MSA Investigations Blog

Erasing the Money Trail via Layering

Posted by John Maguire on Mon, Sep 15, 2014 @ 10:00 AM

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There are three steps that each criminal takes in order to successfully launder his or her money. First, the schemer must go through the placement process. This is the point in which the dirty money is introduced to the financial system; for instance, a bank deposit. The second step in the process is the structuring of the tainted funds so that it is difficult to ascertain the  point of placement, commonly called layering. More on this to follow. Finally, integration is the conversion of the illegally obtained funds into legitimate assets, i.e. real estate, art, diamonds, etc.

The focus of this blog is the middle stage in the laundering process or better known as layering. Layering is probably the most complicated step in the money laundering process because it consists of multiple transactions and money movements between accounts. It is designed to befuddle investigators researching the trail of illicit funds. The reselling of high valued goods, buying and selling stocks and bonds, and converting account holdings into money instruments are a few other examples of layering.

However, wiring funds to and from different institutions and jurisdictions may be the most common method of layering. Although, banks have many controls in place to trace funds and prevent wires from transferring to certain suspicious accounts, wires are still a fast and easy way for launderers to move their money. Structuring is a highly popular form of layering. It is the processing of financial transactions just under the threshold which jurisdictions set for reporting purposes. These thresholds vary depending on the jurisdiction.

Criminals regularly probe the regulatory landscape for new and undetectable ways to hide their money. Broker-dealers are vulnerable to money laundering due to the high volume of trades conducted and the variety of financial products offered to clients. Wash trading and spoofing are two methods of layering in a broker-dealer setting. Wash trading consists of the launderer using illicit funds and taking a long position in one stock and a short position in that same stock, usually at a different broker-dealer. Aside from the cost of the trades, the launderer normally breaks even and receives a clean check once the position closes. Spoofing is the practice of placing limit orders and cancelling them just before the stock reaches the strike price. The cancellation would have an adverse effect on the stock and the launderer could place an order to benefit.

Cuckoo smurfing is another form of layering. This technique requires the work of an “insider” at a money remitter, an innocent bank customer and a transfer of funds. The “insider” receives an order to send money to an overseas account. The account information of the beneficiary is supplied to the launderer by the “insider.” The initial “clean” funds being sent are redirected into the launderer's account giving he or she a legit source of cash and the illicit money provided by the launderer is deposited into the innocent beneficiary’s account. Cuckoo smurfing has been predominantly a European practice, however, U.S. regulators have seen an increase in third party deposits in recent years.

As newer, faster and easier ways to transfer money are introduced, criminals will be looking for loopholes to exploit them. Venmo is one such product. It is a mobile app which allows peers to transfer funds freely among each other in amounts up to $2,999.99 per week. There have already been issues with these payment systems however, there are ways to prevent launderers and other criminals from exploiting systems and their users. Knowing your customer is paramount in any anti-money laundering initiative. The more information gathered and verified by these pay sites, the easier it is to identify a culprit.

For more information please contact MSA Investigations.

Tags: Fraud, investigator, laundering

[UPDATE 2] Massive CityTime Fraud: Red Flags Were Ignored (Part 2)

Posted by MSA Investigations on Thu, Jul 17, 2014 @ 08:00 AM

This is Part 2 of 2 of a mini-series on the epic fraud committed right under the noses of the public and the City of New YorkRead Part 1 here.


UPDATE (July 17, 2014):

On July 15, 2014, Svetlana Mazer, Mark Mazer’s wife, was convicted for obstruction of justice.  The court sentenced Svetlana Mazer to three years of probation and ordered her to complete 200 hours of community service. 

Larisa Medzon, mother to Svetlana, was convicted for structuring transactions to evade reporting.  Medzon was sentenced to six months of home confinement, three years of probation, and ordered to complete 200 hours of community service.

Anna Makovetskaya, Mark Mazer’s distant cousin, was convicted for conspiracy to defraud the United States.  Makovetskaya was sentenced to three years of probation and ordered to complete 200 hours of community service.


UPDATE (April 29, 2014): 

On April 28, 2014 Mark Mazer, Gerard Denault, and Dimitry Aronshtein were each sentenced to 20 years in prison and ordered to forfeit $40 million in cash and property.

Co-conspirators, Svetlana Mazer, Mark Mazer’s wife; her mother Larisa Medzon; and Anna Makovetskaya, Mark Mazer’s distant cousin, all pleaded guilty on June 19, 2013 and their adjournment for sentencing is slated for June 24, 2014.

Carl Bell reportedly co-operated with investigators and pleaded guilty on June 14, 2011.  His sentencing records are sealed.

Victor Natanzon also reportedly co-operated with investigators and pleaded guilty on February 8, 2011.  No sentencing information is currently available.

Scott Berger, co-conspirator and defendant in the case, died of an apparent heart attack on December 19, 2010.


As discussed in Part 1, this $700 million scandal could not have been possible if it were not for a few key players and their ability to influence, authorize, and conceal illegal activities. Once these individuals laid the groundwork to defraud the City they began recruiting others to aid in the scheme.

The Schemes

According to court documents, around 2003, Gerard Denault (SAIC’s Program Manager on the CityTime project) and Carl Bell (SAIC's Chief Systems Engineer in New York City) recommended that SAIC (the lead project developer on the CityTime project) hire TechnoDyne LLC, wholly owned by Reddy and Padma Allen (CEO and CFO respectively) as a subcontractor to assist in the CityTime project.  In turn, the Allens agreed to pay Denault and Bell each $5 for every hour worked by a CityTime consultant hired by or through TechnoDyne, and thus these kickbacks created an incentive for the perpetrators to increase the project labor as much as possible.

fed court mark mazer citytime

Mark Mazer

Perhaps as a method to create another layer of concealment, around 2005, Mark Mazer (a third party consultant and subject matter expert on the CityTime Project) and Denault, among others, caused the Allens and TechnoDyne to hire D.A. Solutions, Inc. as a sub-subcontractor on the CityTime project. The owner of D.A. Solutions was Dimitry Aronshtein, Mark Mazer’s uncle. This familial relationship was apparently not disclosed to project officials. 

