The indictment describes a scheme by DAVID H. SWANSON for unlawfully obtaining more than $2.7 million dollars from Countrymark Cooperative, Inc. during 1996 and 1997. Countrymark was a regional farm cooperative which provided products and services to farmers in Indiana, Ohio and Michigan. SWANSON became the Chief Executive Officer of Countrymark in January 1996. After he became CEO, SWANSON allegedly convinced Countrymark's board of directors to purchase Buckeye Feed Mills, Inc., Dalton, Ohio for $15,000,000, through a company named Project Explorer Corporation. SWANSON had formed Project Explorer Corporation before he became Countrymark's CEO In the February, 1996, SWANSON received a $284,000 payment which was characterized as a payment to an organization performing services as a part of Countrymark's acquisition of Buckeye. The $284,000 was actually used to re-pay a venture capitalist who had given SWANSON $282,000 as an initial investment when he attempted a private purchase of Buckeye Feed Mills. After the acquisition of Buckeye, SWANSON, who had management authority over Buckeye Feed Mills, then a subsidiary of Countrymark, directed officials at Buckeye to pay additional fees and expenses which he claimed were related to the Countrymark acquisition. Some of the amounts paid by Buckeye were for SWANSON'S personal expenses. The indictment alleges that SWANSON defrauded Countrymark of funds in connection with the Buckeye acquisition and that he unlawfully received the funds after they had crossed a state boundary. It is also alleged in the indictment that after the Countrymark acquisition of Buckeye Feed Mills, SWANSON convinced the Countrymark board to join Growmark, Inc., Bloomington, Illinois, another farm cooperative, in the purchase of another animal feed business. During the August 1996 purchase of Malta Clayton, a Mexican feed business, for $33 million, Countrymark and Growmark transferred $25 million and $10 million, respectively, into the bank account of Project Explorer Mark II Corporation. Project Explorer Mark II was a SWANSON company that was used to acquire the Mexican feed business. Before the closing on the Malta Clayton acquisition, SWANSON established a bank account in the name of the acquiring company at Bankers Trust Co. in New York City, with himself as the only authorized person on the account. The purchase price for Malta Clayton was $31,056, 833.33 and the balance, approximately $3.9 million, was available to SWANSON, in a Bankers Trust Co. account controlled by him. From this account, he transferred $2,050,000 to other accounts. It is alleged that SWANSON, through misrepresentations, led Countrymark to believe that he had incurred fees and expenses in connection with the Malta Clayton feed acquisition, which had to be paid from the $35,000,000 compiled for that acquisition. To convince Countrymark that he had incurred fees and expenses which matched the money that he had taken, SWANSON provided a booklet to Countrymark which contained fictitious invoices for services performed in connection with the Malta Clayton acquisition. The allegation in the Indictment is that through the wire fraud scheme, Countrymark and Growmark were defrauded of funds in connection with the Malta Clayton acquisition and that he unlawfully received the funds after they had crossed a state boundary. The indictment also alleges that when Countrymark sold part of its interest in Buckeye Feed Mills in May 1997, it received a $400,000 facilitation fee. These funds were transferred to a Bankers Trust Co. account in the name of Project Explorer Mark III Corporation, over which SWANSON had control. It is alleged as part of the wire fraud scheme, Countrymark was defrauded and SWANSON unlawfully received the funds after they had crossed a state boundary. The indictment further alleges that on four occasions in late summer and fall of 1996 SWANSON'S transfers of funds obtained through the scheme were in violation of a federal money laundering statute. DAVID H. SWANSON, was formerly the Chief Financial Officer at Continental Grain Co. based in New York City, the Chief Executive officer of Central Soya, based in Ft. Wayne, Indiana and a consultant to Archer Daniels Midland of Decatur, Illinois, before becoming the Chief Executive Officer at Countrymark. According to Assistant United States Attorney Charles Goodloe, who is prosecuting the case for the government, Swanson faces a maximum possible prison sentence of 160 years and a fine of $4,250,000. An initial hearing was held in Indianapolis on July 31, 2001 before a U.S. Magistrate Judge. The indictment is an allegation only, and the defendant is presumed innocent unless and until proven guilty at trial or by guilty plea.
