McHenry County Blog

A press release from the U.S. Attorney’s Office:

DISBARRED CHICAGO LAWYER SURRENDERS AFTER MORE THAN SIX YEARS ON THE RUN; ALLEGEDLY SKIPPED PRISON TERM

CHICAGO — A disbarred Chicago lawyer was indicted in a new federal case for allegedly failing to surrender to begin serving a federal fraud sentence in 2006. The defendant, STEVEN J. DELLA ROSE, surrendered to authorities in Puerto Vallarta, Mexico, on Dec. 11, 2012, more than six years after he was ordered to self-surrender to begin serving a 41-month sentence for defrauding a client of $64,000.

Della Rose, 61, formerly of Chicago, was charged with failing to surrender to begin serving a sentence in a single-count indictment returned yesterday by a federal grand jury.

Gary Shapiro

The indictment was announced today by Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois, and Darryl McPherson, United States Marshal for the Northern District of Illinois.

Della Rose was returned to the U.S. and immediately began serving his original sentence once he was in U.S. custody last month. No date has been set yet for his arraignment on the new charge in U.S. District Court.

According to the indictment, Della Rose was released on his own recognizance after he was charged with mail fraud in 2002.

After a trial in March 2003, a jury found him guilty of defrauding a client of $64,000 in a worker’s compensation case.

On Dec. 5, 2003, a judge sentenced him to serve 41 months in prison. Service of the sentence was delayed by two appeals, and on June 22, 2006, Della Rose was ordered to surrender to a designated U.S. Bureau of Prisons facility on Aug. 7, 2006.

He allegedly failed to self-surrender at a prison on that date and he remained a fugitive until he turned himself in to authorities in Mexico last month.

The new charge carries a maximum penalty of 10 years in prison and a $250,000 fine. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines, and any new sentence must be served consecutively to the original sentence.

The Government is being represented in court by Assistant U.S. Attorney Clifford Histed.

The public is reminded that an indictment is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

A  press release from the U.S. Attorney’s Offcie:

BCI AIRCRAFT LEASING, INC., AND ITS OWNER, BRIAN HOLLNAGEL, CONVICTED IN $50 MILLION FRAUDULENT FINANCING SCHEME

CHICAGO — A federal jury today convicted the owner of an aircraft leasing company and his corporation on fraud and obstruction charges for engaging in a fraudulent financing scheme that raised more than $50 million from investors and lenders, federal law enforcement officials announced.

Brian Hollnagel, 38, of Chicago, the owner, president and chief executive officer of BCI Aircraft Leasing, Inc., and the corporation itself were each convicted of six counts of wire fraud and one count of obstruction of justice for obstructing a Securities and Exchange Commission lawsuit against them.

The jury deadlocked on a second obstruction count against Hollnagel and BCI, as well as on all three wire fraud counts against co-defendant Craig Papayanis, 51, of Moorpark, Calif., who held various positions at BCI, including managing director and chief financial officer.

BCI bought, sold and leased commercial airplanes and operated first in Naperville and later Chicago.

The jury deliberated approximately nine days following a seven-week trial in Federal Court. U.S. District Judge Amy St. Eve scheduled a status hearing on April 2 for further proceedings, including forfeiture of assets and the government’s post-trial motion to revoke Hollnagel’s $1.7 million secured bond.

On each count of wire fraud, Hollnagel faces a maximum penalty of 30 years in prison and a $1 million fine, or a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. He also faces a maximum prison term of 20 years and a $250,000 fine for obstructing the SEC lawsuit. As a corporate defendant, BCI faces fines and terms of probation.

Three other co-defendants, two of whom testified as government witnesses in the trial, pleaded guilty in the case and are also awaiting sentencing. They are:

• Jason R. Hyatt, 38, of Winfield, Ill., an owner of Hyatt Johnson Capital, LLC., an investment company that offered and sold to its customers investments totaling more than $20 million in BCI aircraft financing deals;
• Robert Carlsson, 43, of Chicago, a licensed securities broker who raised more than $20 million for BCI from outside investors, and who, at various times, was a managing director for BCI, chief executive officer of BCI Capital Management, and owner of 21 Capital Group, Inc., a registered securities broker-dealer; and
• Brian Olds, 69, of the Dallas area and formerly of Kildeer, Ill., who accepted more than $400,000 in bribes as part of the scheme.

According to the trial evidence, between at least early 2000 through early 2009, Hollnagel, BCI and others fraudulently obtained and retained financing and other funds for BCI and enriched themselves to the detriment of investors and lenders by:

• making misrepresentations to investors and prospective investors about the expected returns on their investments, the source of funds used to pay returns to investors, the use of funds raised from investors, the status of investments, and the ownership interest that certain investment groups had in particular aircraft;
• using bribes to obtain pricing and competitive advantages; and
• making misrepresentations to lenders regarding the membership of various investment groups and BCI’s ownership interest in collateral.