The following year, Mazer and Denault, among others, caused the Allens and TechnoDyne to hire yet another sub-subcontractor, Prime View, Inc., whose owner was Victor Natanzon.  Both of these sub-subcontractors agreed to pay kickbacks to Mazer.  Initially, Natanzon agreed to pay Mazer 80 percent of Prime View’s profits on CityTime.  Perhaps not satisfied with this deal, over time, Mazer demanded an even larger share of the profits. 

With these two sub-subcontractors in place and with illegal proceeds flowing into Mazer's and the Allen's pockets, prosecutors allege that Mazer and the Allens agreed to pay Denault an additional $2 for every hour billed by D.A. Solutions and Prime View.

Around 2005 and 2006, Mazer and Denault, among others, used their influence to recommend an amendment to SAIC’s CityTime contract, in which the City agreed to change the agreement from a “fixed price” contract, which SAIC would bear “the responsibility of absorbing cost overruns,” to a “fixed price level of effort” contract, “so that the City, and not SAIC, would largely become responsible for future cost overruns.”

According to court documents, after the contract amendment, the co-conspirators allegedly upped the ante and significantly increased the staffing on the project. In 2005, less than 150 consultants worked on the project.  In 2007, the number of consultants increased to more than 300; most of them hired by TechnoDyne. This hiring spree occurred in spite of an internal memo by Denault that indicated that the program "was staffed adequately to meet both current and projected contract needs.”

Based on interviews with former employees, investigators claim that the scheme also extended to fraudulent time sheets and ghost employees.  In one interview, a former employee claims to have witnessed time sheets, which were submitted to the City for billing, that were fraudulently completed for work conducted, when in fact the consultant in question was on vacation or had been already terminated. The same former employee alleged that when he/she was notified of his/her termination, Aronshtein, owner of D.A. Solutions forced the employee to sign two weeks' of new time sheets in order to receive severance pay.  Investigators believe these blank time sheets with the employee's signature would subsequently be completed and submitted, following the employees' termination, for work that had not actually occurred.  Mazer and a colleague, Scott Berger, purportedly acted as supervisors and knowingly approved these fraudulent time sheets.

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Gerard Denault

The Concealment

Prosecutors allege that conspirators withdrew cash through ATM transactions at multiple banks for amounts under the threshold for which a currency transaction report needs to be completed, avoiding possible anti-money laundering detection; transferred their illegal proceeds to foreign banks in India and Latvia; and deposited kickbacks to shell companies formed by the perpetrators and their family.  Prosecutors accused Mazer's wife and his mother of forming some of these shell companies that received kickbacks to add layers of complexity to the fraud and to further conceal Mark Mazer's involvement.

In total, between 2003 and 2010, TechnoDyne allegedly received at least $450 million in connection with the CityTime project. Sub-subcontractors, D.A. Solutions and Prime View reportedly received $55 million between 2005 and 2010 and $20 million between 2006 and 2010 respectively. Prosecutors stated, "virtually the entirety of the well over $600 million that the City paid to SAIC on the CityTime Project was tainted, directly or indirectly, by fraud."

Denault is reported to have received $9 million in kickbacks and Bell $5 million. Dimitry Aronshtein of D.A. Solutions and Victor Natanzon of Prime View allegedly paid Mark Mazer $25 million in kickbacks.

Red Flags

So how was this fraud allowed to continue for nearly seven years, even when the original budget for the project ballooned to an absurd number? Perhaps performing some very basic due diligence and exercising tighter internal controls may have uncovered the scheme sooner. 

According to court documents, D.A. Solution's revenue from the CityTime Project represented almost 100 percent of the company's income and Prime View's portion totaled 75 percent, after they were hired and up until the scheme unraveled.

News outlets reported that in 1994, Mark Mazer was investigated by the FBI while working at City’s Administration of Children’s Services division after millions of dollars went missing in the division he supervised. The media claimed that foster-care checks were being issued without proper supporting documents and approximately $2 million went missing. Mazer was never charged; however, he was barred from the room that wrote the checks and his salary was lowered from $43,925 to $34,537.

In 1995 and 1996, allegations against Mazer were made for sexual harassment. The victims eventually received payment from the City.  Mazer was again under investigation when two city laptops were stolen in 1998, though he was not charged. The media also reported that he was arrested on petty larceny charges in 1999, though the case is sealed.

SAIC, a Fortune 500 company and a major government contractor, receives billions of dollars in revenue from its contracts, so how did they allow TechnoDyne to be hired as their major subcontractor for this project?  Court documents show that upon Denault's recommendation and denial of any conflict of interest, TechnoDyne did not have to undergo any competitive bidding process to win the contract and was retained as a "sole source" contractor.

In one damning piece of evidence, according to court documents, in 2005 SAIC received a whistle blower complaint alleging that subcontractor TechnoDyne was receiving an inordinate amount of work from SAIC on the CityTime project and claimed contract mismanagement and allegations of Denault receiving kickbacks. Despite SAIC's internal investigation, TechnoDyne continued to reap a large amount of the work, about 74 percent of the overall total paid to SAIC for the CityTime project, compared to 14 percent to all the other subcontractors and vendors combined.

City officials are also partly responsible for ignoring the warning signs  According to published media, during Bill Thompson's tenure in office as city comptroller from 2002 to 2009, he failed to audit the CityTime program despite the program's growing costs.  Instead, on seven ocassions he authorized amendments to the program's contract allowing the program to use more and more of the taxpayers' money.