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FIL-11-2001 February 8, 2001 TO: CHIEF EXECUTIVE OFFICER SUBJECT: Entities That May Be Conducting Banking Operations in the United States Without Authorization The Federal Deposit Insurance Corporation (FDIC) has learned that the following entities may be operating banking businesses in the United States illegally or without authorization. The entities were incorporated in the state of Indiana; however, the actual location of their operations is unknown. The State of Indiana Department of Financial Institutions has not issued a banking license to these entities, and they are not authorized to conduct a banking business in the state. Proposed transactions involving these entities should be viewed with extreme caution. The entities are: American National Investment Banking Group, Inc. American Overseas Investment Banking Corporation U.S. Banking Confederation for Investment, Inc. U.S. Central Investment Banking Alliance, Inc. Please forward any information about these entities to the State of Indiana Department of Financial Institutions, 402 West Washington Street, Room W066, Indianapolis, Indiana 46204. Information also may be forwarded to the FDIC's Special Activities Section, 550 17th Street, NW, Room F-6012, Washington, DC 20429. For your reference, all FDIC Financial Institution Letters published since January of 1995 may be found on the FDIC's Web site at www.fdic.gov under "News, Events & FOIA." Michael J. Zamorski Acting Director
LAKE COUNTY AUDITOR AND COUNCILMAN INDICTED On June 6, 2002, a grand jury sitting in the Northern District of Indiana returned an indictment against Lake County Auditor Peter Benjamin and Lake County Councilman Troy Montgomery. This is the second indictment arising out of efforts of the Northwest Indiana Public Corruption Task Force. That Task Force is a combined effort of the Federal Bureau of Investigation, the Indiana State Police, the Internal Revenue Service and the United States Attorney’s Office. AUSA Jonathan L. Marks is the coordinator of that Task Force for the United States Attorney’s Office. Peter Benjamin, age 54, has served as the elected Auditor for Lake County, Indiana since January 1999. As Lake County Auditor, Benjamin was responsible for, among other things, overseeing Lake County fiscal matters and protecting the economic interests of the county’s citizens. In addition, Benjamin was an attorney who operated a sole proprietorship, known as Peter L. Benjamin and Associates. Troy Montgomery, age 57, has served as an elected Lake County Councilman since 1992. In 1998, Montgomery also served as the President of the Lake County Council. As a County Councilman, Montgomery had responsibility for the fiscal affairs of Lake County. The indictment contains 9 counts. Benjamin is named in all 9 counts. Montgomery is named in 2 counts. Count 1: Conspiracy to Commit Racketeering by Benjamin and Montgomery Count 1 of the indictment charges both Benjamin and Montgomery with conspiring to commit racketeering. Count 1 of the indictment describes 6 separate racketeering acts. It alleges that Benjamin committed and participated in the commission of all 6 acts, and that Montgomery committed and participated in the commission of 2 acts. 1. Racketeering Act 1: Benjamin and Montgomery The first charged racketeering act alleges payment and receipt of a bribe leading to the award of a contract wherein Peter Benjamin and Associates was selected to represent Lake County in litigation involving taxpayer funding for health care services for the indigent (the HCI litigation). Both Benjamin and Montgomery are charged with commission of this racketeering act. Some time prior to March, 1998, Benjamin determined that he wanted Peter L. Benjamin and Associates to be hired to represent Lake County in the court challenge to the HCI tax and funding formula. In or about March, 1998, Benjamin offered and Montgomery agreed to accept, a bribe in the approximate amount of $5,000. The purpose of this bribe was so that Peter L. Benjamin and Associates would be hired by Lake County to represent it in the HCI litigation. Sometime after March, 1998 and before November, 1998, Benjamin did in fact pay this bribe in two installments, a $1,000 cash payment and a $3,000 cash payment. Montgomery as President of the Lake County Council took steps so that Peter L. Benjamin and Associates