Two funds created to provide relief for cash-strapped Holocaust survivors were raided for more than $42 million with the help of several people who were supposed to administer the funds, federal authorities said Tuesday as they announced charges against 17 people.
U.S. Attorney Preet Bharara described the decade-long scheme at a news conference, saying the money was stolen in a "perverse and pervasive fraud" from the Conference on the Jewish Material Claims Against Germany, a not-for-profit group that disburses funds provided by the German government to individuals and organizations.
Six corrupt employees approved more than 5,500 fraudulent applications for aid, leading to millions of dollars being paid to people who did not qualify for help, Bharara said.
The prosecutor portrayed the Claims Conference as a victim, saying the organization had for six decades provided a "financial lifeline for thousands of survivors who suffered the worst of what World War II had to offer."
He said the defendants created thousands of false applications and duped residents of New York's Russian Jewish immigrant community into participating, sometimes by convincing them that they qualified for payouts.
Bharara said there was such a "culture of fraud" among the defendants that some Claims Conference employees and their families received payments. He said the Claims Conference had provided "tremendous assistance" after reporting the fraud to the FBI and prosecutors as soon as it completed an internal investigation last December.
"Sadly, the alleged fraud is as substantial as it is galling," he said.
Janice K. Fedarcyk, head of the New York office of the FBI, said the defendants each played a role in creating, filing and processing fraudulent claims on behalf of non-qualifying applicants and then dividing up the proceeds.
"Funds established and financed by the German government to aid Holocaust survivors were siphoned off by the greedy — and not paid out, as intended, to the worthy," she said.
The Claims Conference said in a statement that no Holocaust victims were deprived of any funds as a result of the fraud.
"We are outraged that individuals would steal money intended for survivors of history's worst crime to enrich themselves," said Julius Berman, chairman of the Claims Conference. "It is an affront to human decency."
In an e-mail sent Tuesday to the Claims Conference board of directors, Berman said "the betrayal of those from our own staff as well as the actions of many people outside the Claims Conference who conspired against us strains credulity."
He added: "There is a great sense of relief that those who committed these crimes were apprehended and will be punished and that we can move forward."
The fraud was carried out against two funds administered by the Claims Conference, which was established in 1951, authorities said.
The Hardship Fund provided a one-time payment of about $3,600 to victims of Nazi persecution who were forced out of the cities where they lived. The Article 2 Fund provided monthly payments of approximately $411 to survivors of Nazi persecution who make less than $16,000 per year.
So far, investigators have identified about 4,957 fraudulent applications from the Hardship Fund that were filed from 2000 through 2009, costing the fund approximately $18 million, authorities said. They said about 658 Article 2 Fund cases appeared to be fraudulent at a cost of about $24.5 million.
A dozen defendants were arrested on Tuesday while five had been arrested previously. Four have already pleaded guilty to charges in the case.
All the defendants were charged with conspiracy to commit mail fraud, which carries a potential penalty of up to 20 years in prison. Some were also charged with mail fraud, which also carries a potential 20 years in prison, and two were charged with witness tampering because they tried to convince some of their coconspirators to lie to the FBI, Bharara said.
Authorities portrayed Semen Domnitser as central to the scheme, saying he became the director of both funds in 1999 after working as a caseworker from April 1, 1994 until his promotion. A criminal complaint said it was his responsibility to make sure verifications of information were properly performed and documented and his approval was required before applications could be sent to the German government for payment.
He was fired by the Claims Conference on Feb. 3, according to the complaint. His lawyer, Marlin Kirton, did not immediately return a telephone message seeking comment. Domnitser was freed on $250,000 bail.
Other former employees charged in the complaint included four caseworkers and a clerk.
Others charged in the scheme included an employee at a law firm that advertised in Russian-language newspapers that it could assist people with applying for compensation from the Claims Conference. The complaint said she recruited applicants and submitted applications on their behalf in exchange for tens of thousands of dollars in fees.
Others charged included recruiters who collected identification documents that would support the false applications and a businesswoman who created false identification documents including Russian and Ukrainian marriage certificates and birth certificates in exchange for cash payments, the complaint said.