In July 2008, the OPA internally audited the program and discovered several instances where consultants had been collecting paychecks weeks after they had been terminated, costing taxpayers $145,000.  According to news articles, Thompson's office was aware of the OPA audit and had been requested to investigate further.  However, no further action was taken until 2010, when Thompson was succeeded as city comptroller by John Liu.  As discussed in Part 1 of this series, the subsequent audit found that the program was mismanaged.


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Reddy and Padma Allen


Eventually, the scheme was discovered in June of 2010, when a former consultant on the CityTime project came forward and informed the City's Department of Investigation that the consultant was being paid by D.A. Solutions rather than SAIC and TechnoDyne. DOI then learned that D.A. Solutions did not have contractual rights to receive payment for the CityTime project, which led to several interviews with other former consultants and eventually revealed the fraudulent time sheet scheme.

On November 22, 2013, Mazer, Denault, and Aronshtein were convicted for their involvment in the fraud, as have all of the defendants that have been charged in the CityTime scandal. The Allens have fled to their native India, where, with the $39 million it is believed that they embezzled, will be quite comfortable as fugitives. News articles report that at their sentencing in March 2014, both Mazer and Denault will face life in prison.

Although SAIC paid back $500 million this was a huge embarrassment for the City and officials.  A project meant to create efficiency and prevent waste and fraud turned into a decade long debacle resulting in one of the largest fraud cases in New York history.  One can only hope that the City has learned from its mistakes and will conduct its own due diligence to prevent future recurrences.


To learn about MSA Investigations' fraud investigation, monitorship, and due diligence capabilities, contact us today.

Photo Credits: NY Daily News

Tags: Fraud, CityTime, Due Diligence

Anti-Money Laundering: Quality Control on a Global Scale

Posted by John Maguire on Mon, Mar 17, 2014 @ 07:15 AM

Every company wants to grow; whether its a start up or a well-established name within an industry, progress is a primary goal.  However it is important to remember that growth can be more complicated than it seems, and can more often than not lead to chaos in one form or another. Take the banks for example.  The wrap many institutional banks are getting these days is that they are too big to accurately monitor transactions. Many of these banks are in, or have been through, lengthy and costly money laundering court cases.

The latest of the big banks to fall victim is Citibank, which is now embroiled in a $400mimagesCAMXO6F8 resized 600 fraud investigation in Mexico. Banco Nacional de Mexico, known as Banamex, Citigroup's Mexican unit, is trying to recover money from Oceanografia, an oil contractor based in Mexico City. Oceanografia is the largest contractor utilized by the state-owned oil conglomerate, PEMEX. However, due to recent events Mexican Attorney General, Jesus Morillo Karam, began to suspect that money laundering may have been occurring within Oceanografia and Banamex. 

PEMEX has a long-standing relationship with Oceanografia, which has won over $2B in domestic and international bids since 1999. Yet, Oceanografia's CEO, Amado Yanez, reported just $50M in the company's accounts earlier this year and further indicated that they were going to default on loan payments to Banamex. According to media reports, Banamex apparently loaned Oceanografia the nearly $400 million based on falsified invoices to PEMEX.  Once Oceanografia was unable to pay down the debt it had been accruing since 2008, authorities took notice.  As a result, Citigroup began to investigate its financial ties to the company and found that "only $185 million of the collateral backing $585 million of loans could be verified", according to a statement from the company obtained by Bloomberg News.  They then had to adjust their 2013 profit to reflect the missing money, from $13.91B to $13.67B. 

It has been reported that Oceanographia has been suspended from bidding on government contracts for almost two years as a result this violation; contracts with Penmex amount to approximately 97% of their revenue.  Oceanografia has also had their assets seized by Mexican law enforcement officials.

The International Business Times quoted Mr. Karam as saying  “money laundering can start with the initial crime of fraud, but it does not stop there.” As evidenced by this case and reiterated by Mr. Karam, the effects of money laundering are more far-reaching than we may think. The day Citigroup announced the over $250M hit to its 2013 profit, shares dropped $.06. While this may not seem like a lot, it could make a very large difference to an investor who is heavily leveraged. Other significant consequences of money laundering can be (and certainly were in this instance):

  • Deterioration of legitimate businesses
  • Erosion of the financial sector
  • Reduction in government revenue
  • Increased crime and corruption

Though the investigation is just getting under way and all the facts have yet to come out, it should go without saying that a good way to help mitigate future headaches, such as lawsuits and loss of income, when engaging in large-scale business transactions is to do your due diligence. This would include making sure a prospective client or partner meets the following criteria:

  • Good Standing
    • A company is in good standing if it complies with the rules of its charter.
  • Quality Financial Situation
    • Entering into a transaction with an individual or entity in the midst of financial trouble could have a negative financial or reputational impact on your business.
  • Sufficient Assets
    • When entering into a sizable transaction it is extremely important to gauge the value of assets (as well as any debts) held by the other party, in the event they are needed as collateral.
  • Operates with All Required Licenses and Permits
    • Most businesses need licenses and permits to legally operate. These should be current and have no disciplinary or regulatory sanctions noted.
  • Positive Financial and Legal History
    • An individual or entity with significant legal (civil and criminal) or negative financial history would require further investigating.
  • Insurance Coverage
    • It is always best to enter into a transaction with an insured business.
  • No Derogatory Articles and/or Publications
    • Conducting media searches regarding a potential partner can only assist you when entering into a massive business deal.  Oftentimes information contained within the media can lead to discoveries where you may not have thought to look.

 John Maguire is an Investigative Analyst with MSA Investigations.