would be hired to handle the HCI litigation, and would head the litigation team. 2. Racketeering Act 2: Benjamin and Montgomery The second charged racketeering act alleges a scheme to defraud Lake County by fraudulent billing. Both Benjamin and Montgomery are charged with commission of this racketeering act. In particular, the indictment describes that in addition to the HCI litigation, there was also litigation related to Inland Steel. In February, 1998, the Indiana State Board of Tax Commissioners granted the reappraisal, which resulted in a significant reduction in Inland Steel’s real estate taxes. Thereafter, Lake County initiated a court challenge to the reassessment of Inland Steel’s real estate taxes. In June, 1998, Peter L. Benjamin and Associates was hired by Lake County to take over the then pending litigation. The indictment charges that in furtherance of the scheme to defraud, Peter L. Benjamin and Associates submitted invoices that contained false and fraudulent representations. In particular, Peter L. Benjamin and Associates billed for and received payment for hours that Benjamin did not work. In addition, the bills claimed Benjamin performed certain tasks, when in fact he had not performed such tasks. In addition, Peter L. Benjamin and Associates billed for and received payment for work claimed to have been performed by persons employed by and associated with Peter L. Benjamin and Associates, when in fact they had not performed such work. Among these individuals were a relative of Montgomery and a friend of Montgomery. Neither the relative nor the friend did any or sufficient work to justify these payments as wages. On more than one occasion, Montgomery was personally involved in the processing of invoices for Peter L. Benjamin and Associates, took steps so that the invoices would be processed and paid on an expedited basis, and signed his authorization to pay invoices submitted by Peter L. Benjamin and Associates. The indictment also alleges that the scheme required Benjamin to maintain his law license. The State of Indiana required that to maintain and possess a license to practice law, an attorney was required to participate personally in a certain number of hours of continuing legal education per year. To further the scheme, on or about December 8, 1998, December 17, 1998 and December 30, 1998, Benjamin sent an employee of Peter L. Benjamin and Associates to attend continuing legal education courses for him. The indictment further alleges that in or about August, 1999, when the Attorney Disciplinary Commission of the State of Indiana began to investigate allegations the Benjamin had not attended the continuing legal education courses, Benjamin took various steps to hide the fraud, including obtaining and providing to the Disciplinary Commission a fraudulent affidavit. From in or about June, 1998 through in or about September, 2000, Peter L. Benjamin and Associates billed the County and received a total in excess of approximately $260,000 for the HCI litigation and Inland Steel litigation. 3. Racketeering Act 3: Benjamin only The third charged racketeering act alleges bank fraud. Only Benjamin is charged with commission of this racketeering act. The indictment alleges that in December, 1998, Benjamin took steps to obtain a $500,000 loan from Centier Bank. In connection with obtaining the loan Benjamin represented that it could and would be secured by the receivables of Peter L. Benjamin and Associates and by a mortgage on a condominium in Marco Island, Florida. This condominium was the home of Benjamin’s wife’s two grandparents. Benjamin did not discuss the mortgage he intended to grant to Centier Bank on the Marco Island condominium with Benjamin’s wife’s grandparents and did not obtain their consent to place a mortgage on the condominium. Nevertheless, on April 30, 1999, Benjamin obtained the $500,000 loan from Centier Bank. The loan was secured by, among other things, a mortgage document which purported to grant Centier Bank a mortgage on the Marco Island condominium. This mortgage document purported to contain the signatures of Benjamin’s wife’s grandparents. In fact, these signatures were fraudulent. At no time did Benjamin’s wife’s grandparents sign a mortgage, agree to a mortgage on the condominium or authorize Benjamin to sign their names to a mortgage document. Benjamin submitted this mortgage document in support of the loan knowing that the signatures were fraudulent. 