Microsoft Raids Tackle Online Crime

Excerpt from an article in

The New York Times

Monday, March 26, 2012

Microsoft Raids Tackle Online Crime

By NICK WINGFIELD and NICOLE PERLROTH

SEATTLE — Microsoft employees, accompanied by United States marshals, raided two nondescript office buildings in Pennsylvania and Illinois on Friday, aiming to disrupt one of the most pernicious forms of online crime today — botnets, or groups of computers that help harvest bank account passwords and other personal information from millions of other computers.

With a warrant in hand from a federal judge authorizing the sweep, the Microsoft lawyers and technical personnel gathered evidence and deactivated Web servers ostensibly used by criminals in a scheme to infect computers and steal personal data. At the same time, Microsoft seized control of hundreds of Web addresses that it says were used as part of the same scheme.

The sweep was part of a civil suit brought by Microsoft in its increasingly aggressive campaign to take the lead in combating such crimes, rather than waiting for law enforcement agencies to act. The company’s targets were equipment used to control the botnets, which criminals, known as bot-herders, use for ill intent.

Microsoft has a big interest in making the Internet a safer place. Despite inroads made by Apple and others in some parts of the technology business, Microsoft’s Windows operating system still runs the vast majority of the computers connected to the Internet. The prevalence of its software has made Windows the most appealing target for online criminals, and the security holes they discover in the software are a persistent nuisance for Windows users.

Microsoft’s involvement in what had been considered largely a law enforcement function — fighting computer crime — is the brainchild of Richard Boscovich, a former federal prosecutor who is a senior lawyer in Microsoft’s digital crimes unit. That group watches over fraud that could affect the company’s products and reputation.

News Release from the FBI - Disaster Relief Fraud

Justice Department and FBI Raise Awareness of Disaster Fraud Hotline 

U.S. Department of JusticeMarch 08, 2012

Office of Public Affairs(202) 514-2007/TDD (202)514-1888

WASHINGTON—The Department of Justice, the FBI, and the National Center for Disaster Fraud (NCDF) remind the public there is a potential for disaster fraud in the aftermath of a natural disaster. Suspected fraudulent activity pertaining to relief efforts associated with the recent series of tornadoes in the Midwest and South should be reported to the NCDF hotline at 866-720-5721. The hotline is staffed by a live operator 24 hours a day, seven days a week, for the purpose of reporting suspected scams being perpetrated by criminals in the aftermath of disasters.

NCDF was originally established in 2005 by the Department of Justice to investigate, prosecute, and deter fraud associated with federal disaster relief programs following Hurricanes Katrina, Rita, and Wilma. Its mission has expanded to include suspected fraud related to any natural or man-made disaster. More than 20 federal agencies, including the Justice Department’s Criminal Division, U.S. Attorneys’ Offices, and the FBI, participate in the NCDF, allowing the center to act as a centralized clearinghouse of information related to disaster relief fraud.

In the wake of natural disasters, many individuals feel compelled to contribute to victim assistance programs and organizations across the country. The Department of Justice and the FBI remind the public to apply a critical eye and do its due diligence before giving to anyone soliciting donations on behalf of tornado victims. Solicitations can originate from e-mails, websites, door-to-door collections, mailings and telephone calls, and similar methods.

Before making a donation of any kind, consumers should adhere to certain guidelines, including the following:

• Do not respond to any unsolicited (spam) incoming e-mails, including clicking links contained within those messages, because they may contain computer viruses.
• Be skeptical of individuals representing themselves as surviving victims or officials asking for donations via e-mail or social networking sites.
• Beware of organizations with copycat names similar to but not exactly the same as those of reputable charities.
• Rather than following a purported link to a website, verify the existence and legitimacy of non-profit organizations by utilizing various Internet-based resources.
• Be cautious of e-mails that claim to show pictures of the disaster areas in attached files, because the files may contain viruses. Only open attachments from known senders.
• To ensure that contributions are received and used for intended purposes, make donations directly to known organizations rather than relying on others to make the donation on your behalf.
• Do not be pressured into making contributions; reputable charities do not use coercive tactics.
• Do not give your personal or financial information to anyone who solicits contributions. Providing such information may compromise your identity and make you vulnerable to identity theft.
• Avoid cash donations if possible. Pay by debit or credit card, or write a check directly to the charity. Do not make checks payable to individuals.
• Legitimate charities do not normally solicit donations via money transfer services.
• Most legitimate charities maintain websites ending in .org rather than .com.