Tags: investigations, Fraud, Due Diligence, investigation, money laundering, lawsuit, bank, oil companies, international, quality control

Tax Fraud: 12 Scams You Should Beware of in 2014

Posted by Melissa Rodriguez on Mon, Mar 10, 2014 @ 07:00 AM

Tax FraudLast week, the Internal Revenue Service (“IRS”) issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a variety of schemes. Identity theft and telephone scams top this year’s list as it did in 2013 and 2012. The IRS warns that many of these cons peak during filing season as people prepare their returns. According to the latest report, more identity thieves are looking for ways to get their hands on personal information.  Once the information is obtained, they will file a tax return as the unsuspecting victim and claim the refund for themselves.

The following Dirty Dozen tax scams were identified for 2014:

1.      Identity Theft

This occurs when someone uses your personal information, such as your Social Security number, to file a fraudulent tax return.

2.      Telephone Scams

Callers pretending to be an IRS representative solicit personal information in hopes of stealing money or identities from victims.

3.      Phishing

Victims will receive an unsolicited email from what appears to be the IRS. The email will direct recipients to a dummy website posing as a legitimate IRS site in an attempt to lure potential victims and get them to provide valuable information.

4.      False Promises of “Free Money” from Inflated Refunds

Posing as tax preparers, offenders entice their victims by promising large federal tax refunds; using flyers, advertisements, and phony store fronts to lure their victims. Perpetrators will often prey on low-income individuals, the elderly, and non-English speakers.

5.      Return Preparer Fraud

This is similar to the “False Promises” scam; however, the tax preparers are legitimate, just not ethical. It is important to choose carefully when hiring an individual or firm to prepare your return. Taxpayers should use preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINS).

6.      Hiding Income Offshore

While there are legitimate reasons to have financial accounts in offshore banks, there are reporting requirements that need to be fulfilled. U.S. taxpayers who have such accounts and do not comply with the reporting requirements are breaking the law and risk significant penalties and fines.

7.      Impersonation of Charitable Organizations

Following a natural disaster, it is common for criminals to impersonate charities in an effort to get money or private information from taxpayers. Perpetrators will use a variety of tactics. Some operating bogus charities will contact individuals by phone or email to solicit money or financial information. They will even go as far as contacting the disaster victims and claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

8.      False Income, Expenses or Exemptions

The taxpayer willfully engages in this scam. This includes such things as claiming unearned income or listing false expenses in order to maximize a refund. In some cases, taxpayers will inflate the number of dependents to get the tax credit for each.

9.      Frivolous Arguments

This occurs when taxpayers make unreasonable or outlandish claims to avoid paying the taxes they owe.

10.  Falsely Claiming Zero Wages or Using a False Form 1099

Again, this is a scam taxpayers commit, in which they claim that wages paid by a company are not in fact “wages,” but something else, such as reimbursements for expenses paid out of pocket or a loan. The claim is often made that the company who paid wages is at fault and refuses to correct the W-2 for fear of IRS retaliation.

11.  Abusive Tax Structures

This scam is very complex and is usually benefits taxpayers in the highest tax brackets. By using limited liability companies, limited liability partnerships, and other similar entity formations, in a non-traditional way, the scammer sets up a structure which attempts to create a “tax-neutral” entity. Unsuspecting victims are encouraged to buy into these arrangements, with the promise of eliminating or substantially reducing their tax liabilities.

12.  Misuse of Trusts

Trusts are commonly used in tax and estate planning, and when done properly are completely legal. However, the IRS also sees a lot of abuse when questionable transactions are placed in trusts alongside legitimate ones. Another example of misuse is an attempt to use a trust illegally, to transfer wealth from one generation to the next without incurring taxes.

To avoid becoming a victim of tax fraud, file early; never provide personal information such as your social security number over the phone; don’t click on links within an email that you think are suspicious; and conduct your due diligence when selecting an accountant.  Make sure you use tax preparers who sign the returns they prepare. To learn more about ways to protect yourself from becoming a victim, visit the IRS website for more information.

Melissa Rodriguez is a Senior Investigative Analyst at MSA Investigations.

Photo Credit:

Tags: Fraud, Identity Theft, Tax Fraud

Financial Fraud: The Case of Calvin Darden Jr.

Posted by Neil Moran on Mon, Mar 03, 2014 @ 07:00 AM

In 1996, businessman John Spano, a man of relatively modest wealth (reportedly several hundred thousand dollars), attempted to purchase the New York Islanders hockey team.  He was able to convince the NHL and several financial institutions, one of which loaned him $80 million that he was worth upwards of $200 million.  “I set it up so other people couldn’t talk to other people, or they didn’t have enough knowledge to put two and two together. The guy at the bank knew one thing. The guy at the NHL knew another. My attorney knew something else. If they would have all got together, they would have realized something wasn’t right,” Mr. Spano said at that time. He very nearly pulled it off and was almost allowed to purchase the Islanders.

Recently, a former Wall Street broker who, in 2006, pleaded guilty to stealing more than $4 Carl Darden Jrmillion from a client and spent a little over two years in prison, almost purchased Maxim magazine for nearly $30 million through a clever series of deceptions and appeared to take a page out of the John Spano manual on how to perpetrate a fraud.  Calvin Darden Jr., the accused, has been charged with stealing several million dollars from a number of lenders to assist in his purchase of Maxim.  Mr. Darden was also charged with convincing a company in Taiwan, which paid him $500,000, that he could arrange an exhibition game in Asia involving the NBA’s New York Knicks.  He did all this by claiming to be his well-known and very prominent father.

