Consultant Charged in Theft of $3.6 Million From Department of Education

former consultant hired to manage a large-scale project aimed at bringing Internet access to all New York City public schools was charged Thursday with stealing $3.6 million from the Department of Education, authorities said.

The charges marked the second time in less than a year that federal prosecutors accused consultants hired by the city of multimillion dollar thefts in connection with a high-profile technology initiative.

In December 2010, six people were charged for allegedly defrauding the city of $80 million allocated to a long-delayed computerized payroll system, known as CityTime.

In the most recent case, the former manager of Project Connect, Willard "Ross" Lanham, hired outside consultants, including his brother, at low rates and billed subcontractors at much higher rates, then "pocketed the difference," prosecutors said.

The money was redirected to his company, Lanham Enterprises, and was used to finance a lavish lifestyle that included $600,000 in luxury cars and to purchase and develop real estate on Long Island, prosecutors said. Mr. Lanham was eventually fired in 2008—two years after investigators received tips about the alleged fraud, prosecutors said.

Joseph Ryan, Mr. Lanham's attorney, said his client denies that he is guilty of wrongdoing and called him a "problem-solver extraordinaire on Project Connect and other DOE projects."

The complaint alleged that Mr. Lanham went to great lengths and enlisted the help of vendors to conceal the theft.

A report by the special commissioner of investigation for city schools, Richard Condon, alleged that Mr. Lanham convinced International Business Machines Corp. and Verizon, the two largest vendors involved in the project, to deal with him, not directly with the Department of Education. Mr. Condon's report said all of the vendors involved "profited, to some extent, from Lanham's scheme."

In separate statements, both IBM and Verizon said they were cooperating with the investigation. IBM said that none of its employees have been charged in the case, and that the company was misled by Mr. Lanham.

Verizon said its employees were "unaware of any wrongdoing in connection with the project" and that the company was prepared to return any "inappropriate profits."

Mr. Condon's report also criticized the DOE for giving Mr. Lanham complete control over the project while "no one exercised any oversight."

Newly appointed Schools Chancellor Dennis Walcott, in a statement, said his agency "should have been more vigilant in our oversight of this project."

"Since we severed ties with this contractor and reported his criminal activity in 2008, the Department of Education has established new safeguards to ensure that no contractor has oversight over his own projects," the statement said.

Mr. Lanham surrendered to authorities Thursday morning and was charged with one count of mail fraud and one count of theft concerning a program receiving federal funds. If convicted, he faces a maximum of 20 years in prison on the mail-fraud count and 10 years for the theft count, as well as a maximum fine of $250,000.

Mr. Lanham appeared in federal court in Manhattan briefly, where a judge informed him of the charges against him and agreed to a prosecution request for $250,000 bail.

During the hearing, U.S. Attorney Paul Krieger said Mr. Lanham has said he has "substantial debt."

The announcement of the allegations comes as schools face budget cuts and potential layoffs. In January, Mayor Michael Bloomberg and the City Council agreed to cut $4 million from IT consulting contracts at the DOE, to stave off the closing of 20 fire companies at night. At the same time, the DOE is set to increase technology spending to about $542 million in 2012.

 

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Fraud office looks at scamming of Sven-Goran Eriksson

The Serious Fraud Office is examining a con that took in Sven-Goran Eriksson and the North Korean government, BBC Panorama has learned.

Investigators are also looking at how the same conman stole a football club and broke a bank.

Convicted fraudster Russell King persuaded the former England manager to join Notts County FC as director of football and to visit North Korea.

Mr King denies any fraud and said he was just a consultant on the deals.

Mr Eriksson was appointed at Notts County in 2009 following a takeover that promised to bring millions of pounds of Middle Eastern investment.

"For me as a football man it was fantastic, building a club from the bottom of League Two and having the funding to do it, to be a Premier League club. It's like a dream, so I signed. Big mistake," he said of the deal.

Milk bill
The promised money never arrived and the club was left £7m in debt. Mr Eriksson says there were early signs that all was not as it seemed.

"I started to have doubts when they came and told me the milk bill has not been paid," he said.

 

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Con artists netted big-time financiers

woman with a previous fraud conviction, an elderly former shoe shop manager and a female accomplice who rose no higher than a private in the army conned "savvy professional investors" Mark Hotchin and Kerry Finnigan in a $15 million Rotorua-based Ponzi scam.

