Fourth Circuit Hands Task Force Small Setback

The Fourth Circuit reversed the money-laundering convictions (subscription required) of Adley Abdulwahab yesterday, and vacated his 60-year prison sentence.  Although the Court affirmed his mail fraud and securities fraud convictions, it remanded the case back to the district court for re-sentencing in light of the reversals.

Abdulwahab was a key player in the Virginia Financial and Securities Fraud Task Force’s first case, when the government charged three principals of A&O Resource Management and related entities with a $100 million life settlement fraud in September 2010.  Abdulwahab used money derived from the fraud to pay commissions to sales agents who procured new investors for A&O.  The commissions formed the basis of the money-laundering counts.

The Fourth Circuit held that these commission payments did not amount to money laundering because they were for “services that played a critical role in the underlying fraud scheme,” and therefore represented evidence of the fraud, and not an additional criminal act.  The ruling is a small loss for the Task Force, whose case against Abdulwahab was largely affirmed.  The Fourth Circuit previously affirmed the conviction of Christian Allmendinger, the former President of A&O.

Meanwhile, the Task Force secured another conviction after a five-day jury trial in March.  Michael Harris was found guilty of securities fraud, wire fraud, and mail fraud for his role in a $700,000 fraud perpetrated by M.F. Harris Research Inc.  MFH solicited investors for its research into HIV/AIDs treatments, but diverted investments to Harris’s personal use.  After trial, Neil MacBride, the United States Attorney for the Eastern District of Virginia, praised the conviction as another example of the Task Force’s success.

Former FBI Agent Charged in Task Force Investigation

The Virginia Financial and Securities Fraud Task Force investigated an alleged investment fraud scheme at central Virginia-based Brook Point Management that led to charges against its president, John R. Graves and his wife, Sara T. Graves.  Neil MacBride, U.S. Attorney for the Eastern District of Virginia, announced the grand jury indictment, which was unsealed yesterday.  John Graves is a former FBI special agent, who resigned in 1999.  Mr. and Mrs. Graves allegedly raised client funds for legitimate investments, only to misappropriate the funds for their own purposes.  They allegedly used Mr. Graves’ status as a former FBI agent to gain investors’ trust.

The defendants and the alleged victims of the fraud are all domiciled in central Virginia.  Thus, the Task Force does not face the jurisdictional issues that were anticipated for out-of-state defendants, such as in the Task Force’s first case, U.S. v. A&O Resources, Ltd. et al.

The Task Force has seen an uptick in activity recently, with the charges against the Graves coming on the heels of another investment fraud case, U.S. v. Watson, in which Alan James Watson pleaded guilty to losing $40 million of his clients’ money in undisclosed, high-risk investments.  The Task Force also recently filed a superseding indictment in U.S. v. PCI, a $670 million fraud case that was originally brought in January 2011.

Task Force Continues Targeting Out-of-State Defendants

Yesterday the Virginia Financial and Securities Fraud Task Force announced another success when it uncovered an investment fraud that lost tens of millions of dollars.  Neil MacBride, the United States Attorney for the Eastern District of Virginia, disclosed a guilty plea from Alan James Watson, who solicited and accepted $40 million in investment funds from 750 investors before “losing nearly all of it through non-disclosed, high-risk investments.”  The case again demonstrates the Task Force’s commitment to bringing cases against out-of-state defendants in the Eastern District of Virginia.  The Task Force’s first case involved a $100 million corporate fraud headquartered in Texas, while the second case was a $670 million fraud case against defendants from Costa Rica and New Jersey.  The Task Force’s latest target hails from Clinton Township, Michigan.

Just as in its earlier cases, the Task Force alleged jurisdiction in the Eastern District of Virginia because the fraud involved investors from this district.  According to the criminal information, prosecutors relied on a single email to an investor in Virginia to secure jurisdiction, although prosecutors may have had additional facts tying the fraud to Virginia that they did not allege.  In U.S. v. A&O Resources Ltd., et al., Judge Payne denied the defendants’ motion to transfer venue to Texas, and their cases were heard in the Eastern District of Virginia.  Because Watson has already pleaded guilty, the Task Force’s chosen jurisdiction and venue have not been challenged by Watson.

This new case also demonstrates the Task Force’s amenability to parallel prosecutions.  The Commodity Futures Trading Commission has filed a parallel civil suit against Watson in the Eastern District of Michigan, which is ongoing.  And as we have blogged previously, the Task Force’s investigation against Provident Capital Indemnity led to a criminal proceeding, U.S. v. PCI, and a parallel, civil proceeding, SEC v. PCI, both currently ongoing in the Eastern District of Virginia.

The Watson guilty plea comes on the heels of other recent activity by a local, multijurisdictional Task Force: the Newport News Financial Crimes Task Force.  The Newport News Task Force recently led an investigation that resulted in 14 defendants from the Virginia peninsula being charged with financial fraud crimes.  The Newport News Task Force is distinct from the Virginia Task Force, and further activity from both should illuminate their respective roles and relationship.