In addition to raising public awareness, the NCDF is the intake center for all disaster relief fraud. Therefore, if you observe that someone has submitted a fraudulent claim for disaster relief, or any other suspected fraudulent activities pertaining to the receipt of government funds as part of disaster relief or clean up, please contact the NCDF.

If you believe that you have been a victim of fraud by a person or organization soliciting relief funds on behalf of tornado victims, or if you discover fraudulent disaster relief claims submitted by a person or organization, contact the NCDF by phone at (866) 720-5721, fax at (225) 334-4707, or e-mail at disaster@leo.gov.

You can also report suspicious e-mail solicitations or fraudulent websites to the FBI’s Internet Crime Complaint Center at www.ic3.gov.

FBI Internet Scam Alerts

From the FBI:

Internet Crime Complaint Center's (IC3)
Scam Alerts

February 17, 2012

This report, which is based upon information from law enforcement and complaints submitted to the IC3, details recent cyber crime trends, new twists to previously-existing cyber scams, and announcements.

MYSTERY SHOPPER SCAM TO EVALUATE WIRE TRANSFER SERVICES

The IC3 has recently received over 250 complaints reporting a new twist to the online employment scam. The scam involves individuals who responded to online ads or were contacted via e-mail as a result of their resume being posted on job websites. The perpetrator posed as a research company and requested participants to complete a paid survey regarding services provided at wire transfer locations to improve the effectiveness of the company's money-transfer services.

Complainants were hired and then mailed a cashier's check or money order. They received instructions to cash the check/money order at their local bank, keep a portion as payment, and wire the remaining amount via wire transfer to a designated recipient. Victims were then asked to immediately e-mail their employer with the transfer number, amount wired, recipient's name and address, and the name of the wire transfer location evaluated. Upon sending the information, victims received a questionnaire form regarding their overall wire transfer experience to complete and return. Those who did not promptly follow through with the instructions received threatening e-mails stating if they did not respond within 24 hours, their information would be forwarded to the FBI and they could face 25 years in jail.

Shortly after the transactions, victims were informed by their banks that the checks were counterfeit and were held responsible for reimbursing their banks. Most victims owed their bank over $2,500.

SPAM REFERENCING U.S. MILITARY MEMBERS AND GADDAFI

Criminals continue to explore new avenues to lure victims, most recently by claiming to be a US military contractor, who was performing reconstruction work in Libya. Fraudsters sent unsolicited e-mails claiming that several metal boxes were found in cellars of high-rise buildings built and occupied by Muammar Gaddafi. Each box purportedly contained large sums of money, in addition to guns, armor, bullets, and drugs. The e-mails requested the recipient’s assistance with transferring the money out of Libya. The fraudsters also told the e-mail recipients that they were expected to receive, secure, and protect the boxes until the overseas assignment elapsed and promised the victims a 30 percent profit.

Often times in online scams, once communication with the fraudsters begins, they will request personal information, including but not limited to bank account details, claiming funds are needed to cover various expenses.

Be wary of any unsolicited e-mail, especially those requesting personal information or soliciting the submission of money for any reason. Unsolicited e-mails should not be opened, as they often contain viruses or other malicious software.

POX PARTY ONLINE ADVERTISEMENTS

Recently, the IC3 received a complaint from an individual reporting an advertisement on a social media site that offered ways to obtain "natural immunity" from the chickenpox by sharing lollipops licked by children infected with the virus. Parents have been known to take their child to a "Pox Party" as an alternative to vaccinating children from varicella, otherwise known as chickenpox, but sending virus-covered lollipops through the mail is against Federal law.

One individual posted a message stating "fresh batch of pox in Nashville shipping of suckers, spit, and Q-tips available tomorrow 50 dollars."

As a disclaimer, the social media site posted the following notice on their page:

"This page has never condoned the mailing of infectious diseases. For our members: The mailing of infectious items, such as lollipops, rags, etc, is a federal offense. This page is not private and can been seen by members and non members alike. You may post on the page that you have the pox and are willing to share in YOUR AREA but please keep your specifics in private messages between members. Again, this page can be seen by anyone and mailing is a federal offense. We are all intelligent adults but these guidelines will help protect your privacy."