Calvin Darden Jr., the son of Darden Media Group Chairman Calvin Darden Sr., surrendered to the U.S. Secret Service following the filing of multiple federal charges against him in U.S. District Court in lower Manhattan.  In announcing the arrest of Calvin Darden Jr., U.S. Attorney Preet Bharara said: “As alleged, Calvin Darden, Jr., sought to mislead and deceive his victims at virtually every opportunity, and he used the full spectrum of fraudulent devices, including false documents, ‘spoofed’ emails, and outright impersonation. This Office has zero tolerance for those who allegedly engage in this type of conduct, especially when it is to the tune of millions of dollars.”

Calvin Darden Jr., according to published media, has enjoyed the world of celebrity having managed the money of Cheryl “Salt” James of the hip hop group, Salt ‘N Pepa, former NBA star Latrell Sprewell and Cornell Haynes Jr., better known as rapper, “Nelly,” in his days as a Wall Street broker.  In 2003, Mr. Sprewell was reportedly fleeced by Mr. Darden out of $300,000 and Nelly lost $950,000, when Mr. Darden’s debts became overwhelming. Ms. James was fortunate to have her money returned.  Mr. Darden’s father, Calvin Darden Sr., was a self-made man who started out as a package handler for United Parcel Service (UPS) where he rose to become senior vice president of U.S. operations.  Darden Sr. had become one of the most well-respected African-American businessmen in the nation, serving on the boards of directors at both Target and Coca-Cola.  Calvin Darden Sr.’s sudden success, when UPS went public in 1999, elevated Darden Jr.’s profile and opened doors to such notable firms as Salomon Brothers, Merrill Lynch, and Smith Barney, who signed him with a reported bonus of $344,000.  Things appear to have only gotten better for Mr. Darden as he began traveling in professional sports and entertainment circles.  A $2.85 million mansion, a Lamborghini Murielago (estimated worth: $225,000), a Mercedes-Benz 600 and a Porsche Turbo all seemed to come with the territory.

In 2003, life in the fast lane came to a sudden standstill following charges that Mr. Darden stole $4.1 million from several of his Wall Street employers, coupled with the $1.2 million from Latrell Sprewell and “Nelly.”  He even reportedly swindled an 87-year old woman.  Following his conviction, Mr. Darden spent two years in prison.

In the latter part of 2013, a deal to purchase Maxim magazine with Mr. Darden began to take shape and in September, Maxim’s parent company, Alpha Media, issued a press release saying that “a definitive purchase agreement” had been reached.  Mr. Darden, according to court documents, had immersed himself in an elaborate scheme “to fraudulently induce several companies to provide millions of dollars of financing for the…attempted purchase of Maxim.”  This scheme included bogus emails, fabricated financial statements, and false representations, all while impersonating his father, Calvin Darden Sr.

As part of his plan, Mr. Darden requested and received more than $8 million from two lenders, of which $4.9 million was obtained by Mr. Darden’s use of a Russian-hosted email “spoofing” service.  “Spoofing” is a tactic quite commonly used by cyber fraudsters, whereby they transmit a phony communication by falsifying data.  In this instance, the email sent by Mr. Darden appeared to originate from the lender’s account and purported to authorize the release of the $4.9 million.  

For the remainder and the bulk of the funding for the proposed deal, Mr. Darden meticulously orchestrated a series of ruses in hopes of securing an additional $20 million.  As an inducement for the funding, Mr. Darden pledged to the lender that he was working in cooperation with a cable company to establish a cable channel, based, in part, on Maxim.  A bogus email, purportedly from the president of the cable company was forwarded from Mr. Darden to the lender and expressed an interest in creating a cable channel based around Maxim.

In late November 2013, Bob Guccione Jr. (son of Penthouse magazine founder Bob Guccione Sr.) insisted that the deal was still on and that he was prepared to take over as CEO of Maxim and partner with Mr. Darden.  By the end of December, Mr. Darden missed a series of deadlines for providing the necessary funding of approximately $10 million, which began to spell the end of his deception.

Given the cunning and shrewd manner in which Mr. Darden orchestrated these series of ruses to obtain the necessary funding to purchase Maxim, it is difficult to speculate whether the normal “Why didn’t you conduct your due diligence?” adages apply in this case.  True, Calvin Darden Jr. did have a checkered past, which a basic Internet search would reveal, but, in this instance, the parties believed they were dealing with Mr. Darden’s successful and very prominent father and not the  son who had been convicted of prior fraud.  Given the significant amounts of money on the table however, one has to question why there were not face-to-face meetings with the actual person with whom Maxim, its parent company, and the private equity investors believed was the ultimate purchaser. As John Spano was quoted as saying earlier, “If they would have all got together, they would have realized something wasn’t right."

Neil Moran is Vice President of MSA Investigations. 

Tags: Fraud, investigative due diligence, fraud investigations, financial fraud

The Japanese Beethoven: Fraud Revealed

Posted by Neil Moran on Mon, Feb 17, 2014 @ 05:00 AM

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Does fraud know no boundaries or limitations?  Of course not, but just when you think you have heard every scheme possible as it relates to fraudulent behavior, something amazing like this emerges.  Recenty we learned that a celebrated Japanese composer, who the media described as a “musical genius” and the “Japanese Beethoven” was, in fact, a fraud.  Mamoru Samuragochi, age 50 and purportedly deaf, had enjoyed considerable fame in Japan for the past 18 years. He claimed to have written over 20 pieces of classical music, including Symphony No. 1 “Hiroshima,” named after the dropping of the first atomic bomb during the latter part of World War II.  It was reported that the Japanese public united behind Symphony No. 1 “Hiroshima,” following the devastating 2011 tsunami, which killed more than 230,000 people.