4. Racketeering Act 4: Benjamin only Only Benjamin is charged with commission of racketeering act 4. Specifically, the indictment alleges that from l996 through 1998, Benjamin aided and abetted individuals in the promotion, management, establishment, and carrying on of a business involving prostitution. It also alleges that he committed mail fraud, which included a scheme to defraud the Internal Revenue Service. As part of this conduct, it was necessary to conceal the true nature and purpose of payments to individuals providing prostitution services. To this end, Benjamin sometimes paid for prostitution services by cash and sometimes paid for prostitution services by check. When Benjamin paid by check, he used checks drawn on an account of Peter L. Benjamin and Associates, and took steps so that those checks would appear to be legitimate business expenses and payments for something other than prostitution services. Concealment of the true nature and purpose of payments to prostitutes extended to the preparation of tax documentation. 5. Racketeering Act 5: Benjamin only The fifth charged racketeering act involves a scheme to defraud clients by over-billing for expenses. Only Benjamin is charged with commission of this racketeering act. The indictment charges that Benjamin and Peter L. Benjamin and Associates would, from time to time, represent clients on a contingency basis. Under such an arrangement, Benjamin and Peter L. Benjamin and Associates would be reimbursed for expenses only if a recovery or settlement was obtained on behalf of a client. It was further understood that Peter L. Benjamin and Associates would only seek reimbursement for expenses actually incurred on behalf of a client. The indictment alleges that Benjamin devised a scheme to defraud clients through the false and fraudulent billing of expenses. 6. Racketeering Act 6: Benjamin only Only Benjamin is charged with commission of racketeering act 6. Specifically, the indictment alleges that from December, 2001, through May, 2002, Benjamin corruptly persuaded another individual to testify untruthfully before a United States Grand Jury for the Northern District of Indiana. Other Counts of the Indictment Count 2 of the indictment charges Benjamin only with conducting the affairs of an enterprise, that is an association involving Benjamin, Montgomery and Peter L. Benjamin and Associates, through a pattern of racketeering activity. That racketeering activity consisted of the 6 racketeering acts described in Count 1. Counts 3, 4 and 5 charge Benjamin only with mail fraud. Those counts allege a scheme to defraud Lake County, Indiana through, among other things, the submission of false and fraudulent bills. Count 6 charges both Benjamin and Montgomery with money laundering. It alleges that Benjamin and Montgomery conducted a financial transaction involving a check payable to a relative of Montgomery with the intent to promote the carrying on of unlawful activity consisting of mail fraud. Count 7 charges Benjamin only with money laundering, and alleges that Benjamin conducted a financial transaction involving a check payable to a friend of Montgomery with the intent to promote the carrying on of unlawful activity consisting of mail fraud. Count 8 charges Benjamin only with bank fraud, based on the scheme to obtain a loan from Centier Bank through the submission of a mortgage document containing fraudulent signatures. Count 9 charges Benjamin only with witness tampering. Penalties If convicted, the sentence to be imposed will be based upon the application of the Sentencing Guidelines. The statutory maximum on counts 1 and 2, Benjamin faces up to 20 years in prison on each count. If convicted on counts 3 through 5, Benjamin faces up to 5 years in prison on each count. If convicted on counts 6 and 7, Benjamin faces up to 20 years in prison on each count. If convicted on Count 8, Benjamin faces up to 30 years in prison. If convicted on Count 9, Benjamin faces up to 10 years in prison. If convicted on count 1, Montgomery faces up to 20 years in prison. If convicted on count 6, Montgomery faces up to 20 years in prison. The United States Attorney's Office emphasized that the indictment is merely an allegation at this time and that all persons charged are presumed innocent until and unless proven guilty in court.
