Articles Posted in Federal Crimes

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After the Bernie Madoff debacle, Ponzi schemes are getting more publicity in the news. Ponzi schemes can be committed in different ways, but they typically involve a person or persons who are able to elicit trust from others who believe that person has the ability to make extraordinary returns on an investment. The Ponzi schemer will solicit money from a number of people and use those new payments from newer victims to pay prior victims just enough to keep them satisfied and avoid suspicion. However, invariably, the Ponzi schemer runs out of new investors, and money, or an investor gets suspicious and starts asking questions and requesting documentation about the investment and the Ponzi scheme falls apart.

In this case, Reed Diehl, who was a former Tennessee Titan in the NFL, solicited money from victims claiming that he would invest the money into loan programs and condominium projects in Mexico that would provide a high rate of return, according to a press release on the local U.S. Attorney’s Office’s website. When the Ponzi scheme fell apart, Mr. Diehl was ultimately charged with federal crimes such as wire fraud and money laundering. He entered a guilty plea and admitted to stealing over $5 million. There were never any investments in loans or building projects. Mr. Diehl was sentenced to 57 months in federal prison in California.

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Several times, we have discussed the trend we have seen towards more federal investigations and arrests in mortgage fraud cases in Florida and Jacksonville. Federal authorities are responding to the tremendous meltdown in the housing markets and numerous mortgages that have gone unpaid. In many local U.S. Attorney offices in Florida, mortgage fraud cases used to occupy a relatively small percentage of the caseload. However, since the mortgage and housing crisis, some offices in Florida have so many mortgage fraud cases that all of the prosecutors have one or more of them.

The trends towards increased federal prosecution of mortgage fraud cases certainly includes the Jacksonville, Florida market. According to a recent article on News4Jax.com, there were twenty-four recent mortgage fraud related arrests in Jacksonville. There were over one hundred such arrests throughout Florida. Florida is obviously a major target for mortgage fraud related criminal cases due to the sheer volume of real estate and real estate transactions in the state. For some reason, many people consider Jacksonville the number one city in Florida for mortgage fraud.

However, the crime of mortgage fraud is often not black and white like some other crimes. What one prosecutor or FBI agent calls mortgage fraud, someone else may call good business or a misunderstanding on behalf of one of the parties to the mortgage transaction. Whether a transaction is a mortgage fraud crime or not may depend on what disclosures were made, whether verbal or in writing. There are often honest and legitimate differences of opinion between what one side considers a legitimate way of conducting business and the other side considers a serious felony crime. When law enforcement casts the net of arrests so wide so quickly, it is certainly likely that many of these cases fall on the legitimate business side of the line.

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Most people understand that when they have a private conversations with their lawyers about an existing or potential case, whether criminal or civil, those conversations are supposed to remain confidential. This is referred to as the attorney-client privilege, and it means that no one can compel the attorney or the client to disclose what was discussed between them.

However, in the context of a pending case or investigation involving a corporation and its executives or employees, it may not be clear who exactly the attorney represents. For instance, in a recent federal criminal case, the government was investigating a company and its chief financial officer for conspiracy and securities fraud. The company hired a lawyer to assist with an internal investigation and an audit. That lawyer interviewed the CFO who gave that lawyer important information critical to his own case. The CFO believed that the lawyer was his lawyer and all communication between the two was confidential and private. This particular attorney had even represented the CFO in the past in civil cases, which further led the CFO to believe that he was having confidential discussions with his personal lawyer.

Subsequent to those conversations with the CFO, the lawyer disclosed information from those conversations to other lawyers and accountants assisting in the internal investigation of the company and ultimately to the government. The government then intended to use that information against the CFO.

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Federal judges testified in front of the U.S. Sentencing Commission regarding the abnormally high sentences given for the federal crime of possession of child pornography. The judges asked the Commission to review the criminal sentencing guidelines for possession of child pornography cases. The judges noted that some people are getting inordinately high sentences for sitting in their homes looking at pictures of child pornography that are the same or more than sentences for crimes such as rape and bank robbery. Additionally, the judges noted that people who are convicted of possession of child pornography crimes are receiving sentences that are no less than those for people convicted of manufacturing or commercially distributing child pornography. As a point of reference, one judge noted that in his district, the average sentence for possession of child pornography increased from 50 months to 109 months from 2002 to 2007.

The judges indicated they were not trying to downplay the seriousness of possession of child pornography but were merely trying to ensure that the sentencing guidelines for that crime were appropriate when compared to more serious and violent crimes and also more threatening child pornography crimes such as manufacturing and/or distributing child pornography. The U.S. Sentencing Commission appeared to be receptive to the testimony and may consider adjusting the sentencing guidelines for possession of child pornography crimes in federal court in the future.

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As we have discussed several times on this blog, the federal authorities are focusing more on fraud related crimes, or so called white collar crimes. We have seen the greatest concentration of federal investigative resources go towards mortgage fraud cases recently, particularly in Florida. However, they are looking at fraud cases of all types.

In Kingsland, Georgia, a recent criminal investigation resulted in the indictment of the former owner of the Cisco Travel Plaza and several others connected to that business. The indictment alleges that these individuals committed the crimes of fraud, conspiracy, bribery and/or criminal trademark infringement. Specifically, the law enforcement authorities, which included the FBI, GBI, local Kingsland police and the IRS, are alleging that Mr. Cisco and the others miscalibrated the fuel pumps at three Cisco Travel Plaza locations to provide less fuel than what was indicated and paid for, substituted cheaper fuel at the premium and mid-grade fuel pumps, sold non-BP fuel while using the BP logo at the centers and bribed Georgia Department of Agriculture inspectors who came to inspect the centers and the pumps. The indictment alleges that these offenses occurred between 2005 and 2006 and resulted in a loss of $7 million to customers of Cisco Travel Plaza.

