McHenry County Blog

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

FOUR DEFENDANTS SENTENCED TO PRISON TERMS BETWEEN FIVE AND 10 YEARS IN THREE INVESTMENT FRAUD SCHEMES

CHICAGO — Four defendants who swindled investors out of millions of dollars in three separate Ponzi fraud schemes were each sentenced to federal prison terms between 5 and 10 years and ordered to pay full restitution to their victims.

The cases demonstrate that federal law enforcement agencies continue to safeguard investors from individuals who solicit, obtain and use other people’s money illegally.

Two of the three cases resulted from investigations by law enforcement agencies and financial market regulators.

One defendant reported himself to investigators as his fraud scheme was collapsing.

The defendants and their sentences last week in U.S. District Court were:

• MICHAEL MORAWSKI, 56, of Sleepy Hollow, was sentenced to 10 years in prison, and his co-defendant, FRANK CONSTANT, 59, of West Dundee, was sentenced to 7½ years in prison, and both were ordered to pay more than $18 million in restitution for defrauding 267 victims;
• JAMES BRANDOLINO, 44, formerly of Joliet and Chicago, was sentenced to just under nine years in prison and ordered to pay more than $3.8 million in restitution for defrauding more than 50 investors; and
• CHRISTOPHER VARLESI, 54, of Chicago, was sentenced to five years in prison and ordered to pay $638,227 in restitution for defrauding approximately 15 investors.

In each case, many of the victims lost their life savings, including retirement money and college funds, as well as suffered emotional hardship.

Each of the defendants benefitted personally, as well as used some investors’ funds to pay back earlier investors to keep their fraud schemes from collapsing.

United States v. Morawski and Constant

Morawski pleaded guilty to two counts of mail fraud in September 2012 and was sentenced to 10 years in prison by U.S. District Judge Gary Feinerman, who imposed the sentence last Tuesday. Constant pleaded guilty to one count of wire fraud and was sentenced to 90 months in prison by Judge Feinerman on Thursday. Both men were ordered to pay $18,211,547 in restitution and to begin serving their sentences on July 15, 2013.

“Mr. Morawski must be punished for the lies and fraud he perpetrated and the way in which he conducted business when it became clear that things were not going well. At the time when people get into situations when businesses go south, it is at that time there has to be the most deterrence,” Judge Feinerman said.

In sentencing Constant, the judge said:

“The sentence should send a signal to people in positions of trust that truth has to be told in good time and bad.

“It’s important to investors to know when thing go well, but what Constant did was deprive the investors of full information to make an informed choice.”

Between 2006 and 2010, Morawski and Constant fraudulently obtained approximately $21 million and caused 267 investors to lose more than $18 million.

After forming a real estate investment company, Michael Franks, LLC, in Palatine, and several related businesses, they misused the money they raised for their own benefit and to make Ponzi-type payments to earlier investors.

Michael Franks offered investors passive ownership in multi-family residential properties, including apartment buildings in Illinois, Texas and Alabama.

Morawski and Constant offered two types of investments to the public:

• one was an investment in acquiring, improving and operating specific apartment complexes for a period of three to five years, and investors were typically told they would earn between seven and nine percent interest annually, and potentially more upon the sale of the property;
• the second was an investment in real estate-based “funds” that would provide an interest in various properties backed by promissory notes, often offering an annual interest payment of between 8 and 30 percent per year.

Certain real estate projects undertaken by Michael Franks performed poorly and failed to generate enough revenue to meet operating expenses.

The defendants began transferring funds from various investments to support poorly-performing projects and to pay earlier investors, without disclosing this information.

At the same time, they misused investor funds to pay employees, to make commission payments to individuals who raised new funds, and to pay themselves, as well as to make payments for Constant’s company car and country club payments, and to extend loans to friends of Morawski, who pocketed nearly $1 million for himself.

The government was represented by Assistant U.S. Attorney Sunil Harjani. The investigation was conducted by the FBI.

United States v. Brandolino

Brandolino pleaded guilty to mail fraud in August 2011 and was sentenced to 107 months in prison and ordered to pay $3,865,484 in restitution by U.S. District Judge Elaine Bucklo, who imposed the sentenced last Thursday.

Brandolino has been in custody since January 2011 when he turned himself in after a seven-year investment fraud scheme in which he swindled more than 50 investors out of $3.75 million. He agreed to being ordered to pay additional restitution of $128,576 to managed account holders who suffered trading losses.