Heartland Financial investigation Vulnerable novice buyers fall prey to scam artists
Con artists are taking increasing advantage of novice investors willing to risk money on the stock market during this booming economy, securities regulators say If you need help Here's where to report suspected securities fraud or check the status of a broker, financial adviser or financial services company Indiana Securities Division, (800) 232-6681 U.S. Securities and Exchange Commission, (202) 942-8090 The result has been a spate of investment fraud cases, including allegations Thursday that two Indianapolis financial services companies bilked 330 investors of more than $29 million Bradley Skolnik, the state's securities commissioner, said it's hard to quantify just how much fraud has grown during the past decade "But I have no doubt that it has,'' he said, "because the opportunities for fraud have in creased. The stock market is not just for the well-heeled anymore. We've become a nation of investors." And among some novice investors in Indiana, we've become a state of suckers, too Federal investigators say many of the 330 investors allegedly duped by Heartland Financial Services and JMS Investment Group are from Indiana In the past year, hundreds of other Hoosier investors have cringed when allegations of investment fraud surfaced Other big cases: The owner of a financial services company in Marion is missing, along with up to $12 million in investments from about 400 clients. Federal and state regulators announced last month that they are investigating Phillip Ferguson, 50, of Summitville, and his company Mishawaka businessman Gary Van Waeyenberghe is accused of scamming 200 investors in 29 states out of $21 million in an auto loan fraud scheme. Last month, a federal judge in South Bend froze his assets Several clients lost a total of more than $600,000 when they invested money with Richard G. Berry, who offered financial advice on an Indianapolis radio talk show but was not registered as a broker in Indiana. Late last year, Berry was sentenced to a year in prison This week in Elkhart, businessman Steven D. Hudkins pleaded guilty in federal court to defrauding investors of more than $500,000 The recent string of cases is unusual for Indiana, said Mark Maddox, a former state securities commissioner who now represents investors in lawsuits "We don't see stuff like this all the time, certainly not to the tune of $20 million, $30 million, $40 million or $50 million," he said The Heartland case and those in Marion and Mishawaka are among the biggest-money cases to emerge in Indiana in more than a decade, since the notorious Firstmark Corp. bankruptcy case in 1988. It caused investors to receive only 17 percent of the $57 million they invested. They recouped another $5 million through a class-action lawsuit Skolnik attributes the increase to novice investors entering the marketplace and lacking the experience necessary to spot a risky investment An estimated 49.2 million U.S. households, or 48 percent, own stocks individually or through mutual funds, according to a recent study by the Investment Company Institute. That's up from 32.5 percent just 10 years ago State and federal regulators urge investors to check out financial services companies and their employees before giving them any money Investors should make sure stockbrokers and their employers are properly registered and in good standing with the state securities commission, the regulators said But that is only a good first step. Beginning investors also should be wary of offers to invest in offshore banks; assurances that they will receive a return far above current market performance; and invitations to accept all-expense-paid trips to exotic locations "The bottom line is that if it sounds too good to be true, it probably is," Skolnik warned Staff writer Christopher Carey contributed to this report Return to Heartland Financial investigation Main | News | Opinion | Business | Sports | Entertainment | Living | Classifieds | Community Customer Service | Terms of service | Send feedback about IndyStar.com Subscribe to The Star | Star tours and speakers Copyright 2003 IndyStar.com. All rights reserved USA Today | Gannett Co. Inc. | Gannett Foundation | Space.com » IndyStar Homepage Customer Service Pay Your Star Bill
January 7, 2002 K. Richard Payne, Heartland Financial Services President, to Plead Guilty to Mail Fraud and Money Laundering Susan W. Brooks, United States Attorney for the Southern District of Indiana, announced that K. RICHARD PAYNE, 53, currently held in custody at the Marion County Jail in Indianapolis, is scheduled to enter a guilty plea to five counts of mail fraud and one count of money laundering before U.S. District Judge John Daniel Tinder at 2:00 p.m. this afternoon. PAYNE's plea of guilty follows an investigation by the Internal Revenue Service and Federal Bureau of Investigation. PAYNE's trial on this case was scheduled to begin on January 28, 2002. PAYNE, president of Heartland Financial Services, was indicted on October 25, 2000 and charged with multiple counts of mail fraud and money laundering in connection with a scheme to defraud hundreds of investors of millions of dollars.