As a result, Hollnagel and BCI raised or otherwise obtained more than $50 million, commingled those funds, and misappropriated some of the funds for their own use.

They also concealed the scheme by providing false information in connection with the SEC’s lawsuit, misleading and attempting to mislead BCI’s investors and independent auditors, and creating phony accounting records.

For example, in December 2004, Hollnagel and BCI sold two aircraft on lease to US Airways for a combined total of $15.4 million, resulting in a profit of almost $4 million that was misappropriated for other purposes.

Those two aircraft were the subject of a bribe, with Hollnagel paying $250,000 to Olds — formerly vice president of a competing commercial aircraft sale and leasing company, AAR Corp., of suburban Wood Dale — to ensure AAR’s purchase of the aircraft for $15.4 million from BCI, providing BCI with a $4 million profit just a few months after BCI acquired one airplane and only two weeks after it acquired the second aircraft.

Hollnagel and BCI then concealed from some investors that both aircraft had been sold.

As a further example, Hollnagel, BCI and others falsely represented to prospective investors and actual investors in two BCI-managed investment groups, as well as to Hyatt Johnson Capital and its customers, that their combined funds of more than $5 million would be, and had been, used to acquire an ownership interest in aircraft on lease to US Airways that BCI had acquired in the spring of 2005.

The defendants knew, however, that the lender that had financed the acquisition of the aircraft had prohibited any ownership interests by outside investors without the lender’s approval, which was never sought nor granted.

After the SEC filed its civil enforcement action against Hollnagel and others in 2007, SEC v. Hollnagel, et al., 07 CV 4538 (N.D. Ill.), Hollnagel and BCI created false documents and provided them to the SEC in response to a court order.

The government is being represented by Assistant U.S. Attorneys Kenneth Yeadon, Clifford Histed and William Hogan.

Patrick Fitzgerald

The verdict was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation, and Alvin Patton, Special Agent-in-Charge of the Internal Revenue Service, Criminal Investigation Division in Chicago. The SEC cooperated with the investigation, which falls under the umbrella of the Financial Fraud Enforcement Task Force.

The Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit: www.StopFraud.gov.

While the Occupy Wall Street folks were confronting New York City Police, one of the people they are demonstrating against was standing before Chicago Federal Judge John Darrah and getting sentenced to 20 years in the pen.

FORMER LAKE SHORE ASSET MANAGEMENT DIRECTOR SENTENCED TO 20 YEARS FOR DEFRAUDING 900 INVESTORS IN $294 MILLION SCHEME

CHICAGO — The former managing director of a hedge fund that was forced into receivership by U.S. government regulators was sentenced today to 20 years in federal prison for fraudulently soliciting and obtaining approximately $294 million from some 900 investors worldwide.  The defendant, Philip J. Baker, who controlled Lake Shore Asset Management Ltd., and the Lake Shore Group of Companies, which purportedly traded clients’ funds in several commodity futures pools, had pleaded guilty to wire fraud in August.

Baker, 46, a Canadian citizen who lived in London and later Hamburg, Germany, remained in federal custody following his extradition in December 2009 from Hamburg, where he was arrested in July 2009.  He was indicted in February 2009.

U.S. District Judge John Darrah imposed the maximum 20-year sentence, which the government recommended under the terms of Baker’s plea agreement.  In addition, Judge Darrah imposed an order, which Baker had agreed to, requiring him to pay restitution totaling more than $154.8 million, representing the outstanding losses to investors.

The sentence was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

According to the plea agreement, between 2002 and September 2007, as a result of Baker’s fraudulent solicitations, Lake Shore obtained approximately $294 million from approximately 900 investors.  Baker admitted that he misappropriated at least $30 million for his own use and for the use of another Lake Shore director.  He also admitted Lake Shore incurred several million dollars in net trading losses during the same time period that he misrepresented that Lake Shore’s trading was profitable.

Baker held himself out as a co-founder and managing director of Lake Shore, and the managing director of the “Lake Shore Group of Companies.”  The Lake Shore companies advertised that they operated several commodity pools — investments that combined the funds of many investors for the purpose of trading commodity futures.  Baker’s solicitations to invest in the Lake Shore commodity pools withheld material information and made the following false representations:

• that the commodity pools generated positive returns between January 2002 and September 2007, including 22.48 percent in 2003, 29.81 percent in 2004,  and 18.95 percent in 2005, when Lake Shore actually experienced millions of dollars in trading losses during those years;
• that no management fee would be charged, except by one of the commodity pools, that no operational expenses would be passed on to the investors, and that participants would pay only a “profit incentive fee” if the pools generated profits, when in fact Baker charged investors more than $30 million in broker fees, and converted millions of dollars in investor funds to his own use even though the pools were not profitable; and
• that Baker co-founded Lake Shore in 1993, and that Lake Shore was regulated by U.S. authorities, when in fact Baker was not officially associated with any regulated Lake Shore entity until January 2007.  The actual principals of a regulated entity that used the name “Lake Shore Inc.” repeatedly told its regulator, the National Futures Association (NFA), that it was dormant and conducted no business between 2002 and 2007, thus avoiding audit and oversight.

