Financial Fraud

On May 13, 2016, the Justice of Department announced that M&T Bank Corporation has agreed to pay the United States $64 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements.

The settlement resolves allegations M&T Bank failed to comply with requirements set forth by FHA. Furthermore, M&T Bank was aware that a considerable number of these loans were too risky, faulty, did not qualify under HUD standards and were also ineligible for FHA insurance claims.

Additionally, the Justice of Department affirmed that M&T Bank failed on the review of a sample of FHA loans needed by HUD in the 2006 to 2011 period and misrepresented a "major error" rate on the loans which were obtained through a quality control process.

As a result of M&T Bank’s conduct, HUD insured hundreds of loans approved by M&T Bank that were not eligible for FHA mortgage insurance under the Direct Endorsement program and that HUD would not otherwise have insured.

The allegations arose from a whistleblower lawsuit brought forth by former M&T Bank employee.

A settlement has been reached to resolve False Claims Act allegations against Z Gallerie LLC.

The whistleblowers' share of the settlement will be $2.4 million.

According to Department of Justice, Z Gallerie LLC allegedly evaded antidumping duties on wooden bedroom furniture imported from the People’s Republic of China from 2007 to 2014, by misclassifying, or conspiring with others to misclassify, the imported furniture as pieces intended for non-bedroom use on documents presented to the U.S. Department of Homeland Security’s Customs and Border Protection (CBP). 

An example, Z Gallerie allegedly sold certain Bassett Mirror Company products, including a six-drawer dresser and three-drawer chest, as part of a bedroom collection; however, these goods were misidentified on CBP documents, using descriptions such as “grand chests” and “hall chests,” in order to avoid paying antidumping duties on wooden bedroom furniture.

These allegations were brought forward by whistleblower Kelly Wells, an e-commerce retailer of furniture.

A settlement reached to resolve False Claims Act Allegations against Freedom Mortgage Corporation.

The allegations arose from a lawsuit claiming Freedom Mortgage Corporation knowingly originating and underwriting single family mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements for the FHA insurance program.

According to the Department of Justice, as part of the settlement, Freedom Mortgage Corporation admitted to the following facts: Between Jan. 1, 2006 and Dec. 31, 2011, it certified mortgage loans for FHA insurance that did not meet HUD underwriting requirements and were therefore not eligible for FHA mortgage insurance.  Additionally, Freedom Mortgage Corporation did not adhere to FHA’s quality control (QC) requirements.  Between 2006 and 2008, Freedom Mortgage Corporation did not share its early payment default (EPD) QC reviews with production and underwriting management, nor did it require responses to its EPD QC findings from its production or underwriting staff.  Due to staffing limitations between 2008 and 2010, Freedom Mortgage Corporation did not always perform timely QC reviews or perform audits of all EPD loans, as required by HUD.  An EPD is a loan that becomes 60 days past due within the first six months of the loan.  The EPD QC reviews that Freedom Mortgage Corporation did perform revealed high defect rates, exceeding 30 percent between 2008 and 2010.  Yet, between 2006 and 2011, Freedom Mortgage Corporation did not report a single improperly originated loan to HUD, despite its obligation to do so.  Additionally, in 2012, after identifying hundreds of loans that “possibly should have been self-reported to HUD,” it reported only one. 

As a result of Freedom Mortgage Corporation’s conduct, HUD insured hundreds of loans that were not eligible for FHA mortgage insurance under the DEL program, and that HUD would not otherwise have insured and subsequently incurred substantial losses when it paid insurance claims on the ineligible loans approved by Freedom Mortgage Corporation.

A settlement has been reached to resolve False Claims Act allegations against real estate developer Asher Roshanzamir.

The whistleblowers' share of the settlement will be $200,000.

The allegations arose from a lawsuit, claiming real estate developer Asher Roshanzamir wrongfully deferred payment of New York State and local income taxes by disguising withdraws of approximately $3.5 million from the like-kind exchange and by disguising approximately $5 million in equity contributions as loans.

“There has to be one set of rules for everyone, no matter how rich or how powerful, and that includes big developers paying their fair share of taxes,” said Attorney General Eric Schneiderman.

The allegations were brought forward when a whistleblower became aware of Asher Roshanzamir’s actions and filed a complaint in state Supreme Court in Manhattan.

A settlement has been reached to resolve False Claims Act allegations against Hayner Hoyt Corporation.

The whistleblowers' share of the settlement will be $875,000.

The allegations arose from a lawsuit, claiming Hayner Hoyt Corporation's chairman and chief executive officer, Gary Thurston, its president, Jeremy Thurston, employees, Ralph Bennett and Steve Benedict and Hayner Hoyt affiliates LeMoyne Interiors and Doyner Inc, engaged in conduct designed to exploit contracting opportunities reserved for service-disabled veterans.