DECLARATION OF HERBERT A. BIERN I, Herbert A. Biern, do hereby declare under penalty of perjury, in accordance with 28 U.S.C. § 1746, that the following is true and correct, and further that this declaration is made on my personal knowledge and that I am competent to testify as to the matters stated herein: 1. I am a Senior Associate Director in the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System. I am the senior Division official responsible for the Enforcement and Special Investigations Sections of the Division, as well as the Applications Section, and am the senior Federal Reserve official responsible for the coordination of Federal Reserve bank supervisory activities with the law enforcement community. In these capacities, I have extensive experience with regard to "prime bank" financial instruments and similar financial instrument investment frauds. This includes my preparation of the Federal Reserve's October 1993 and June 1996 advisories concerning prime bank fraud. The 1993 and 1996 advisories are combined and attached as Exhibit 1. The October 1993 advisory was also issued by the other federal financial institutions supervisory agencies, including the OCC and FDIC, and, in October 1993, the U.S. Securities and Exchange Commission issued its own "prime bank" alert to the securities industry based on the Federal Reserve's and other banking agencies' 1993 advisory. I have also testified on behalf of the Federal Reserve before the U.S. Senate regarding prime bank frauds in July 1996, and have testified on numerous occasions before federal, state, and British courts as an expert witness in criminal cases involving prime bank and similar financial instrument investment fraud schemes. 2. On March 27, 2001, I received and reviewed documents provided by the U.S. Securities and Exchange Commission relating to "Global Investors Group (C-03497)" and "In the Matter of Prime Bank Securities (HO 2820)". 3. One group of documents had a cover page on letter head of "First Financial Ventures, LLC" with the first page of the group entitled "Non-Solicitation and Request for Information" (Exhibit 2); one group of documents had a first page entitled "Cooperative Interest Agreement" (Exhibit 3); one group of documents on letter head of "First Financial Ventures, LLC" has a first page entitled "Member Update" (Exhibit 4); one group of documents had a first page entitled "Funds First 52 + 2" (Exhibit 5); one group of documents had a cover page entitled "An Introduction to the International Chamber of Commerce (Publications 500 and 600) Bank Debenture Trading Programs" (Exhibit 6); and a transcript of the February 9, 2001 testimony of Steve Eugene Thorn (Exhibit 7). As will be described in the paragraphs below, each of the groups of documents attached hereto as Exhibits 2 through 7 contain words, terms, and phrases that are not used in legitimate banking or commerce but rather are commonly used in fraudulent financial instrument scams or contain statements, especially regarding the functions of the Board of Governors of the Federal Reserve System, that are inaccurate, misleading, or false. A. Exhibits 2, 3, and 5 contains numerous words, terms, and phrases such as “Private Placement High Yield Investment Program", "Private Placement Bank Secured Investment program", "good, clean, cleared cash funds of non-criminal origin", "funds are good, clear and clean ... of non-criminal origin", "ready, willing and able", "Letter of proof of Funds", "banking days", "pay order", and "Payment Order", "top 25 Western European" banks, "conditional SWIFT” and “international banking hours” that are commonly used in fraudulent financial instruments schemes. The aforementioned words, terms, and phrases are not used in legitimate banking or commerce. B. Exhibits 2, 4, and 6 contain numerous incorrect, misleading or false statements about the Federal Reserve. For example, in Exhibit 2 there is a reference to the registration of a transaction with the "United States Federal Reserve Bank". First, there is no such entity; second, if the document meant to refer to the Board of Governors of the Federal Reserve System, then the statement is wholly false because no private investment transactions of any nature are "registered" with this agency. Exhibit 4 also contains many false references to the Federal Reserve, including statements that the Fed has released new documents in connection with