On June 13, 2007, NFA regulators reviewed a web site associated with Lake Shore and saw a press release stating,

“In its 13-year history, Lake Shore’s flagship ‘Program I’ has generated a 28.27% compound annual return.”

The next day, NFA staff went to Lake Shore Ltd.’s office on North Michigan Avenue in Chicago to conduct an audit to verify the profit claim on the web site and because Lake Shore Ltd. had been registered with the NFA only since January 2007.

Lake Shore did not provide the NFA with certain records it was required by law to keep and produce to regulators.

Later that month, the Commodity Futures Trading Commission (CFTC), filed a civil lawsuit against Lake Shore Ltd. in Federal Court in Chicago, and obtained a court order freezing its assets and requiring the company to produce books and records verifying its profit claims and identifying investors.

In that civil case, U.S. District Judge Blanche M. Manning issued several orders directing Lake Shore Ltd., other Lake Shore entities, and Baker himself to produce books and records.  Judge Manning also appointed a receiver to gather all available assets for distribution to the defrauded investors.

The receiver recovered and returned to investors approximately $120 million to date.  Baker never produced the documents to the CFTC or receiver, but instead took steps to hide the records in violation of the court orders.

The CFTC and the receiver provided valuable assistance in the case.  The government was represented by Assistant U.S. Attorney Clifford Histed.

The Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information on the task force, visit: www.StopFraud.gov.

A press release from the U.S. Attorney’s Office:

DIRECTOR OF DEFUNCT LAKE SHORE ASSET MANAGEMENT PLEADS GUILTY

TO DEFRAUDING 900 INVESTORS IN $294 MILLION FRAUD SCHEME

CHICAGO — The former managing director of a hedge fund that was forced into receivership by U.S. government regulators pleaded guilty today to fraudulently soliciting and obtaining approximately $294 million from some 900 investors worldwide.

The defendant, Philip J. Baker, who controlled Lake Shore Asset Management Ltd., and the Lake Shore Group of Companies, which purportedly traded clients’ funds in several commodity futures pools, pleaded guilty to wire fraud, resolving criminal charges on which he was scheduled to stand trial next month.

Baker, 46, a Canadian citizen who lived in London and later Hamburg, Germany, has been in federal custody since he was extradited here in December 2009 from Hamburg, where he was arrested in July 2009.  He was charged in a 27-count indictment returned in February 2009.

Under the terms of a written plea agreement, the government will recommend the maximum  term of 20 years in prison when Baker is sentenced.

In addition, Baker agreed to an order requiring him to pay restitution totaling more than $154.8 million, representing the outstanding losses to investors.

U.S. District Judge John Darrah set sentencing for Nov. 17 in Federal Court in Chicago.

The guilty plea was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

According to the plea agreement, between 2002 and September 2007, as a result of Baker’s fraudulent solicitations, Lake Shore obtained approximately $294 million from approximately 900 investors.

Baker admitted that he misappropriated at least $30 million for his own use and for the use of another Lake Shore director.

He also admitted Lake Shore incurred several million dollars in net trading losses during the same time period that he misrepresented that Lake Shore’s trading was profitable.

Baker held himself out as a co-founder and managing director of Lake Shore, and the managing director of the “Lake Shore Group of Companies.”

The Lake Shore companies advertised that they operated several commodity pools — investments that combined the funds of many investors for the purpose of trading commodity futures.

Baker’s solicitations to invest in the Lake Shore commodity pools withheld material information and made the following false representations:

• that the commodity pools generated positive returns between January 2002 and September 2007, when Lake Shore actually experienced millions of dollars in trading losses;

The plea agreement states that on June 13, 2007, NFA regulators reviewed a web site associated with Lake Shore and saw a press release stating,

“In its 13-year history, Lake Shore’s flagship ‘Program I’ has generated a 28.27% compound annual return.”

The next day, NFA staff went to Lake Shore Ltd.’s office on North Michigan Avenue in Chicago to conduct an audit to verify the profit claim on the web site and because Lake Shore Ltd. had been registered with the NFA only since January 2007.

Lake Shore did not provide the NFA with certain records it was required by law to keep and produce to regulators.

