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09 Wednesday

FBI raids alleged boiler room in midtown Manhattan

NEW YORK – Ten men, including a former Securities and Exchange Commission employee, were arrested Wednesday in a $12 million scheme to cheat investors using a Manhattan boiler-room operation with mob links, authorities said.

FBI agents raided an office building on West 36th Street, where the suspects duped investors with misleading sales pitches by phone, authorities said. One of the men under arrest was identified as a member of the Bonanno organized crime family.

Also charged was 63-year-old Steven Kimmel, the founder of a Florida company, Realcast, that was central to the scheme. Company literature "included the fact that (he) formerly was employed by the SEC," prosecutors said.

Prosecutors did not have the name of Kimmel's lawyer, and there was no response to a phone message left at his office in Miami. The SEC had no immediate comment.

An indictment filed in federal court in Manhattan alleges that in 2000, the suspects persuaded dozens of people to invest $12 million in Realcast, which offers Internet video services. They promised "to sell the shares directly to investors," saving them commission costs, the court papers say.

In reality, the brokerage was collecting 40 percent commissions, the papers say. In one instance, a suspect stole $50,000 that a victim believed was being put into the Florida company.

A witness told investigators that one suspect bragged in February he "had been able to 'close' on a wealthy individual he recently had been soliciting and now intended to 'fleece' the investor," according to the indictment.

The brokerage consisted of a "bullpen-style room where various telephones are present for employees to make calls to potential investors," the indictment says.

16 Friday

36 arrested in Medicare scams totaling $280M

Federal authorities said Friday they are conducting the largest Medicare fraud bust ever in five different states and arrested dozens of suspects accused in scams totaling $251 million.

Several doctors and nurses were among those arrested in Miami, New York City, Detroit, Houston and Baton Rouge, La., accused of billing Medicare for unnecessary equipment, physical therapy and HIV treatments that patients typically never received. Ninety-four suspects were indicted, and authorities said 36 people had been arrested as of Friday morning.

More than 360 agents participated in Friday's raids, announced by Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius at a health care fraud prevention summit in Miami. Officials said they chose Miami because it is ground zero for Medicare fraud. Authorities indicted 33 suspects in the Miami area, accused of charging Medicare for about $140 million in various scams.

Cleaning up an estimated $60 billion to $90 billion a year in Medicare fraud will be key to paying for President Barack Obama's proposed health care overhaul. Federal officials have promised more money and manpower to fight fraud, setting up strike forces in several cities.

Around the country, the schemes have morphed from the typical medical equipment scam in which clinic owners billed Medicare dozens of times for the same wheelchair, while never giving the medical equipment to patients. Now, officials say, the schemes involve a sophisticated network of doctors, clinic owners, patients and patient recruiters.

Violent criminals and mobsters are also tapping into the scams, seeing Medicare fraud as more lucrative than dealing drugs and having less severe criminal penalties, officials said.

For instance, agents bugged a medical center in Brooklyn, N.Y., where eight people are charged with running a $50 million scam that submitted bogus claims for physical therapy. Clinic owners paid patients, including undercover agents, in exchange for using their Medicare numbers and a bonus fee for recruiting new patients. Recording devices captured hundreds of kickback payments in a private room where a man sat at a table and did nothing but pay patients all day, authorities said.

In a separate Brooklyn case, authorities indicted six patients who shopped their Medicare numbers to various clinics. More than 3,744 claims were submitted on behalf of one woman in the past six years. The patients did not receive the services billed to Medicare, authorities said.

"Today's arrests illustrate how health care fraud schemes can replicate virally and migrate rapidly across communities," said Daniel R. Levinson, inspector general of the U.S. Department of Health and Human Services, which oversees Medicare.

Federal authorities launched a strike force in Miami in 2007 to target the problem. The program has since expanded to seven cities and is responsible for more than 720 indictments that collectively have billed the Medicare program for more than $1.6 billion.

Miami-Dade County received about $520 million from Medicare in home health care payments intended for the sickest patients in 2008, which is more than the rest of the country combined, according to a federal report. Only 2 percent of the patients live here.

It used to take 90 days before the government detected a scam. By then, the crooks were long gone, sometimes with millions of dollars. Now authorities get billing data as it's submitted, allowing them to catch suspects in real time, "as opposed to the typical pay and chase model we've had for years," said Gerald Roy, assistant inspector general for investigations.

11 Thursday

Holocaust survivor funds raided for $42 million

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.