According to the Center for Disease Control's (CDC) website, www.cdc.gov, chickenpox is spread in the air when an infected person coughs or sneezes. It can also be spread by touching or breathing in the virus particles that come from the chickenpox blisters. The CDC also discourages chickenpox parties because the disease can be serious. Dangerous diseases like hepatitis A and strep can be transmitted via saliva according to the CDC's website. Therefore, not only is the contaminated candy not likely to provide exposure to chickenpox, it could expose children to an entirely different disease.

USACE Manager Pleads Guilty to Bribery

News release from the FBI:

Former U.S. Army Corps of Engineers Manager Pleads Guilty in Alleged $20 Million Bribery and Kickback Scheme 
Scam Involved Steering of Government Contracts; Contractor Also Pleads Guilty to Charges Today

U.S. Attorney’s OfficeFebruary 13, 2012

District of Columbia(202) 514-7566

WASHINGTON—Michael A. Alexander, 55, a former program manager for the U.S. Army Corps of Engineers, pled guilty today to federal charges of bribery and conspiracy to commit money laundering in a scheme that allegedly involved more than $20 million in bribes and kickback payments and the planned steering of a $780 million government contract.

The plea was announced by U.S. Attorney Ronald C. Machen Jr.; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; Peggy E. Gustafson, Inspector General for the Small Business Administration (SBA); Robert E. Craig, Special Agent in Charge of the Mid-Atlantic Field Office of the Defense Criminal Investigative Service (DCIS); Eric Hylton, Acting Special Agent in Charge of the Washington Field Office of the Internal Revenue Service-Criminal Investigation (IRS-CI), and James K. Podolak, Director of the U.S. Army Criminal Investigation Command’s (CID) Major Procurement Fraud Unit (MPFU).

Alexander, of Woodbridge, Va., pled guilty before the Honorable Emmet G. Sullivan in the U.S. District Court for the District of Columbia. A sentencing date has not been set. The bribery charge carries a statutory maximum of 15 years in prison and the conspiracy charge carries up to 20 years of incarceration. The charges also carry potential fines, an order of restitution, and forfeiture of a money judgment for $1.25 million and specific property including cash, real property, bank account funds, and jewelry. As part of his plea agreement, Alexander agreed to cooperate in the government’s ongoing investigation.

At a separate and related hearing earlier today, also before Judge Sullivan, Robert L. McKinney, 51, pled guilty to bribery. McKinney was the president of Alpha Technology Group, one of the companies involved in the contracting scam. Alpha Technology Group was not one of the companies referenced in the original indictment returned against Alexander and others on September 16, 2011. A sentencing date for McKinney also has not been set.

As part of his plea agreement, McKinney agreed to forfeit about $245,000, representing the illegal proceeds he retained from the crime. He also agreed to cooperate in the government’s ongoing investigation.

***

“Today’s bribery and money laundering pleas relate to one of the largest procurement fraud scandals in our nation’s history and demonstrate this office’s steadfast commitment to holding accountable unscrupulous government officials, as well as the contractors who entice them with bribes and kickbacks,” said U.S. Attorney Machen. “Protecting the American taxpayer is one of our highest priorities and we will remain vigilant in the pursuit of those both inside and outside of the government who attempt to cheat the system and loot the public treasury.”

“Bribery and kickbacks have no place in government contracting,” said Assistant Director in Charge McJunkin. “The FBI and our partner agencies will continue to pursue those who engage in such criminal activity, as we work to protect federal funds and American taxpayers. We ask anyone with information about government fraud to contact the FBI.”

“Today’s announcement demonstrates the resolve of law enforcement to aggressively identify and prosecute individuals considering defrauding the federal government by deceit and bribery,” said SBA Inspector General Gustafson. “There are severe consequences associated with this form of criminal conduct, as this case uniquely demonstrates. The SBA OIG will relentlessly pursue fraud in government contracting programs to eliminate corruption, promote fair competition, and serve the American taxpayer.”