The Japanese were stunned yesterday when the “ghost-writer” of all of Mr. Samuragochi’s works, Takashi Niigaki, came forward to disclose that he, not Mr. Samuragochi, had composed the music; and that he received payment of approximately $70,000.  To make matters worse, Mr. Niigaki also disclosed that Mr. Samuragochi is not deaf (as was Ludwig van Beethoven, hence the moniker, Japanese Beethoven) and has been feigning this malady to elicit public sympathy.  Mr. Niigaki explained that he had feelings of guilt over the years for participating in this arrangement and had wanted to go public; however every time he hinted at doing so, Mr. Samuragochi   threatened to commit suicide.  Recently, Mr. Niigaki learned that Japanese Olympic figure skater Daisuke Takahashi, scheduled to compete in the Sochi Winter Olympics, was going to use one of Mr. Samuragochi’s works in his short program and decided that he could no longer be a party to the cover-up.  “I could not bear the thought of skater Takahashi being seen by the world as a co-conspirator in our crime,” he said.  

As was the case in the life of Ludwig van Beethoven, who lost his hearing at around age 35, Mr. Samuragochi claimed to have become deaf as a result of a degenerative condition and that he overcame this disability to achieve considerable recognition in the world of music.  He described his hearing loss as “a gift from God,” and, in 2001 told Time magazine, “I listen to myself.  If you trust your inner sense of sound, you create something that is truer.  It is like communicating from the heart.”

As a result of these revelations, the mayor of Hiroshima has threatened to take away a citizen’s award, the city bestowed on Mr. Samuragochi for promoting the city’s opposition to nuclear weapons.  “We are aghast,” the mayor was quoted as saying.  A major Japanese news daily, Asahi Shimbun, had an interesting take on the admission, holding the media partially responsible and wrote: “We want him to explain his behavior, but the media must also consider our own tendency to fall for tear-jerking stories.”

Fraud can come in many shapes in sizes and does not necessarily need to deal in tangibles, such as money or valuables, which would seem to be the case in this instance.  The deception perpetrated by Mr. Samuragochi was of a more immaterial nature, but was no less fraudulent than the acts of someone who created a Ponzi scheme or misappropriated funds.  It could be argued that Mr. Samuragochi caused more damage by taking advantage of people’s goodwill and compassion than those who defraud for financial gain.

Neil Moran is Vice President of MSA Investigations.

Tags: Fraud, Reputation Management, fraud investigations, Identity Theft

Why Colleges Are Using Background Checks

Posted by Ricky Tong on Mon, Feb 10, 2014 @ 07:00 AM

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Harvard University

As most college-bound students already know, applying to a top ranked school is a highly competitive and selective process.  These prestigious institutions attract prospective students from all corners of the world.  Administrators will seek the best of the best, as these future leaders will represent the institution’s program and enhance its reputation.

The rigorous screening process typically takes into consideration: past grades, test scores, education and employment history, recommendations, interviews, essays, and aspirations.  Additionally, schools are increasingly performing criminal background checks on their prospective entrants.

Approximately two-thirds of all employers perform a criminal background check on new hires, and with educational institutions as, if not more, selective than big name companies such as Google, Facebook, Apple, and Goldman Sachs, there is no reason why they shouldn't use this additional method of vetting candidates.   The reasons to utilize this check are the same:  to avoid the risk of tarnishing an institution’s hard-earned reputation and with alarmingly frequent school shootings, to provide a level of protection to their faculty, staff and students.

Highly reputable institutions and companies attract the most ambitious and intelligent applicants; however, they are also the target of dishonest individuals, who will stop at nothing to achieve their goals.  Intelligence and charm does not exempt a person from being a criminal.  In fact, those very qualities can be found in many con artists.  For an institution to expect that a candidate would disclose adverse information in accordance with an established “code of honor” would be unwise, especially when those with checkered pasts have nothing to lose.

Even those with an impressive resume and recommendations from reputable and influential sources cannot often be trusted.  Take for example the case of the former CEO of Yahoo who resigned in 2012, when it was revealed that a computer science degree, which he claimed to have earned, was in fact, never awarded.  

In another instance, a former Harvard University student, Adam Wheeler, schemed his way into the school in 2007 as a sophomore transfer, by providing fraudulent letters of recommendations and falsely claiming that he had earned a perfect SAT score, attended MIT as a freshman, and graduated from Phillips Academy, a prestigious high school in Massachusetts.   According to published media, his scheme was discovered during his senior year and he subsequently pleaded guilty to “20 misdemeanor and felony counts of larceny, identity fraud, falsifying an endorsement or approval, and pretending to hold a degree.”  He was sentenced to 10 years of probation and ordered to pay a restitution of $45,806 to the school.

In more recent news, it was revealed that former SAC Capital fund manager Mathew Martoma, who has been convicted in what U.S. Attorney Preet Bharara called "the most lucrative insider trading scheme ever," had a track record of being dishonest dating back to his days in law school.  In 1999, Martoma was expelled from Harvard Law School when it was discovered that he had falsified his academic transcripts, changing B grades to As, when he applied for several judicial clerkships. Following his expulsion, Martoma legally changed his name from his birth one of Ajai Mathew Thomas in 2001, and was accepted into Stanford Graduate School of Business in the same year.  It's unknown whether Stanford was aware of Martoma's history at Harvard; however, it is assumed that had this disclosure been made, he would not have been admitted into their MBA program.

From these anecdotes, it is clear that even the best institutions can make a mistake and grant admission to an unqualified candidate.  It is somewhat encouraging though that our institutions have learned from these oversights; whether it's for a MBA or PhD program, schools are increasingly conducting a more thorough due diligence.  In West Virginia, lawmakers have even proposed a bill that would give institutions of higher education the power to obtain a criminal background check on both prospective and current students that apply to reside on-campus housing, as well as allowing students to conduct a background check on another student. 


To learn about MSA Investigations' background screening services, please contact us today.

