Business Crimes Hotline

ALABAMA

Scheme to Divert Bank Funds for Personal Benefit

Kennon R. Patterson, Sr., chairman and CEO, and Larry E. Bishop, vice president of construction and maintenance, of the Community Bank of Blountsville, AL, together with Jimmie D. Childers, owner of J&M Materials, were named as defendants in a 25-count indictment for an alleged scheme to divert bank funds for personal benefit. The indictment contained charges of conspiracy, bank fraud, misapplication of bank funds, false statements to a financial institution, and false entries in the books and records of a financial institution. It also charged Patterson with money laundering and filing false tax returns.

J&M Materials allegedly provided construction services on commercial and residential construction projects, including Community Bank and Patterson's personal projects. The defendants allegedly participated in a scheme to use $2,150,000 of bank funds for construction work on personal projects for bank CEO Patterson, including the building of a 17,000 square-foot residence. The indictment also alleges that Patterson obtained more than $5 million in bank loans to build the residence, but used more than $1.34 million of that money for other purposes.

The charges of bank fraud, misapplication of bank funds, making false statements to a financial institution and making false entries in the books and records of a financial institution carry a maximum sentence of 30 years in prison, and a $1 million fine.

CONNECTICUT

Cheese Distributor Pleads Guilty to Mail Fraud Conspiracy

Herbert H. Auleta, Jr., of Amityville, NY, president of Habco Sales, Inc., pleaded guilty to one count of conspiracy to commit mail fraud in connection with the allegedly fraudulent submission of approximately $1.85 million in fictitious invoices for the advertising and promotion of Land O'Lakes cheese and dairy products.

Habco Sales was a wholesale distributor of Land O'Lakes cheese and dairy products. According to the one-count information, Land O'Lakes had a program under which the company's retail customers could be reimbursed for a portion of the advertising and distribution expenses they incurred in promoting Land O'Lakes products. Land O'Lakes used a sales and marketing firm, Advantage/Pezrow, of Ramsey, NJ, to manage the promotional program. Beginning on Dec. 7, 1999, through Feb. 8, 2002, Auleta and another individual allegedly created and submitted, via interstate mail, fraudulent bill back invoices to Advantage/Pezrow, in which Auleta claimed to be entitled to $1.85 million worth of credit for promotional expenses. Under the Land O'Lakes program, credits could be used to offset a distributor's indebtedness to the company for the cost of the products. After submission of the allegedly false invoices, Auleta retained 75% of the proceeds of the alleged scheme (approximately $1.38 million), and paid the balance of approximately $506,000 to an accomplice. At sentencing, Auleta could receive a maximum of 5 years in prison, supervised release of up to 3 years, and a fine of up to $250,000.

RHODE ISLAND

Real Estate Company Owner Pleads Guilty to Money Structuring Charges

William Ricci, of Providence, RI, owner of several real estate companies, including Vandewater Realty, 715 Branch Realty, RRS Realty Trust, Inc., Wanscuck Hall Realty, and Branch Realty, pleaded guilty to one count of structuring transactions for the purpose of evading federal reporting requirements, in an alleged scheme to inflate the value of his companies when applying for financing.

According to the charges contained in an information, Ricci allegedly used a check-kiting scheme to generate the appearance of cash flow, which he executed by cashing a series of checks at a check-cashing company, all for amounts of less than the $10,000 threshold for triggering the federal reporting requirement. He allegedly made out some checks payable to himself, and some checks payable to existent and non-existent third parties so that it appeared that some checks were for subcontractors. Cash and money orders generated by the checks allegedly were then deposited back into business accounts under Ricci's control, creating the appearance of a thriving business. The artificially inflated figures were then allegedly included on loan applications.

Between February and December 1999, Ricci allegedly structured approximately $1,307,498 through 400 checks, all in amounts less than the $10,000 mandatory reporting level. At sentencing Ricci faces a maximum sentence of 10 years in federal prison for structuring money transactions, and a fine of $500,000 or twice the amount of gain or loss.