“Corruption of this nature recklessly deprives the hard-working men and women of the Defense Department of critical resources,” said Special Agent in Charge Craig. “Moreover, it undermines the public’s trust and confidence in Government. DCIS will continue to work tirelessly with our law enforcement partners to combat fraud and corruption within the procurement process and seek to ensure that those who engage in this type of criminal behavior are brought to justice.”

“The United States Army will not tolerate fraud or corruption or tolerate those who do,” said Director Podolak. “We will continue to diligently root out anyone involved in this type of illegal activity and our commitment to working shoulder to shoulder with other law enforcement agencies and the Department of Justice in this endeavor is stronger than ever. During the last 10 years alone, Army CID Special Agents have been instrumental in recovering and returning $2.1 billion dollars to the United States Treasury and the Army from fraudulent practices involving contractors.”

***

Alexander worked for the Army Corps of Engineers from 1979 until the time of his arrest, in October 2011. According to a statement of offense signed by Alexander, he was a program manager with the Directorate of Contingency Operations. In that position, Alexander had authority, among other things, to obtain funding for Army Corps of Engineers projects, including money for projects and programs placed through federal government contracts. He also was responsible for developing requirements for projects and programs. Alexander produced and actively managed a $54 million budget.

The scheme involved the Army Corps of Engineers and two contracts: the Technology for Infrastructure, Geospatial, and Environmental Requirements (TIGER) contract and the Contingency Operations Readiness Engineering & Support (CORES) contract.

The TIGER contract was used by authorized federal government agencies and departments to purchase products and services. It is what is known as an Indefinite Delivery/Indefinite Quantity contract. Authorized agencies and departments are not required to obtain three separate bids or to compare the TIGER contract to another contract before submitting an invoice for products and services through the TIGER contract.

The CORES contract was a planned contract, envisioned as an alternative or potential replacement to the TIGER contract. As planned, the CORES contract would be a five-year contract with an award potential for all contracts placed under it of up to $780 million. The CORES contract has not been issued for solicitation to potential prime contractors.

In his guilty plea, Alexander admitted to carrying out a bribery scheme with others. They included Kerry F. Khan, a colleague, who was then a program manager with the Army Corps of Engineers; Harold F. Babb, the former director of contracts at Eyak Technology LLC (EyakTek), an Alaska Native-owned small business; Alex N. Cho, the former chief technology officer of Nova Datacom, LLC, a provider of information assurance and security services to federal agencies and commercial companies, and McKinney, the president of Alpha Technology Group, Inc., a provider of program management services.

According to the statement of offense, in or around 2006, Alexander and Khan agreed to work together to obtain government contracts for corrupt contractors who would reward them with bribes. Khan had authority, among other things, to place orders for products and services for the Army Corps of Engineers through government contracts, including the TIGER contract, and to certify that the work on the contracts had been completed.

From May 2007 through October 2008, the Army Corps of Engineers awarded contracts and sub-contracts to Alpha Technology, totaling about $1,877,000. McKinney paid Khan a portion of the money that was received, and Khan provided Alexander with $99,100.

From May 2007 through October 2011, the Army Corps of Engineers awarded contracts and sub-contracts to Nova Datacom totaling more than $45 million.

All told, Alexander admitted receiving directly and indirectly about $1,150,000 of money and things of value from Nova Datacom and Cho. This included nearly $300,000 in checks and cash; $750,000 in wire transfers to an associate of Alexander’s in South Korea for the purchase of, among other things, a coffee shop called Seven Monkeys in Seoul; about $27,000 for the purchase of two designer watches for a member of Alexander’s family; employment of a family member at Nova Datacom, and other miscellaneous payments. Cho also promised Alexander future employment at Nova Datacom and $320,000 in additional payments. Indeed, on the morning of October 4, 2011, the date of his arrest, Alexander was expecting Cho to deliver a $20,000 payment to him.

In addition to these activities involving the TIGER contract, according to the statement of offense, Khan, Alexander, Babb and Cho agreed to steer the award of the CORES contract to Nova Datacom. This scheme was thwarted by the arrests of Alexander and others last fall.