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Tags: background check, Fraud, Due Diligence, college

Avoiding Charity Fraud

Posted by Suzanne Bishop on Thu, Jan 23, 2014 @ 11:02 AM

Charity Fraud

Charity fraud is the act of using deception to get money from people who believe they are making donations to charities. Following major disasters and tragedies, scam artists impersonate charities to steal money or get private information from well-intentioned donors. Fraudulent schemes involve solicitations by phone, social media, email or in-person. If you’re thinking about giving to a charity, you should investigate the organization first to avoid fraudsters who may try to take advantage of your generosity.

In June 2013, a Farmingville, New York man defrauded residents for a charity event that didn’t exist. He told residents he was raising money for a walk to benefit the Multiple Sclerosis Foundation, an event that never took place.  He was arrested and charged with second-degree scheme to defraud. In 2010, the same man was arrested for felony fundraising fraud for allegedly misrepresenting the Leukemia-Lymphoma Society.

In January 2014, a man in Savannah, Georgia was arrested for defrauding donors that gave to his non-existent charity. He claimed the organization would benefit low income and homeless women. He is now facing a list of charges after being indicted by a grand jury. There are at least 16 charges which include seven charges of theft and deposit fraud and nine charges of theft by services and theft by deception. More than a dozen women complained they had paid fees up-front but received no services.

Also, in January 2014, two New Jersey men were arrested for running a phony 9/11 charity that claimed to benefit 9/11 victims’ families or other 9/11 foundations. None of the money donated went to the victims’ families or to organizations as promised. Prosecutors recommend the defendants receive a county jail sentence of nearly a year as well as a probation term. As a condition of probation, the defendants must comply with the terms of a civil consent judgment filed by the state’s Consumer Affairs Division. It calls for them to pay more than $120,000 in fines and investigative costs, which includes repaying the money they improperly received.  The judgment also permanently bars them from working for any charitable organization in New Jersey.

Before making a donation to, volunteering with, or accepting a position with a non-profit organization it’s wise to investigate the organization to determine if the entity is trustworthy or even exists. If the organization is a legal entity such as a corporation, partnership, or limited liability company, checks can be made with the Secretary of State, Department of State, Attorney General, or Consumer Services Department to verify date of incorporation and status of the entity.

If the entity is a nonprofit organization that is tax-exempt, it must provide financial disclosure documents to the IRS in a Form 990. Form 990s contain information about a nonprofit entity, such as its chief contact person, its street address, board members, staff members, compensation, its mission, programs, and finances, including grants received and donation recipients.

Numerous websites publish information on nonprofits, such as GuideStar, Citizen Audit, Charity Navigator and Charity Watch. The IRS also publishes a database of tax-exempt entities as well as a list of tax exempt revocations.  Reputational checks can also be conducted for a nonprofit using traditional media, social media, Internet searches and the Better Business Bureau.

Fraudulent nonprofit organizations exploit the generosity of others for monetary gain. One must be vigilant and conduct the necessary due diligence checks on such entities before making donations. MSA Investigations provides thorough investigative reports of entities, board members, executives and employees of such organizations. With these required checks in place, one can ensure that money donated gets to the causes it was intended to support.

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Tags: Fraud, investigative due diligence, Due Diligence, anti-fraud, fraud investigation

Massive CityTime Fraud: Red Flags Were Ignored (Part 1)

Posted by MSA Investigations on Wed, Dec 18, 2013 @ 06:00 AM

This is Part 1 of 2 of a mini-series on the epic fraud committed right under the noses of the public and the City of New York.

The CityTime project, proposed in 1998, was supposed to modernize the timekeeping system for the City of New York’s 81 agencies.  Once completed, the project would allow the city's employees to be paid more accurately, efficiently, securely, and in part, would prevent city employees from submitting fraudulent time sheets.  It's ironic then that the development of the project was fraught with bribery, corruption, and fraud.

The project was initially budgeted at $68 million and grew to preposterous proportions, costing the city nearly $700 million by 2010.  It was attacked by unions, taxpayers, and city officials for its numerous delays and exponential costs.  According to court documents, “as of June 2010, only 35 percent of the intended user population… was using the CityTime system.”  Yet, somehow the fraud behind this massive sinkhole went unnoticed until the scheme started to unravel in 2010.

According to news articles, of all the parties indicted in this scheme, only two individuals have not been convicted as they have fled to their native country of India.  In 2012, Science Applications International Corporation (SAIC), the primary contractor for CityTime, paid the city $500 million in restitution and penalties.  It was said in a statement by federal prosecutor, Preet Bharara, “This resolution is believed to be the largest, by dollar amount, of any investigation alleging state or local government contract fraud.” 

Investigators claim that the schemes involved kickbacks, over-billing, money laundering, shell companies, and ghost employees, among other conspiracies.

So how did this enormous fraud go unnoticed for so long?  Where was the due diligence? Surprisingly, there were plenty of warnings that there was something very wrong.

NY Supreme Court

CityTime Project Background

In the year 2000, the Office of Payroll Administration (OPA) awarded SAIC a contract to be the lead software developer of the CityTime project.   In 2001, OPA hired Spherion Atlantic Enterprises, LLC (Spherion) to provide quality assurance services on the project.

According to an audit report conducted by the City of New York Office of the Comptroller, the agreement with Spherion was determined to be mismanaged which “severely limited Spherion’s ability to oversee the development of CityTime and may have resulted in significant increases to the cost and duration of the project."  A year after Spherion acquired the contract to provide quality assurance services, the contract was amended to allow “Subject Matter Experts” to be hired for project management services.  The consequences of these actions may have allowed the conspirators of the subsequent fraud to run rampant. 

