. The medical evidence would also show that the victim sustained additional injuries that may not be attributed to Mitchell’s conduct.
Mitchell faces possible penalties of 10 years in prison, a $250,000 fine, and three years’ supervised release.
The investigation was conducted by the Federal Bureau of Investigation.

Four Arrested in Large-Scale Telemarketing Scheme

On July 11, 2013, Patricia M. Ferrick, Acting Special Agent in Charge of the Milwaukee Division of the Federal Bureau of Investigation (FBI), was joined by Pete Zegarac, Inspector in Charge of the Chicago Division of the U.S. Postal Inspection Service, in announcing the arrest today of four individuals charged to have owned, operated, and engaged in a timeshare telemarketing fraud scheme in violation of Title 18, United States Code, Sections 371, 1341, 1343, 1344, 1349, 1956, 2326, and 2.
The subjects are identified as Mark S. Parks (age: 39) of New London, Wisconsin; Ashley M. Conant (age: 28) of Bellevue, Wisconsin; Eileen M. Goltz (age: 51) of Port Charlotte, Florida; and Mindy L. Parks (age: 34) of Brussels, Wisconsin. All were taken into custody without incident.
From October 2009 through April 2011, the aforementioned individuals are alleged to have engaged in fraudulent and deceptive business tactics associated with several telemarketing businesses. Those businesses include National Timeshare Resales (NTR), Intergrated Advertising Solutions (IAS), Administrative Timeshare Resales (ATR), and Midwest Timeshares (MT). All these companies based out of Green Bay, Wisconsin, were owned and operated at various times by all four subjects. Telemarketers employed at these companies would contact timeshare owners by telephone to inquire whether they were interested in selling their timeshares. In the majority of cases, these companies falsely represented they found buyers for consumers’ timeshare properties and solicited fees ranging from $200 to $2,500 from each consumer, totaling more than $2,000,000 in fraudulently obtained funds.
This case was a joint investigation by the Federal Bureau of Investigation and the U.S. Postal Inspection Service with assistance of the Brown County Sheriff’s Office, Door County Sheriff’s Office, Waupaca County Sheriff’s Office, and the Wisconsin Department of Agriculture Trade and Consumer Protection.

Friendship Man Charged in Grand Marsh Bank Robbery

MADISON, WI—John W. Vaudreuil, United States Attorney for the Western District of Wisconsin, announced that a complaint has been filed in U.S. District Court in Madison charging Randy Glenn Paulson, 55, Friendship, Wisconsin, with bank robbery. If convicted, the defendant faces a maximum penalty of 20 years in federal prison.
The complaint charges that on July 3, 2013, Paulson took by force, violence, and intimidation money which was in the care, custody, and control of Grand Marsh State Bank, Grand Marsh, Wisconsin. The complaint alleges that Paulson entered the bank armed with a handgun that he pointed at the tellers and announced, “This is a robbery.”
After obtaining cash from the teller drawers, he approached a customer and demanded her car keys. The customer did not respond, and a teller volunteered her car keys, which Paulson took, and he then left the bank. Paulson was arrested in Illinois on July 11, 2013, on the federal bank robbery charge and is currently in custody.
He made an initial appearance in federal court in Madison today, and his arraignment is scheduled for July 19, 2013.
The charge against Paulson is a result of an investigation conducted by the Madison Residence Agency of the Federal Bureau of Investigation and the Adams County Sheriff’s Department, with assistance from the Villa Park, Illinois Police Department and the Chicago Field Office of the FBI. The prosecution of this case has been assigned to Assistant U.S. Attorney Grant C. Johnson.
You are advised that a charge is merely an accusation and that a defendant is presumed innocent until and unless proven guilty.

Oxon Hill Woman Pleads Guilty in Two Separate Mortgage Fraud Schemes That Resulted in Losses of More Than $2.5 Million

BALTIMORE—Rhonda Scott, age 52, of Oxon Hill, Maryland, pleaded guilty today before U.S. District Judge James K. Bredar to conspiring to commit wire fraud in connection with two separate mortgage fraud schemes that resulted in losses of over $2,500,000.
The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge David Beach of the United States Secret Service-Washington Field Office; Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation; Special Agent in Charge Joe Clarke of the Housing and Urban Development Office of Inspector General-Office of Investigations; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Investigation; Special Agent in Charge Gene E. Morrison, Washington Field Office, U.S. Department of Justice Office of the Inspector General; Howard County Police Chief William McMahon; Acting Special Agent in Charge Lisa Quinn of the United States Secret Service-Baltimore Field Office; and Howard County State’s Attorney Dario Broccolino.
According to her plea, beginning in 2008, Scott agreed to participate in several fraudulent real estate transactions that settled at M&R Title Inc. and Sanford Title Services LLC. The fraudulent transactions at each title company were part of different conspiracies, both of which Scott joined. In both schemes, Scott facilitated deals between her co-conspirators, identified and recruited individuals that could be parties to the real estate transactions generating proceeds for the co-conspirators, received proceeds of the fraudulent transactions through a shell company designed to disguise her receipt of the funds, sent money to co-conspirators, and identified mortgage transactions that the co-conspirators could use to enrich themselves.
As part of the M&R Title conspiracy, the co-conspirators deceived buyers, sellers, and lenders to make it appear to sellers that they were selling their property at a low price and to buyers and lenders that the property was being sold at a higher price. The co-conspirators created paperwork for two different sales of the property at the same time. The first sale was fraudulent because it was backdated, the buyer was planning to immediately flip the property in a subsequent sale, and the settlement statement listed a fake hard money loan. The second sale involved a significantly increased sales price, and the settlement statement showed a significant sum being disbursed to the hard money lender as a payoff of an existing lien, but in reality, those funds would be used for improper disbursements to the co-conspirators.
With respect to the Sanford Title conspiracy, improper disbursements were made from the title company to Scott and others. The conspirators engaged in many fraudulent techniques, including short sales in which the property would be sold for a higher price than the seller was aware of; sales of properties not owned by the seller including properties Scott purported to own but did not own at the time of settlement; real estate transactions in which there were multiple sales of the same property at the same time; showing difference settlement statements to the seller and/or buyer using the difference between the figures in the two statements to enrich themselves; and Sanford Title not disbursing money that should have been paid to lien holders and instead diverting a portion of those funds to co-conspirators.
Both of the M&R Title and Sanford Title fraud schemes involved at least 25 victims, including lenders, sellers, and buyers of real estate, title insurance companies, and lien holders. The reasonably foreseeable loss associated with Scott’s conduct is at least $2.5 million.
Scott will be required to forfeit at least $2.7 million and pay restitution of at least $1 million.
Scott faces a maximum penalty of 30 years in prison and a $1 million fine for conspiring to commit wire fraud. No sentencing date has been scheduled.
Emeka Udeze, age 38, of Bowie, Maryland; Shola Risikat Balogun, age 47, of Upper Marlboro; and Niesha Williams, age 33, of Fort Washington, Maryland, each previously pleaded guilty to their role in the fraud schemes. No sentencing date has been scheduled for them at this time.
The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the task force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud, and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available at www.justice.gov/usao/md/Mortgage-Fraud/index.html.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
United States Attorney Rod J. Rosenstein commended the U.S. Secret Service, FDIC, HUD-OIG, FBI, Department of Justice OIG, Howard County Police Department, Secret Service, and Howard County State’s Attorney’s Office for their work in the investigation. Mr. Rosenstein thanked Assistant United States Attorney Harry Gruber and Special Assistant United States Attorney Colleen McGuinn assigned to this case from the Howard County State’s Attorney’s Office, who are prosecuting the case.