Later that month, the Commodity Futures Trading Commission (CFTC), filed a civil lawsuit against Lake Shore Ltd. in Federal Court in Chicago, and obtained a court order freezing its assets and requiring the company to produce books and records verifying its profit claims and identifying investors.

In that civil case, U.S. District Judge Blanche M. Manning issued several orders directing Lake Shore Ltd., other Lake Shore entities, and Baker himself to produce books and records.

Judge Manning also appointed a receiver to gather all available assets for distribution to the defrauded investors.

The receiver recovered and returned to investors more than $100 million to date.

Baker never produced the documents to the CFTC or receiver, but instead took steps to hide the records in violation of the court orders.

Among the misrepresentations alleged in the indictment were claims that one Lake Shore fund had generated the following high returns:

• 2003 — 22.48 percent;
• 2004 — 29.81 percent;
• 2005 — 18.95 percent.

However, Lake Shore funds actually experienced millions of dollars in trading losses in during those years.

The CFTC and the receiver provided valuable assistance in the case.  The government is represented by Assistant U.S. Attorney Clifford Histed.

The Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information on the task force, visit:www.StopFraud.gov.

Ever wonder why big banks have problems?

The press release below from U.S. Attorney Patrick Fitzgerald’s office outlines one reason for troubles at Fifth Third Bank.

It uses the word “swindle.”

Bankrupt Computer World Solution’s Chief Operating Officer Kevin Gore has been arrested in a $17 million fraud scheme. (When I Googled the company, look what came up.)

The founder of the company, Noel Yuan, has already pleaded guilty to two counts of bank fraud and awaits sentencing.

CHICAGO – A former executive of a defunct consumer electronics business who allegedly engaged in a $17 million bank fraud scheme and later became a fugitive has been returned to Chicago to face federal charges following his arrest earlier this year in the Philippines, federal law enforcement officials announced today.

The defendant, Kevin M. Gore, who was chief operating officer of Computer World Solution, Inc., in suburban Wheeling, is scheduled to be arraigned Wednesday in U.S. District Court. Together with co-defendant Noel Yuan, the company’s founder and president, Gore allegedly swindled Fifth Third bank by fraudulently obtaining funds through a revolving line of credit.

Computer World Solution, which imported and distributed wholesale consumer electronics such as televisions and computer monitors, went into bankruptcy in November 2007.

The bank’s losses on the business’s line of credit were discovered to be in excess of $17 million. Shortly before the bankruptcy, Gore left the United States and was traveling throughout Asia until he was arrested in late February.

Gore, 40, formerly of Chicago, was initially charged in a criminal complaint in 2008 and was indicted in March 2009 on three counts of bank fraud, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The indictment also seeks forfeiture of $17 million.

Gore, who is being held without bond, appeared in court briefly yesterday and his arraignment was continued until 9:20 a.m. tomorrow before U.S. District Judge Joan Gottschall.

Yuan, 53, formerly of Northbrook, pleaded guilty to two counts of bank fraud in December 2008 and remains in custody while awaiting sentencing.

According to the indictment, Gore, together with Yuan, executed the fraud scheme between March 2005 and September 2007.

Computer World Solution entered into a financing agreement with Fifth Third Bank under which the bank would issue a revolving line of credit, which was secured by the company’s accounts receivable. By January 2007, the maximum borrowing limit was increased to $20 million.

Pursuant to the agreement, the company justified advances on the line of credit by submitting “borrowing base certificates” to the bank.

Gore allegedly prepared certificates that falsely inflated the amount of the company’s accounts receivable, and Yuan signed the certificates and caused them to be submitted to the bank to enable the company to obtain more funds than would otherwise have been permitted.

Gore and Yuan allegedly submitted more than 30 such false certificates to the bank. Much of the money they obtained was sent to Asia, purportedly to purchase electronic equipment to be sold in the United States, according to court documents. The defendants then used some of the company’s profits from the sale of the merchandise to make payments on the line of credit.

The indictment alleges that Gore submitted false certificates to the bank claiming an account receivable of more than $2.1 million, which did not exist, and accounts receivable that were due from various other companies were falsely overstated.

During a bank audit of the company in July 2007, Gore allegedly gave auditors documents that purported to be statements of a Computer World Solution account at a different bank for the months February, March and April 2007.

In fact, the documents were false and forged because they showed wire transfer credits to the account that never occurred and overstated the amount of the company’s business income by more than $40 million, the charges allege.

The government is being represented by Assistant U.S. Attorney Clifford Histed.

If convicted, each count of bank fraud carries a maximum penalty of 30 years in prison and a maximum fine of $1 million, or the Court may impose a fine totaling twice the loss to the victim or twice the gain to the defendant, whichever is greater. The Court, however, would determine the appropriate sentence to be imposed under the advisory United States Sentencing Guidelines.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.