a trading program of some sort, the Federal Reserve has approved an administrator, profits are released by the Fed each Monday, pay outs under the trading program are controlled by the Fed, the Fed has a guaranteed program of some nature, the Federal Reserve has a officer on the staff of a law firm, Fed programs are the highest paying programs, the Fed approves the payment of a 10 percent fee of some sort, and the Fed has contracted a trade. C. Exhibits 3, 5, and 6 contain totally inaccurate references to the International Chamber of Commerce (ICC), which are common hallmarks of fraudulent financial instrument scams. The ICC does not issue rules, or regulations, and does not issue publications mandating the non-disclosure of confidential information. D. Exhibits 3 and 4 describe investments yielding unrealistic rates of return with little or no risk, another major red flag for frauds of this nature. Exhibit 3 contains references to an $800,000 investment returning $6.4 million in 11 months, and a $200,000 investment returning $68 million in 14 days. Exhibit 4 contains a reference to a 250 percent return in 12 days. E. The astronomical rates of return referenced above are supposedly generated through the "trading" of financial instruments, such as medium term notes. There is no legitimate way to "trade" financial instruments to generate these returns. Legitimate financial instruments are generally bought and sold in public markets, with public quotes that are available to any purchaser or seller. It is extremely unrealistic to expect that any seller of a financial instrument will constantly and consistently sell its securities or debt obligations at well below market value, which would be required if the supposed "traders" referenced in the Exhibits attached hereto are to generate rates of return such as the 20 percent per month promised and described in Exhibit 3. F. Exhibit 6 contains numerous false statements about historical events associated with the world's economy, and about the functions and role of the Federal Reserve. I have reviewed numerous documents like Exhibit 6 that attempt to explain and legitimize financial instrument trading programs. Exhibit 6 is entirely nonsensical and phony. 4. The investment opportunities described in Exhibits 2, 3, 4, 5, and 6 sent to me by the SEC are completely bogus. 5. Mr. Thorn's statements concerning the Federal Reserve set forth in his deposition (Exhibit 7 at pages 152 to 154) are false. The Fed does not license "traders" or provide them with numbers, and the Fed does not have a program with a guaranteed profit range. I, Herbert A. Biern, do hereby declare under penalty of perjury, in accordance with 28 U.S.C. § 1746, that the foregoing is true and correct. Executed on the 27th day of March 2001. /s/ HERBERT A. BIERN
Executives indicted at bankrupt NY paper company 2003-03-11 00:09:25 GMT (Reuters) NEW YORK, March 10 (Reuters) - Federal authorities on Monday disclosed securities and bank fraud charges against executives of now-bankrupt American Tissue Inc., whose 2001 collapse cost investors and banks roughly $300 million. A former auditor for Arthur Andersen LLP also was indicted for allegedly shredding documents relating to privately held American Tissue, once the nation's fourth largest paper and tissue manufacturer based in Hauppauge, N.Y., according to the U.S. Attorney for the Eastern District of New York. The Andersen accounting firm, brought down in the scandal at its client Enron Corp. , was convicted last year of obstructing a government probe into the energy giant. In this case, four American Tissue employees, including former chief executive Mehdi Gabayzadeh, were accused of falsifying accounts, recording phony sales and filing fake financial reports that allowed the company to borrow heavily, prosecutors said. When American Tissue filed for Chapter 11 bankruptcy protection in September 2001, it owed $145 million to a syndicate of banks and lending firms, headed by LaSalle National Bank Association, and $160 million to bondholders. American Tissue had obtained a line of credit secured by inventory and accounts receivable and undertook an aggressive expansion strategy from 1999 to 2001 despite a depressed paper market, prosecutors said. But company executives had recorded some $25 million in phony sales which they cited as collateral, diverted tens of millions of dollars to pay other debts and