ALABAMA

Scheme to Divert Bank Funds for Personal Benefit

Kennon R. Patterson, Sr., chairman and CEO, and Larry E. Bishop, vice president of construction and maintenance, of the Community Bank of Blountsville, AL, together with Jimmie D. Childers, owner of J&M Materials, were named as defendants in a 25-count indictment for an alleged scheme to divert bank funds for personal benefit. The indictment contained charges of conspiracy, bank fraud, misapplication of bank funds, false statements to a financial institution, and false entries in the books and records of a financial institution. It also charged Patterson with money laundering and filing false tax returns.

J&M Materials allegedly provided construction services on commercial and residential construction projects, including Community Bank and Patterson's personal projects. The defendants allegedly participated in a scheme to use $2,150,000 of bank funds for construction work on personal projects for bank CEO Patterson, including the building of a 17,000 square-foot residence. The indictment also alleges that Patterson obtained more than $5 million in bank loans to build the residence, but used more than $1.34 million of that money for other purposes.

The charges of bank fraud, misapplication of bank funds, making false statements to a financial institution and making false entries in the books and records of a financial institution carry a maximum sentence of 30 years in prison, and a $1 million fine.

CONNECTICUT

Cheese Distributor Pleads Guilty to Mail Fraud Conspiracy

Herbert H. Auleta, Jr., of Amityville, NY, president of Habco Sales, Inc., pleaded guilty to one count of conspiracy to commit mail fraud in connection with the allegedly fraudulent submission of approximately $1.85 million in fictitious invoices for the advertising and promotion of Land O'Lakes cheese and dairy products.

Habco Sales was a wholesale distributor of Land O'Lakes cheese and dairy products. According to the one-count information, Land O'Lakes had a program under which the company's retail customers could be reimbursed for a portion of the advertising and distribution expenses they incurred in promoting Land O'Lakes products. Land O'Lakes used a sales and marketing firm, Advantage/Pezrow, of Ramsey, NJ, to manage the promotional program. Beginning on Dec. 7, 1999, through Feb. 8, 2002, Auleta and another individual allegedly created and submitted, via interstate mail, fraudulent bill back invoices to Advantage/Pezrow, in which Auleta claimed to be entitled to $1.85 million worth of credit for promotional expenses. Under the Land O'Lakes program, credits could be used to offset a distributor's indebtedness to the company for the cost of the products. After submission of the allegedly false invoices, Auleta retained 75% of the proceeds of the alleged scheme (approximately $1.38 million), and paid the balance of approximately $506,000 to an accomplice. At sentencing, Auleta could receive a maximum of 5 years in prison, supervised release of up to 3 years, and a fine of up to $250,000.

RHODE ISLAND

Real Estate Company Owner Pleads Guilty to Money Structuring Charges

William Ricci, of Providence, RI, owner of several real estate companies, including Vandewater Realty, 715 Branch Realty, RRS Realty Trust, Inc., Wanscuck Hall Realty, and Branch Realty, pleaded guilty to one count of structuring transactions for the purpose of evading federal reporting requirements, in an alleged scheme to inflate the value of his companies when applying for financing.

According to the charges contained in an information, Ricci allegedly used a check-kiting scheme to generate the appearance of cash flow, which he executed by cashing a series of checks at a check-cashing company, all for amounts of less than the $10,000 threshold for triggering the federal reporting requirement. He allegedly made out some checks payable to himself, and some checks payable to existent and non-existent third parties so that it appeared that some checks were for subcontractors. Cash and money orders generated by the checks allegedly were then deposited back into business accounts under Ricci's control, creating the appearance of a thriving business. The artificially inflated figures were then allegedly included on loan applications.

Between February and December 1999, Ricci allegedly structured approximately $1,307,498 through 400 checks, all in amounts less than the $10,000 mandatory reporting level. At sentencing Ricci faces a maximum sentence of 10 years in federal prison for structuring money transactions, and a fine of $500,000 or twice the amount of gain or loss.