On February 19, 2003, Richard R. Valcich, the Executive Director of OPA wrote a letter to SAIC warning of excessive waste and stated “SAIC has been guilty of producing deliverables far below acceptable standards.  The City has found that SAIC’s commitment to quality is almost non-existent and is reflected from the top down.”  Valcich complained that SAIC was attempting to renegotiate the CityTime project without involving city officials, “The City has repeatedly requested that SAIC involve the City in the development of the Schedule, the Work Control Plan, and the Deliverable Payment Schedule.  To date, this still has not happened.  SAIC continues to work on these contractual issues alone, in a void, utilizing staff that have had little or no past experience or familiarity with the project.”  At the time of the letter, the City had already spent nearly $35 million on the project and Valcich complained that there was “no tangible system to show for it.”

Valcich resigned in 2004, and Joel Bondy, at the time a consultant for Spherion, was appointed the position of Executive Director of OPA.  This meant that Bondy had the authority to oversee and authorize requests for many facets of the project, from the lead software developer, SAIC, to the quality assurance servicer, Spherion. 

Key Defendants

Based on information gathered from court documents and news articles, it appears that there were a few key players involved in the CityTime scheme, whom without their involvement, this scheme may not have been possible. These individuals allegedly exploited their authority and influence to defraud the City and in the process solicited and introduced other conspirators to assist and conceal their illegal activities.

According to court documents, defendant Gerard Denault was SAIC’s Program Manager on the CityTime project from 2003 to 2010.  His responsibilities included selecting and overseeing subcontractors to assist SAIC with the project, submitting bills to the City for work done by SAIC employees and subcontractors, and developing proposals and contract amendments for SAIC to perform additional work on CityTime.                                                

Defendant Carl Bell, employed by SAIC as their Chief Systems Engineer in their New York office from 2003 and up to 2010 was responsible for development of CityTime and supervised the “technical aspects.”

In 2004, defendant Mark Mazer was hired by Spherion, through his company “MS Creative Technologies, Inc.” as a "Subject Matter Expert".  According to court documents, Mazer reported directly to Bondy, OPA’s Executive Director, instead of to the OPA CityTime manager or to Spherion, the quality assurance vendor who was hiring Mazer as a consultant for the project.   Court documents state that Mazer appeared “not as a representative of the QA Vendor, but as a representative of OPA.”  Employees interviewed by investigators allege that Mazer, “in this capacity… had influence over the scope and size of contracts and work orders for work to be performed by the Lead Software Developer on the CityTime project.”  The media reported that Mazer and Bondy worked together in the past at the City’s Administration of Children’s Services division, with Bondy as Mazer’s supervisor.

Together these three individuals, along with their friends and family, used their positions of authority to spin a web of deceit that would go undetected for nearly seven years and cost the City of New York hundreds of millions of dollars.


Read Part 2 of this mini-series as we examine the schemes and red flags that should have raised alarms, but were seemingly ignored.

To learn about MSA Investigations' fraud investigation and due diligence capabilities, contact us today.

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Tags: Fraud, CityTime

Shareholders Have Rights Too

Posted by John Maguire on Mon, Dec 16, 2013 @ 08:00 AM

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Buying stock in a public company is always a risky venture. No matter how certain a person is, there are no guarantees that the stock will rise or fall. Though this is the most prevalent risk when dealing with equities, it is not the only one. Owning stock in a publicly traded corporation gives a person certain rights, called shareholder rights, which spell out the exact nature of the holdings' pros and cons. One right granted to shareholders is the fair and legitimate pricing of the shares. This means the corporation cannot be sold for pennies on the dollar, no matter what the board of directors or chief executive officer want to do.

Factors to think about before buying corporate stock range from Price/Earnings Ratio to company longevity to industry performance and many factors in between. Shareholder Rights fall somewhere in that group and need to be combed through with a fine brush.  Most notably, a potential investor should be aware of his or her place in the pecking order in case the company files for bankruptcy. Common shareholders are typically last to have their holdings redeemed in a liquidation case. First, creditors are paid; second, those holding preferred shares are compensated followed by the common shareholder. On a positive note, common stock owners are afforded voting rights. This gives an individual a voice in who runs the company and how.

Companies sometimes reward employees by issuing common shares of the company's stock. Considering the stock does not cost the employee anything it would seem harmless if the stock plummeted. However, if the stock performs well for a certain amount of time the employee could begin to enjoy the fruits of his high-flying shares. If, all of a sudden, the stock price plummeted the employee's lifestyle might dramatically change for the worse. This individual might then pursue legal action as part of his shareholder rights, as is the recent case for many Western Union shareholders.

The Sarbanes-Oxley Act of 2002 is perhaps the most prominent legislation passed in recent years enacted specifically for the rights of shareholders. After the mega-bankruptcies of Enron and WorldCom, in which investors were defrauded of billions of dollars, Congress and the Securities Exchange Commission strengthened regulations for financial reporting, among other things.

Corporate and Criminal Fraud Responsibility is an important topic covered by Sarbanes-Oxley. It not only gives the investor a sense of comfort or defense against corporate fraud, but it acts as incentive for corporations to play by the rules. Trunkbow International Holdings Limited ("TBOW") is currently under investigation for insufficiently seeking buyers for itself. The chairman, Wachun Hou, sold TBOW to another of his companies at a discount. In doing so, investors in TBOW were cheated out of possibly more money had Mr. Hou adequately sought a buyer.

Due to the amount of risk in buying stock it is always a good bet to do as much due diligence as possible prior to an acquisition. Thanks to Sarbanes-Oxley and legislation like it the risk is not as great as it once was in the early days of New York Stock Exchange and other prominent exchanges. The threat of corporate fraud is still there, though, as executives continue to look for quicker, easier ways to make a buck.

Please contact MSA Investigations if you feel you may have been defrauded.

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Tags: Fraud, compliance, financial fraud, complex investigations