inflated accounts receivable by falsely claiming it sold more than $20 million in inventory, prosecutors said. FRAUD SCHEME ALLEGED The fake accounts receivable were claimed in a 2001 filing with the Securities and Exchange Commission, they said. "The defendants' fraud scheme, when pared down to its essentials, was really quite simple," said U.S. Attorney Roslynn Mauskopf in a statement. "As American Tissue's business began to fail and its lenders became alarmed, the defendants created bogus accounts receivable to give the appearance of a profitable company and thereby allow the company to borrow even more investor funds. "This is a classic case of corporate greed, fraud and obstruction," she said. With the collapse of the company, which owned facilities and mills throughout the United States and Mexico and had 27 subsidiaries, many of its 2,700 employees lost their jobs, prosecutors said. Named in the indictment were Gabayzadeh, accused of securities fraud, bank fraud and conspiracy; former employee Ali Amzad, indicted for conspiracy and bank fraud; former indirect owner Super American Tissue Inc., indicted for bank fraud, wire fraud and conspiracy; and American Paper Corp., owned by Gabayzadeh and indicted for wire fraud. Former senior Andersen auditor Brendon McDonald was charged with obstruction of justice. McDonald had Andersen forward American Tissue documents to his home and arranged for a shredding company to destroy several bins of American Tissue documents, prosecutors said. If convicted, McDonald faces a possible sentence of 10 years in prison, a $250,000 fine and restitution. Authorities also revealed that former American Tissue chief financial officer Edward Stein pleaded guilty to securities and bank fraud charges and former vice president of finance John Lorenz pleaded guilty to conspiracy. If convicted on all counts, Gabayzadeh faces a possible 45 years in prison, fines and restitution payments, authorities said. Amzad faces a maximum of 35 years in prison and similar fines, while American Paper and Super American Tissue face 5 years probation, fines and restitution payments.
(continued) While it might appear to outsiders that the cases are moving slowly, legal experts say the reverse is true. "There has been a sea change in the speed at which the Department of Justice is moving with these cases," says Ronald H. Levine, a partner with the Philadelphia law firm Post & Schell PC and a former federal prosecutor. He says he's seen it take as long as two and a half years to put together similar cases, but that political pressure is causing the DoJ to move more rapidly. Levine says that getting convictions in both cases won't be easy for prosecutors. "To convict someone of fraud, you have to convince 12 members of the jury beyond a reasonable doubt that the defendant intended to cheat," says Levine. "You have to get inside the defendant's head." Robert A. Mintz, an attorney with Newark, N.J., law firm McCarter & English LLP and a former federal prosecutor, adds that the Enron case could prove particularly tricky for prosecutors since, so far, not many defendants are cooperating. Of the 19 individuals facing charges in the case, only 6 have pleaded guilty and are expected to help prosecutors. "There hasn't been a domino effect of people rushing to strike deals with the prosecution in exchange for leniency," says Mintz. -Joe McCafferty Accounting's Most Wanted Andrew Fastow Enron 10/02 Not guilty 109 charges, incl. securities fraud, money laundering, and mail and wire fraud. Released on $5M bond; awaiting trial. Money laundering alone could net a 20-year sentence. Scott Sullivan WorldCom 8/02 Not guilty Charges incl. bank fraud, securities fraud, tax evasion, and other charges. Released on $10M bail; trial scheduled for early 2004. Mark Swartz Tyco Int'l 9/02 Not guilty Conspiracy, bank fraud, securities fraud, tax evasion, and other charges. Posted $5m bail using Tyco stock. Faces up to 25 yrs. in prison. Tax-. evasion case goes to trial July 8. Weston Smith & William Owens HealthSouth Charged 3/03 Guilty Conspiracy, wire fraud, securities fraud, insider trading, and other charges. Cooperating with authorities in investigation of former CEO Richard Scrushy. Timothy Rigas Adelphia Comm. 9/02 Not guilty 24 counts, incl. conspiracy, wire fraud, and bank fraud. Could face up to 30 years in prison. Trial to start in 2004. Sources: Various Published Reports