Khan, 54, formerly of Alexandria, Va., Khan’s son, Lee Khan, 31, formerly of Fairfax, Va., and Babb, 60, formerly of Sterling, Va., were indicted along with Alexander on one count of conspiracy to commit bribery and wire fraud and aiding and abetting and causing an illegal act to be done, as well as one count of conspiracy to commit money laundering. Khan and Alexander also were indicted on one count of receipt of a bribe by a public official, and Babb was indicted on one count of unlawful kickbacks. Khan, Khan’s son, and Babb have pleaded not guilty to all charges in the case and are awaiting trial. Khan, Lee Khan, Babb, and Alexander have been in custody since their arrests in October.

Cho, 40, of Great Falls, Va., pled guilty in September 2011 to one count of conspiracy to commit bribery, money laundering, and wire fraud, and to defraud the United States, and one count of bribery. Another former Nova Datacom employee, Theodoros Hallas, 40, of Potomac, Md., the company’s former executive vice president, pled guilty to one count of conspiracy to commit wire fraud in October 2011. No sentencing date has been set for Cho or Hallas.

As part of his guilty plea today, McKinney signed a separate statement of offense that admitted that Alpha Technology had submitted fictitious and fraudulently inflated invoices that led to more than $1.8 million of payments to the firm. Some materials and services were provided, but, McKinney admitted, more than $850,000 of the expenses were fraudulent. Of this, he said, Alpha Technology kept about $245,395, and the rest allegedly was passed on to Khan directly and through a company controlled by another one of Khan’s family members.

To date, the United States has seized for forfeiture or recovered approximately $7.2 million in bank account funds, cash, and repayments, 16 real properties, five luxury cars, and multiple pieces of fine jewelry.

***

In announcing today’s developments, U.S. Attorney Machen, Assistant Director McJunkin, Inspector General Gustafson, Special Agent in Charge Craig, Acting Special Agent in Charge Hylton, and Director Podolak thanked those who investigated the case from the FBI’s Washington Field Office; the Office of the Inspector General for the Small Business Administration; the Department of Defense’s Defense Criminal Investigative Service; the Defense Contract Audit Agency; the Washington Field Office of the Internal Revenue Service-Criminal Investigation; and the Army Criminal Investigation Command. They also expressed thanks to the U.S. Marshals Service for its assistance on the forfeiture matter.

They also praised the efforts of those who worked on the case from the U.S. Attorney’s Office, including Assistant U.S. Attorneys Michael K. Atkinson and Bryan Seeley of the Fraud and Public Corruption Section and Assistant U.S. Attorney Anthony Saler of the Asset Forfeiture and Money Laundering Section. Finally, they expressed thanks for assistance provided by former Special Assistant U.S. Attorney Christopher Dana; Forensic Accountant Maria Boodoo; Paralegal Specialists Tasha Harris, Shanna Hays, Taryn McLaughlin, Sarah Reis, Christopher Samson, and Nicole Wattelet, and Legal Assistants Jared Forney and Krishawn Graham.

Beware of Valentine's Day Malware Distribution

News release from Panda Security:

Beware of Valentine’s Day Malware Distribution Campaigns, PandaLabs reports

• Here are some examples of malware that used social engineering to infect users on this festive occasion
• PandaLabs offers tips to avoid computer viruses on Valentine’s Day

Malware that uses events like Valentine’s Day, Christmas or Halloween as a lure to trick users and infect computers is now a well-established feature of the IT security calendar. Once again, this year it will be no surprise to see numerous emails in circulation with links for downloading romantic greeting cards, videos, gift ideas, or Facebook and Twitter messages related to Valentine’s Day.

Social engineering is cyber-crooks’ preferred technique for deceiving users. In these cases it basically involves obtaining confidential information from users by convincing them to take a series of actions. Crimeware and social engineering go hand-in-hand: a carefully selected social engineering ploy convinces users to hand over their data or install a malicious program which captures information and sends it on to the fraudsters.

Cyber-crooks, however, are also exploiting other channels, such as Facebook, Twitter or Google+, and given the access to millions of users that these social networks provide, they have become just as popular among the criminal fraternity for spreading malware as email.

A new Facebook attack has recently been discovered that uses users’ walls to spread. An apparently harmless message invites users to install a Valentine’s Day theme on Facebook. However, if the user clicks the wall post, they are redirected to a page where they are prompted to install the theme. This installs a malware file which, once run, displays ads from other websites. It also downloads an extension that monitors Web activities and redirects sessions to survey pages that request sensitive information like phone numbers.