Mr Hotchin and Mr Finnigan together invested $680,000 of their personal money. They did so without doing their homework, handing over large sums despite commenting that there was "bugger all information" about the schemes.

Margarite Huia Papple, known as Lee, 56, and Tina West, 51, were jailed in 2005 for the maximum five years. Former shoe salesman Bill Papple, 74, was sentenced to two years.

The scam they ran from 2000 to 2002 was like a goldmine for them but one certain to end badly.

Before they launched the schemes in 2000, the Papples lived a modest life in a rented house. Their only asset was a piece of land on the Rotorua lakefront which they sold for $50,000 to get their new lives as high-rolling business people under way.

In the next two years Lee Papple spent $2 million raised from their victims on herself, husband and family.


The SFO listed these as:

* $1.4 million on building and furnishing a mansion in Rotorua

* $260,000 on general living expenses

* $186,000 on travel and accommodation

* $33,700 on jewellery

* $60,000 on art

* $7260 on a cloak

* $279,000 on a house for her son.

Prosecutor Philip Morgan, QC, told the Rotorua District Court that a suggestion West had not spent lavishly was misleading. In 2002 alone she had taken $818,000 from the two companies the schemes were operated through. Some had gone to pay interest to out-of-pocket investors in a previous company she was involved in but the SFO did not have access to her Australian bank accounts and so did not know what she spent the rest on.

The trio spent a quarter of the money the scam raised on themselves, half on paying so-called interest to investors and a quarter on "ridiculous" schemes they found on the internet, the court heard during the 2004-2005 case.

That the scam operators were themselves victims of more "sophisticated criminals" based overseas did not mean they could wash their hands of the lies they told their investors, Mr Morgan said.

They worked hard to keep up the facade that their companies were hugely successful.

Lee Papple, a Mormon, self-assured and confident, and her outgoing and friendly husband were able to get people to place their faith and trust in them and their money in their hands. What those who were duped were unlikely to have learned from Lee Papple was that she had fraud convictions from 1996 under a previous name, Marguerite Huia Seymour.

As a life insurance agent she admitted she entered bogus superannuation contracts that earned her commission of $12,000.

 

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Former Arcade Building owner gets 13 years for fraud

Steven Byers, the former president and CEO of the company that once owned the historic Arcade Building in downtown Riverside, was sentenced to more than 13 years in federal prison on Monday for his part in a securities fraud scheme that bilked investors out of millions.
Judge Denny Chin sentenced Byers, the former head of Wextrust Capital LLC, to 160 months in prison at a hearing held April 11 in New York City. Byers in April 2010 pleaded guilty to two felony counts of securities fraud.
"Steven Byers used smoke and mirrors to defraud his investors out of millions of dollars," said U.S. Attorney Preet Bharara in a statement. "But his scheme was ultimately exposed for the sham that it was, and now he will be punished severely for his crimes."
Court documents reveal the extent of the Wextrust scheme, which played out between 2003 and 2008. Byers and his co-defendant in the case, Joseph Shereshevsky, began raising money from investors for various private offerings, including the purchase of real estate.
A subsidiary of Wextrust Capital purchased the Arcade Building in Riverside in December 2004 for $3.1 million and quickly unveiled plans to turn it into a mixed-used commercial/condominiums development.
The plan was bogged down and the scope of the development changed over the next couple of years. In August 2008, when work had begun on some aspects of the building's renovation, it suddenly ground to a halt when Byers and Shereshevsky were charged with securities fraud.
While Wextrust did buy the Arcade Building and several other properties, it failed to invest millions of dollars as promised. In one instance, the company raised $9.2 million to buy seven commercial properties leased to the U.S. General Services Administration. The company also took out a $21 million mortgage to help cover expenses for buying and operating the properties.
In the end, none of that money was used to buy or operate the properties, a fact never told to investors.
"Byers and others later agreed to make up a story that they would then tell the GSA investors regarding what happened to their investment," according to a press release issued by the U.S. Attorney's Office on April 11.
The Arcade Building, completely vacant by January 2009, was mired in the Wextrust lawsuit for six months, when Chin returned the property to the mortgage holder. However, it would be another year before the Arcade Building would find a buyer in Giuseppe Zappani, who has been restoring the building.
In addition to the prison time, Byers was order to pay restitution totaling $7.7 million and forfeit the $9.2 million his company was given by investors for the GSA properties.
Shereshevsky, who pleaded guilty in February to similar charges, is scheduled to be sentenced on May 13.