On March 14, 2016, Department of Justice announced, "The settlement resolves allegations that the defendants orchestrated a scheme designed to take advantage of the service-disabled veteran-owned small business program to secure government contracts for a now-defunct company, 229 Constructors LLC, that Gary and Jeremy Thurston created and controlled and subcontracts for Hayner Hoyt and its affiliates.  The Thurstons – neither of whom is a veteran – exerted significant influence over 229 Constructors’ decision-making during the bid, award and performance of these contracts in various ways, including by staffing the company entirely with then-current and former Hayner Hoyt employees and their spouses.  They also provided 229 Constructors with considerable resources, which provided it with a competitive advantage over legitimate service-disabled veteran-owned small businesses neither affiliated with nor controlled by a larger, non-veteran owned corporation.  Hayner Hoyt officials caused false certifications and statements to be made to the government representing that 229 Constructors met all requirements to be a service-disabled veteran-owned small business when they knew, or should have known, that 229 Constructors did not meet such requirements.  By diverting contracts and benefits intended for our nation’s service-disabled veterans to Hayner Hoyt and its affiliates, the defendants undercut Congress’s intent of encouraging contract awards to legitimate service-disabled veteran-owned small businesses".

A settlement has been reached to resolve False Claims Act allegations against Bard College. 

United States Attorney Benjamin B. Wagner announced yesterday, Bard College has agreed to pay $4 million to resolve allegations that it violated the False Claims Act in relation with a federal grant and with regard to the receipt and disbursement of Title IV federal student aid funds.

According to Department of Justice, the settlement also resolves allegations that Bard College awarded, disbursed, and received Title IV student loan funds at campus locations before such locations were accredited or before providing notice of such locations to the Department of Education, in violation of applicable regulations and Bard’s Title IV Program Participation Agreements with the Department of Education.

These allegations were brought forward by two former students of Brad College.

A settlement has been reached to resolve False Claims Act allegations against Lockheed Martin Corporation. 

The whistleblower's share of the settlement will be $920,000.

The allegations arose from a lawsuit, claiming that Lockheed Martin Corporation violated the Resource Conservation and Recovery Act, by failing to identify and report hazardous waste produced and stored at the facility and failing to properly handle and dispose of the waste.  The government also alleges that this conduct resulted in false claims for payment under Lockheed Martin’s contracts with the Department of Energy.

Lockheed Martin will pay $4 million to resolve the government’s False Claims Act allegations and its subsidiaries will each pay $500,000 – $1 million total in Resource Conservation and Recovery Act civil penalties.

A settlement has been reached to resolve False Claims Act allegations against Ameri-Source International Inc, Ameri-Source Specialty Products Inc, Ameri-Source Holdings Inc, SMC Machining LLC, and Ajay Goel and Thomas Diener.

The whistleblowers' share of the settlement will be $480,000.

The allegations arose from a lawsuit claiming the defendants had engaged in a scheme to avoid customs duties on imports of small-diameter graphite electrodes from the People’s Republic of China. 

Per the Department of Justice, this settlement resolves claims that Ameri-Source International Inc evaded antidumping duties on 15 shipments of small-diameter graphite electrodes from the People’s Republic of China from December 2009 to March 2012. The United States contended that Ameri-Source International misclassified the size of the electrodes to avoid paying the duties.  There are no antidumping duties on larger diameter graphite electrodes.  The United States also alleged that Goel, Diener and the other companies caused and conspired in the misrepresentation to evade duties.  Ameri-Source International also waived indictment and pleaded guilty today to two counts of smuggling goods into the United States.   In U.S. District Court in the Western District of Pennsylvania, Ameri-Source International admitted that on April 27, 2011 and June 9, 2011, the company falsely declared imported cargo from the People’s Republic of China as being graphite rods greater than 16 inches in diameter.

A settlement has been reached to resolve False Claims Act allegations against Stericycle Inc. 

The whistleblowers' share of the settlement will be approximately $5.5 million.

The allegations arose from a lawsuit, claiming Stericycle Inc of artificially inflating its prices by 18% on its government customers. The total amount of overcharges, between 2004 and 2008, were determined to be approximately $12 million. Under qui tam law, the government is allowed to collect up to three times the alleged damages, plus additional civil damages.

These allegations were brought forward by a former government customer relations specialist for Stericycle Inc.

A federal court awarded a $9.2 million default judgment against the Lacy School of Cosmetology and Earnest “Jay” Lacy.

The allegations arose from a lawsuit, claiming that the owner of Lacy School of Cosmetology submitted false claims to the U.S. Department of Education for federal student loans and grants.

According to the United States Attorney’s Office, the federal government's investigation discovered that Lacy School of Cosmetology had misappropriated funds by intentionally failing to comply with many federal program regulatory requirements, making unauthorized disbursements of federal student aid funds, failing to refund student credit balances, and covering up its actions by submitting false statements of compliance.