Some weeks ago, the PandaLabs blog reported on a link included in a Twitter profile that took users to a dating site: http://pandalabs.pandasecurity.com/sex-lies-and-twitter/. Special dates like Valentine’s Day can see a proliferation of malicious Twitter posts used to steal users’ confidential data and empty their bank accounts through social engineering.

Here is a collection of some of the Valentine’s Day-themed malware campaigns detected by PandaLabs, the anti-malware laboratory of Panda Security, in recent years:

Waledac.C: This worm spread by email trying to pass itself off as a greeting card. The email message included a link to download the card. However, if the user clicked the link and accepted the subsequent file download they were actually letting the Waledac.C worm into their computer. Once it infected the computer, the worm used the affected user’s email to send out spam.

I Love.exe you: This was a RAT (Remote Access Trojan) that gave attackers access to the victim’s computer and all their personal information. The Trojan allowed the virus creator to access target computers remotely, steal passwords and manage files.

Nuwar.OL: This worm spread in email messages with subjects like “I love You So Much”, “Inside My Heart” or “You in My Dreams”. The text of the email included a link to a website that downloaded the malicious code. The page was very simple and looked like a romantic greeting card with a large pink heart. Once it infected a computer, the worm sent out a large amount of emails, creating a heavy load on networks and slowing down computers.

Website that downloaded the Nuwar.OL worm

Valentin.E: This worm spread by email in messages with subjects like “Searching for True Love” or “True Love” and an attached file called “friends4u”. If the targeted user opened the file, a copy of the worm was downloaded. Then, the worm sent out emails with copies of itself from the infected computer to spread and infect more users.

Desktop wallpaper displayed by Valentin.E.

Storm Worm: This worm spread via email by employing a number of lures, one of them exploiting Valentine’s Day. If the targeted user clicked the link in the email, a Web page was displayed while the worm was downloaded in the background.

Web page displayed by Storm Worm

PandaLabs offers users a series of tips to avoid falling victim to computer threats:

• Do not open emails or messages received on social networks from unknown senders.

• Do not click any links included in email messages, even though they may come from reliable sources. It is better to type the URL directly in the browser. This rule applies to messages received through any mail client, as well as those in Facebook, Twitter, or other social networks or messaging applications, etc. If you do click on any such links, take a close look at the page you arrive at. If you don’t recognize it, close your browser.

• Do not run attached files that come from unknown sources. Especially these days, stay on the alert for files that claim to be Valentine Day’s greeting cards, romantic videos, etc.
• Even if the page seems legitimate, but asks you to download something, you should be suspicious and don’t accept the download. If, in any event, you download and install any type of executable file and you begin to see unusual messages on your computer, you have probably been infected with malware.
• If you are making any purchases online, type the address of the store in the browser, rather than going through any links that have been sent to you. Only buy online from sites that have a solid reputation and offer secure transactions, encrypting all information that is entered in the page.

• Do not use shared or public computers, or an unsecured WiFi connection, for making transactions or operations that require you to enter passwords or other personal details.

• Have an effective security solution installed, capable of detecting both known and new malware strains.

Panda Security offers you several free tools for scanning computers for malware, like Panda Cloud Antivirus:www.cloudantivirus.com

Developer Convicted of Operating a Ponzi Scheme

From the FBI, New York:

Jury Finds Staten Island, New York Real Estate Developer Guilty of Operating Multi-Million-Dollar Ponzi Scheme

U.S. Attorney’s Office February 09, 2012

Eastern District of New York (718) 254-7000

— filed under: Breaking News, Press Release, White-Collar Crime

BROOKLYN, NY—Following two weeks of trial, a federal jury in Brooklyn, N.Y., today returned guilty verdicts against Joseph Mazella, the founder and president of the Great Atlantic Group Inc., a Staten-Island based real estate and financial consulting company, on charges of securities fraud, wire fraud, and money laundering. These charges arose out of the defendant’s operation of a Ponzi scheme that led to more than $14 million in losses. When sentenced by U.S. District Judge Carol B. Amon, the defendant faces a maximum sentence of 25 years in prison on the most serious charge.