U.S. Attorney Neil MacBride: Virginia Task Force’s First Year a Success

As we enter the second year of operations for the Virginia Financial and Securities Fraud Task Force, we had the opportunity to sit down with the U.S. Attorney for the Eastern District of Virginia, Neil MacBride, to discuss the Task Force.  U.S. Attorney MacBride has been the spokesman for the Task Force, announcing its creation, discussing its operations and goals, and releasing Task Force news.  The Virginia Task Force has brought two cases so far: United States v. A&O Resources Ltd. et al. and United States v. Provident Capital Indemnity et al. (with a parallel civil action captioned SEC v. Provident Capital Indemnity et al.).  The first case resulted in multiple guilty pleas and jury verdicts, while the PCI defendants still await trial.  Do these two cases qualify as a success?  U.S. Attorney MacBride told us that both of these cases are “significant” and that he thinks the Virginia Task Force “is having an impact.”

Perhaps more important than how many cases have been brought are the types of cases that the Task Force has pursued so far.  Both A&O and PCI involved large-scale frauds related to life insurance settlement funds.  It may be surprising to some that the Virginia Task Force has not focused on the types of fraud that played a role in the mortgage meltdown and financial crisis.   A McGuire Woods white-collar blog, Subject to Inquiry, blogged the announcement of the Task Force last year and noted: “The public demanded action in response to the financial crisis and the government promised a swift and aggressive response.  The Eastern District’s announcement is the latest evidence of the government’s preparations to punish financial fraud with its full weight.” 

According to U.S. Attorney MacBride, though, the Task Force is not solely focused on financial crimes associated with the financial crisis:

One thing we’ve seen is that fraud comes in many sizes and shapes.  As we’ve seen, when fraud hits Main Street, it’s often mom and pop investors and we saw that in the A&O case and again in the PCI case.  It is like if a big bank is robbed or a bunch of little banks or a bunch of medium-sized banks, fraud is fraud.  If you’re an elderly retiree who sees your life savings drained by a swindler, no matter if it’s a mortgage-backed security or a hedge fund, it has the same impact for the people that live on Main Street.  We’re agnostic about the particular type of fraud.”

As a “boots-on-the-ground,” operational arm of the national Financial Fraud Enforcement Task Force, the Virginia Task Force wants to bring cases in Virginia that otherwise would have been brought elsewhere.  And, according to the U.S. Attorney, A&O Resources and PCI are examples of this approach.  The A&O Resources case was initially investigated by civil regulators in Texas, but “they were impressed by what they saw with the Virginia Task Force so they brought the case to us.”  The case was then brought in the Eastern District of Virginia instead of Texas.  Indeed, both A&O Resources and PCI “likely would have been brought elsewhere, but for the Virginia Task Force.”

U.S. Attorney MacBride said he expects the Virginia Task Force to continue bringing national impact cases, using creative, covert means to investigate and prosecute financial fraud in all its forms.  Our blog will continue to report on the activities of the Virginia Task Force.

Virginia Task Force Wraps Up First Case with Another Conviction

Update @ 1:30pm June 13, 2011: The U.S. Attorney for the Eastern District of Virginia, Neil MacBride, and the Assistant Attorney General of the Criminal Division of the DOJ, Lanny Breuer, have issued a press release regarding the Adbdulwahab conviction.  U.S. Attorney MacBride comments that “[t]his case, involving victims in dozens of states, clearly demonstrates that a national fraud case can have real implications to everyday people. That is why we created the Virginia Financial and Securities Fraud Task Force last year to go after national cases that impact ordinary citizens on Main Street as well as Wall Street.”  This echoes his comments from last year, when he told the Directors Roundtable Institute Program that the Task Force was focused on bringing national fraud cases in Virginia.

 The Virginia Financial and Securities Fraud Task Force secured the conviction of Adley Abdulwahab on Friday, June 10, 2011, on charges of securities fraud, money laundering, and conspiracy, wrapping up the final leg of its first case, U.S. v. A&O Resources Ltd. et al.  The first two individual defendants, Christian Allmendinger and David White, are already awaiting sentencing.  Mr. Allmendinger was convicted by a jury in March; we blogged about that outcome here.  Mr. White pleaded guilty in February, which we blogged here.  Mr. Abdulwahab was the last named individual defendant in the $100 million insurance fraud case brought by the Task Force in September 2010.

The Task Force’s focus on bringing cases in the Eastern District of Virginia, known as “The Rocket Docket,” appears vindicated.  A little more than nine months has passed since the indictment against A&O Resources Ltd. and its three principals was unsealed in September.  The average wait for a criminal trial in the Eastern District is 5 months, and the government completed two jury trials in nine.  In fact, the government moved more expeditiously with its second jury trial, a strategy we previewed here.  While the trial against Mr. Allmendinger lasted 10 days, Mr. Abdulwahab’s only lasted three.  The government’s confidence seems to have been well-placed, though, as the Abdulwahab jury returned guilty verdicts in less than one day of deliberation.

Still pending is the Task Force’s second case, which has parallel criminal and civil prosecutions in the Eastern District of Virginia, captioned U.S. v. Provident Capital Indemnity, Inc. et al. and SEC v. Provident Capital Indemnity, Inc. et al., respectively.  Trial is currently scheduled for the two named defendants, Minor Vargas Calvo and Jorge Luis Castillo, in February 2012.  That case was originally scheduled for trial in April 2011 before the defendants successfully moved the court to reschedule.