-=[Busted]=- C-Level Cons

Today’s fraud schemes are more sophisticated than ever, and the two cases below are examples of the complex white collar crime cases that continue to proliferate in the down economy.  Desperate people do desperate things.  Some seem to forget to stop when things cease to be desperate.

In the first case, the former CFO and CEO of a supplier and reconditioner of athletic equipment are facing charges of 9 substantive counts of mail fraud, 12 substantive counts of wire fraud, and mail and wire fraud conspiracy for allegedly directing a long-running scam against schools in New Jersey and elsewhere.

Circle System Group, Inc. (“Circle”) sold and reconditioned athletic equipment, uniforms, and apparel.  Although its services were marketed nationally, a large portion of Circle’s business focused on middle and high schools, colleges, and youth sports programs in New Jersey.  Circle’s business depended primarily on a sales force that attempted to maintain relationships with the school officials who were responsible for purchasing athletic equipment and reconditioning services on behalf of the schools.

From at least 1997 to the summer of 2007, Circle engaged in a number of fraudulent business practices aimed to defraud the schools, including keeping duplicate payments that should have been returned or credited, submitting fake quotes, and submitting fraudulent invoices.  Circle used invoices and statements that were similar in form and appearance, resulting in both the invoices and the statements being paid.  Circle received more than 500 such duplicate payments, collectively worth more than $970,000, from schools and other customers. Circle employees were instructed to deposit the extra money into the company’s account, and duplicate payments were tracked in a secret bookkeeping account.  Special bonuses were paid to both parties, who used the money to pay down a personal mortgage.

Each of the 22 counts in the indictment carries a maximum potential penalty of 20 years in prison and a $250,000 fine, or twice the gross pecuniary gain or loss from the offense. The indictment also seeks the forfeiture of any money and property from proceeds traceable to the commission of the offenses, including the Easton, Pa., property.

Three other individuals previously pleaded guilty to their involvement in the conspiracy, former Circle president David Drill pleaded guilty to conspiring to defraud, and two school officials pleaded guilty to participating in the conspiracy, admitting that they received items from Circle for their personal use and directed Circle to fraudulently bill the cost of those items back to their respective schools.

If you were a customer of Circle Systems Group, Inc., your organization could be a victim in this case. If you believe that you might be a victim, please e-mail your name, address, phone number, and a brief description of how you feel that you are involved in this case to CircleVictim@ic.fbi.gov.

In the second case, a payroll company hired to handle financial affairs for employers, failed to remit withheld taxes, not only enriching themselves, but also creating financial problems for the employees. The defendants wrongfully diverted over $20 million in tax withholding, which should have been remitted to the IRS on behalf of the clients’ employees.

A Northport, N.Y. man was sentenced today to six-and-a-half years in prison, to be followed by three years of supervised release, in connection with a scheme to divert more than $20 million from Sacramento County as well as two other businesses: SanDisk Corporation (SanDisk) and The Stanley Works and Stanley Solutions Inc. (Stanley).  As part of the sentence, Cipoletti was ordered to pay $19,141,618 in restitution. On October 29, 2010, he pleaded guilty to one count of wire fraud.

According to court documents, the CEO of Ingentra HR Services Inc. (Ingentra), hired by Sacramento County in late 2004 to process the payrolls for Sacramento County’s Special Districts. As part of their services, Ingentra calculated the tax payments for the clients and their employees and transmitted the payments to the state and federal tax authorities.  From 2005 until April 2010, the CEO  and the Comptroller, devised a scheme to defraud the County, SanDisk, and Stanley of the tax withholdings intended to be paid to the IRS by collecting the correct amount from the clients, under reporting the amount owed to IRS, and diverting the difference to Ingentra’s operating account.

U.S. Attorney Wagner said, “These defendants cheated the IRS, Sacramento County, and some of their other clients over a long period of time, causing millions of dollars in losses.  Those who are entrusted to handle public funds have a responsibility to preserve and protect those funds.  As this prison sentence makes clear, persons who cheat the public will pay a steep price.”

Today’s sentence should be a warning that IRS Criminal Investigation will pursue those individuals who play fast and loose with other people’s money for their own personal gain.

Fraud: Recognize it. Report it. Stop it.             http://www.getprepared.gc.ca/prod/tp/tp201103-eng.aspx