The verdicts were announced by Loretta E. Lynch, U.S. Attorney for the Eastern District of New York.
The evidence at trial proved that Mazella solicited money from prospective investors by telling them that he would invest their money in real estate projects, including projects in Trenton, N.J., a warehouse in Utica, N.Y., and a golf course in Greene County, N.Y. Mazella told his victims that their money would be safe and that he would pay them a fixed rate of return. Mazella encouraged several investors, typically senior citizens, to apply for reverse mortgages on their residences and to invest the proceeds with him. From approximately January 2007 until approximately December 2010, investors gave Mazella more than $14 million. By January 2007, though, the evidence showed that Mazella was operating Great Atlantic as a Ponzi scheme in which he paid returns to investors from existing investors’ deposits or money paid by new investors. Mazella also used investors’ money to pay his personal expenses, including payments for a Porsche, a mortgage on his personal residence and family expenses.

“The evidence at trial showed that the defendant callously and systematically defrauded his victims of their lives’ savings. Mazella’s victims, many of whom are senior citizens on a fixed income, turned to him to ensure their security in their golden years. Instead, their security was raided to fund his fraud, and they will feel the impact of Mazella’s crimes for the rest of their lives,” said U.S. Attorney Lynch.

Ms. Lynch extended her grateful appreciation to the FBI, which led the government’s criminal investigation.
The government’s case is being prosecuted by Assistant U.S. Attorneys John Nowak, Winston Paes and Mary M. Dickman.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Asst. Administrator Indicted in Medicare Fraud Scheme

News release from the FBI:

Assistant Administrator of Houston Hospital Indicted for Alleged Role in $116 Million Medicare Fraud Scheme 

U.S. Department of JusticeFebruary 08, 2012

Office of Public Affairs(202) 514-2007/TDD (202) 514-1888

WASHINGTON—An assistant administrator of a Houston hospital was arrested today on charges related to his alleged participation in a $116 million Medicare fraud scheme involving false claims for mental health treatment, announced the Department of Justice, the FBI and the Department of Health and Human Services (HHS).

An indictment filed in the Southern District of Texas and unsealed today charges Mohammed Khan, 62, of Houston, with one count of conspiracy to commit health care fraud, one count of conspiracy to pay and receive illegal health care kickbacks and five counts of paying or offering to pay health care kickbacks. Khan is expected to make his initial appearance in federal court today in Houston.

“The indictment against Mr. Kahn alleges that he used his position as a hospital assistant administrator to submit millions in false claims to the Medicare program,” said Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division. “According to the charges, he paid kickbacks to patient recruiters, owners of group homes and assisted living facilities and beneficiaries so that he could fill his hospital with patients for whom he could bill the government for medically unnecessary services or services that were never provided. We will continue aggressively to pursue individuals who attempt to enrich themselves at the expense of the Medicare program.”

“The defendant charged in this indictment is accused of stealing precious Medicare resources by billing for services that were medically unnecessary or never provided,” said Special Agent in Charge Stephen L. Morris of the FBI’s Houston Field Office. “Our health care fraud efforts have never been more collaborative and aggressive. We will continue to work with our law enforcement partners to protect patients and fight against health care fraud.”

According to the indictment, Khan, as the assistant administrator of a Houston hospital, allegedly operated a scheme to defraud Medicare beginning in 2008 and continuing until his arrest today. Khan allegedly caused the submission of false and fraudulent claims for partial hospitalization program (PHP) services to Medicare through the hospital. A PHP is a form of intensive outpatient treatment for severe mental illness.

The indictment alleges that Khan paid kickbacks to owners and operators of group care homes and assisted living facilities and to patient recruiters in exchange for delivering ineligible Medicare beneficiaries to the hospital’s PHPs. The indictment alleges that Khan also paid kickbacks to Medicare beneficiaries who attended the hospital’s PHPs. These kickbacks included cigarettes, food, and coupons redeemable for items available at the hospital’s “country stores.” Khan and his co-conspirators submitted or caused to be submitted approximately $116 million in claims to Medicare for PHP services purportedly provided by the hospital to the recruited beneficiaries, when in fact, the PHP services were medically unnecessary or never provided.