 

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Israel's attorney general moved Wednesday to possibly indict Foreign Minister Avigdor Lieberman on fraud and other corruption charges,

Israel's attorney general moved Wednesday to possibly indict Foreign Minister Avigdor Lieberman on fraud and other corruption charges, capping a decade-old investigation into the leader of the hawkish Yisrael Beiteinu party.

The announcement of the top justice official's intention to indict raised questions about the political future of Lieberman, who many suspect was preparing to challenge Israeli Prime Minister Benjamin Netanyahu in the next election.

The case also could destabilize Netanyahu's government; Lieberman has the power to bring down the coalition by withdrawing his party's adherence, though he has said that he does not intend to do so.

Under Israeli law, Wednesday's announcement begins an indictment process that still must be finalized. Lieberman has the right to request a hearing before that happens, which could take until fall to complete.

For years Israelis have been speculating about whether Lieberman, an ultranationalist Moldovan native who draws large support from Russian immigrants, would face criminal charges in an investigation that has focused on allegations that he received millions of dollars through fictitious companies set up while he served in other government posts.

The statement that Atty. Gen. Yehuda Weinstein issued Wednesday said Lieberman could face charges of fraud, aggravated fraud, breach of trust, money-laundering and harassing a potential witness. An earlier accusation of bribery was not included in the draft indictment.

Lieberman has consistently denied the allegations, calling the probe a political witch hunt. "I have always abided by the law and I have no reason for concern," he said Wednesday. "I am a man of my word."

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FrontPoint portfolio manager charged with securities fraud

Joseph F. “Chip” Skowron, FrontPoint Partners portfolio manager, was charged with conspiracy and securities fraud as part of a U.S. crackdown on so-called expert networks.

Mr. Skowron surrendered on Wednesday to FBI agents at their New York office, said James Margolin, an FBI spokesman. He also was charged with insider trading by the SEC, according to a news release from the commission.

Information Mr. Skowron obtained from an insider about hepatitis C drug trials enabled him to avoid more than $30 million in losses in the six now-closed FrontPoint Healthcare Funds he once managed, prosecutors said.

He was named in a three-count felony complaint unsealed Wednesday in U.S. District Court in New York, charged with conspiracy to commit securities fraud, securities fraud and conspiracy to obstruct justice.

A lawyer for Mr. Skowron couldn't be immediately identified.

Mr. Skowron is linked to a case brought in November by U.S. Attorney Preet Bharara and the SEC against Yves Benhamou, an expert in hepatitis drugs and a former adviser for Human Genome Sciences Inc., prosecutors said.

Mr. Benhamou acted as a paid consultant to hedge funds while working as an adviser to HGSI and serving on its steering committee for Albuferon trials, according to federal allegations. The U.S. case alleged that Mr. Benhamou shared inside information with an unidentified co-conspirator at a hedge fund. The government on Wednesday identified Mr. Skowron and FrontPoint as the recipients of Mr. Benhamou's tips, court papers said.

Mr. Benhamou pleaded guilty on Monday before U.S. District Court Judge George Daniels in New York to conspiracy, securities fraud, conspiracy to obstruct justice and making false statements to the FBI, said Ellen Davis, a spokeswoman for Mr. Bharara's office. He has agreed to cooperate with prosecutors, according to a plea agreement unsealed Wednesday. No sentencing date has been set. Securities fraud carries a term of as long as 20 years in prison.

Among other allegations by federal authorities, Mr. Skowron paid Mr. Benhamou more than $14,600 in cash as well as other gratuities such as hotel rooms and expenses.

As part of an amended complaint filed by the SEC on Wednesday in U.S. District Court in New York, FrontPoint agreed to pay more than $33 million in disgorgement and interest, without admitting or denying wrongdoing, the SEC said in its news release.

The FrontPoint Partners-SEC settlement was confirmed in a Wednesday client letter that was obtained by P&I Daily.

“The announced agreement with the SEC amounts to a resolution of this matter. Our decision to settle this matter eliminates any future distractions from our focus on investing. It is also very important to note that the alleged conduct of the former portfolio manager is completely contrary to FrontPoint's principles and represents a clear violation of FrontPoint's policy against insider trading,” FrontPoint co-CEOs Daniel Waters and Michael Kelly, who also is CIO, wrote in the client letter.

The FrontPoint letter stressed that the settlement was funded with money set aside before the firm's separation from former parent company Morgan Stanley.

 

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