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Several times we have written posts about the shifting priorities of the FBI and federal prosecutors in the Jacksonville, Florida area and throughout Florida, from immigration and terrorism related cases years ago to securities fraud to mortgage fraud. It seems you can follow the latest sensational crime and economic stories to see where federal prosecutors are going to focus next. Recently, the failing housing market and increasing foreclosure rates have inundated the news. As a result, we wrote that the FBI and federal prosecutors are allocating significant resources to investigating, indicting and prosecuting mortgage fraud cases. We also noted that the state of Florida seems to be the focal point for mortgage fraud cases.

We do not expect the trend towards more mortgage fraud prosecutions to change any time soon. A recent FBI report noted that mortgage fraud is getting worse, and the Obama administration has made mortgage fraud cases a top priority. In fact, mortgage fraud cases have become such a priority that certain members of Congress have expressed concern that other white collar crimes may not receive the attention from the FBI and federal prosecutors they deserve due to the classic limited resources problem.

Reports of mortgage fraud by lenders increased 36% in 2008, and financial institutions estimate that they lost $1.4 billion in 2008 due to mortgage fraud, a 83% increase from 2007. With numbers like those, it is no surprise that the government is allocating significant funds for law enforcement to use to combat mortgage fraud. As a result, we should see more federal mortgage fraud cases in the Jacksonville, Florida area and throughout Florida in 2009 and beyond, at least until the next major trend takes over.

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We have written before about how people who commit crack cocaine crimes in federal court receive higher sentences than people who commit similar crimes involving powder cocaine. In other words, in order to get a similar sentence in certain situations, it would take the possession of much more powder cocaine than crack cocaine. The Obama administration has indicated an intention to eliminate this sentencing disparity in federal criminal courts.

A new law is also being considered that would establish equal sentences for crack cocaine and powder cocaine crimes. The new law would lower the crack cocaine sentences to the current powder cocaine level instead of the inverse. If and when this law passes, people charged and convicted of crack cocaine crimes in federal court will be exposed to lower sentencing ranges that are in line with those of powder cocaine crimes.

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Federal agents raided dozens of doctors’ offices and homes during investigations into alleged Medicare fraud. As part of the government’s effort to reform health care and save money, the federal government is focusing on Medicare fraud and what they say are millions of dollars that are fraudulently taken from the government pursuant to the Medicare laws. The recent raids occurred in Houston, New York, Boston and Louisiana. In Houston alone, thirty-two indictments were recently unsealed charging $16 million in Medicare fraud claims.

Medicare fraud can be committed in various ways, but it often involves a doctor or someone in a doctor’s office billing Medicare for supplies that were not medically necessary and/or never provided to the patient. Under the Medicare laws, when a doctor prescribes a medical product, such as a wheelchair, to a patient, the doctor has a right to reimbursement from the government. In this case and other cases of Medicare fraud, the government alleges that the medical supplies were unnecessary and/or the medical supplies were never given to the patient and the doctor pocketed the reimbursement money. In this case, wheelchairs, arthritis kits and tube feeding supplies were the most common supplies that were the subjects of the alleged Medicare fraud.

Due to its relatively large elderly population, Medicare fraud is a significant issue in Florida. With the publicity surrounding health care reform, wasted money in the health care industry and the enormous tax burden on the public, it is likely that the federal government and state law enforcement in Florida will continue to investigate doctors for Medicare fraud.

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Many states, including Florida, allow qualified residents to apply for and obtain concealed weapons permits. These permits allow the person to carry a concealed weapon, such as a firearm, in their vehicles and other concealed places. In Florida, carrying a concealed firearm without such a permit is a third degree felony punishable by up to five years in prison; carrying a concealed weapon (non-firearm, such as a knife), without authorization is a misdemeanor.

The laws of each state are different, and particulars regarding how and where a person can carrying a concealed firearm or weapon are not the same in each state. As a result, if a person has a concealed weapon permit in one state and travels to another that has different laws regarding how that weapon can be concealed, that person may be violating the concealed weapon law of the second state even though he/she has a valid concealed weapon permit and is following the law of his/her home state. The new proposal would make it clear that a person who has a concealed weapon permit from one state can travel into other states with the concealed weapon as long as the other state also issues concealed weapon permits.

One group that would welcome such a law is semi truck drivers who constantly travel across state lines and often have to stop in dangerous and secluded areas while carrying valuable cargo. Truck drivers are at greater risk of becoming robbery targets and should have the right to protect themselves when they are on the road.

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Under the Obama Administration, the Department of Justice has indicated an increased focus on mortgage fraud and other white collar crimes. We have discussed this marked increase in investigations and prosecutions of various white collar crimes in previous blogs here , here and here. However, a recent press release from the U.S. Department of Justice further emphasizes the point that mortgage fraud and other white collar crimes remain high on the government’s list of priorities.

According to the press release, the government is currently investigating more than 2100 mortgage fraud cases, which is an increase of 400% from five years ago, and the government has doubled the number of agents investigating such crimes.

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