Today’s charges were announced by Assistant Attorney General Breuer of the Justice Department’s Criminal Division; U.S. Attorney Kenneth Magidson of the Southern District of Texas; Special Agent in Charge Morris of the FBI’s Houston Field Office; Special Agent in Charge Mike Fields of the Dallas Regional Office of HHS’s Office of the Inspector General (HHS-OIG); the Texas Attorney General’s Medicaid Fraud Control Unit (MFCU); Special Agent in Charge Lucy R. Cruz of the Internal Revenue Service (IRS) Houston Field Office; Joseph J. Del Favero, Special Agent in Charge of the Chicago Field Office of the Railroad Retirement Board, Office of Inspector General (RRB-OIG); and Scott Rezendes, Special Agent in Charge of Field Operations of the Office of Personnel Management, Office of Inspector General (OPM-OIG).

The case is being prosecuted by Trial Attorney Laura M.K. Cordova, Attorney Allan Medina, Assistant Chief William Pericak and Deputy Chief Sam S. Sheldon of the Criminal Division’s Fraud Section. The case was investigated by the FBI, HHS-OIG, MFCU, IRS, RRB-OIG and OPM-OIG and was brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Southern District of Texas.

Since their inception in March 2007, Medicare Fraud Strike Force operations in nine locations have charged more than 1,190 defendants who collectively have falsely billed the Medicare program for more than $3.2 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

Man Sentenced for Ponzi Scheme

News release from the FBI:

Atlanta Man Sentenced for Operating Ponzi Scheme
Vaughn Received Over $10 Million from Victims

U.S. Attorney’s Office February 07, 2012

Northern District of Georgia (404) 581-6000

— filed under: Breaking News, Press Release, White-Collar Crime

ATLANTA—CHARLES MICHAEL VAUGHN, 43, of Atlanta, Georgia, was sentenced to federal prison today by United States District Judge Richard W. Story on wire fraud charges in connection with a $10 million Ponzi scheme.

United States Attorney Sally Quillian Yates said, “Despite the fact that Ponzi schemes are one of the oldest types of fraud schemes, they continue to be quite successful because of the creativity of the con artist, the slick presentations, and the promises of lucrative investment returns. Fraudsters with a computer and printer can come up with phony spreadsheets and paperwork that make their investments look golden when really the returns are an illusion. Potential investors should carefully scrutinize every aspect of a salesperson’s pitch before parting with their hard-earned money.”

Brian D. Lamkin, Special Agent in Charge, FBI Atlanta Field Office, said, “While Mr. Vaughn will now be held accountable for his elaborate fraud scheme, the many victims harmed in this matter are forced to rebuild their lives as best they can. Because of the victim impact often seen in such cases, the FBI will continue to aggressively pursue those individuals who engage in this type of high dollar investment fraud activity.”
United States Postal Inspector in Charge Keith Morris said, “Our Postal Inspectors are trained to follow the money, even if the paper trail is difficult to find. Innocent victims hand over their hard-earned savings, and criminals often only invest it in themselves. No matter how complex the case, our Inspectors will make every effort to help those victims, by bringing the fraudsters to justice.”

VAUGHN was sentenced to eight years and four months in prison to be followed by three years of supervised release, and was ordered to pay restitution in the amount of $8,833,686. VAUGHN pleaded guilty to the charges on October 24, 2011.

According to United States Attorney Yates, the charges, and the evidence presented in court: VAUGHN founded and operated “CM Vaughn, LLC,” a tax and financial consulting firm based in Atlanta, Georgia. From July 2004 through March 2008, VAUGHN sold investments in a pooled investment fund or “hedge fund” called “CM Vaughn Emerging Ventures Fund.” Over 50 individuals sent money to VAUGHN for purposes of investing in the fund.

VAUGHN falsely represented to investors that his fund earned from 15 percent to as much as 50 percent per year, and stated that their investments would be “insured” and could not decrease below a certain amount. He also prepared client statements that falsely indicated the current value of each investor’s accounts. While the statements generally showed substantial investment gains, the numbers included in the statements were false, as none of the investors’ monies had actually been invested in any fund. Instead, VAUGHN had used the investments to finance a lavish lifestyle and to make payments to earlier investors. VAUGHN obtained over $10 million from his victims.

This case is being prosecuted through President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case was investigated by special agents of the Federal Bureau of Investigation and inspectors of the United States Postal Inspection Service.

Assistant United States Attorney Shanya J. Dingle prosecuted the case.