Between 2003 and January 2011, Brandolino solicited approximately $4.8 million from about 60 investors, many of them family and friends. He lured investors with promises of healthy returns and principal safety, and he fabricated account statements showing steady gains, convincing investors to keep their money with him and to invest additional funds.

Of the funds he fraudulently obtained, Brandolino lost approximately $850,000 through unsuccessful futures trading and used approximately $1.4 million to pay principal and purported profit returns to existing pool participants, including more than $300,000 he paid to investors in excess of their investments.

He also misappropriated more than $2 million for himself and used the money to purchase such items as

• a luxury BMW
• a Rolex watch
• a piano

Brandolino held various National Futures Association registrations in the commodities brokerage business, with exchange floor trading privileges at the Chicago Board of Trade, now part of the CME Group.

He was also a principal of several commodities trading businesses, including Brandolino Investment Group, Lloyd Lewis Capital, Inc., Falcon Trading Group, Inc., and Falcon Capital Partners LLC.

The government was represented by Assistant U.S. Attorney Samuel B. Cole. The investigation was conducted by the FBI and the U.S. Postal Inspection Service. The Commodity Futures Trading Commission assisted in the investigation.

United States v. Varlesi

Varlesi pleaded guilty to wire fraud in December 2012 and was ordered to surrender on June 17, 2013, by U.S. District Judge Ruben Castillo, who imposed the five-year sentence last Wednesday. Varlesi engaged in a Ponzi scheme while purporting to operate a company called Gold Coast Futures and Forex, an investment trading pool.

Between July 2008 and January 2012, he fraudulently obtained more than $1.5 million from approximately 18 investors, including friends, friends of friends, and family members. Neither Varlesi nor Gold Coast held any license or registration related to trading securities or commodities or operating a commodity trading pool.

Varlesi misappropriated a substantial portion of investor funds for his own benefit, including misusing more than $120,000 to pay for a year’s rent for an apartment in the Trump International Hotel & Tower in Chicago, as well as to make Ponzi-type payments to other investors.

Trading only a small portion of the money he received from investors, Varlesi made false representations about

• using clients’ money to trade gold, commodity futures, and foreign currency
• the expected return on their investments
• the security of their money

He concealed the scheme by creating and distributing false account statements, and also told clients that their investments were guaranteed to be profitable, with no risk of losing principal. He provided promissory notes to certain investors, falsely promising to return the entire principal amount of their investment, as well as guaranteed interest ranging between 5 to 7.5 percent per month.

The government was represented by Assistant U.S. Attorney Sarah E. Streicker. The investigation was conducted by the FBI and the Illinois Securities Department. The Commodity Futures Trading Commission assisted in the investigation.

The sentences were announced by Gary S. Shapiro, United States Attorney for the Northern District of Illinois; Cory B. Nelson, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Pete Zegarac, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago. The investigations fall under the umbrella of the Financial Fraud Enforcement Task Force, which 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:

TAHAWWUR RANA SENTENCED TO 14 YEARS IN PRISON FOR SUPPORTING PAKISTANI TERROR GROUP AND TERROR PLOT IN DENMARK

CHICAGO — A Pakistani native who operated a Chicago-based immigration business was sentenced today to 14 years in prison for conspiracy to provide material support to a terrorist plot in Denmark and providing material support to Lashkar e Tayyiba, a terrorist organization operating in Pakistan that was responsible for the November 2008 attacks in Mumbai, India. The defendant, TAHAWWUR HUSSAIN RANA, was convicted of the charges on June 9, 2011, following a three-week trial in U.S. District Court.

Rana, 52, a Canadian citizen, was ordered to serve 14 years, followed by five years of supervised release by U.S. District Judge Harry Leinenweber.

“This certainly was a dastardly plot,” Judge Leinenweber said in imposing the sentence.

Rana was convicted of conspiracy to provide material support to a plot from October 2008 to October 2009 to commit murder in Denmark, including a horrific plan to behead employees of Morgenavisen Jyllands-Posten, a Danish newspaper, and throw their heads on to the street in Copenhagen, as well as providing material support, from late 2005 to October 2009, to Lashkar, a militant jihadist organization operating in Pakistan.

Lashkar planned and carried out the November 2008 attacks in Mumbai that killed more than 160 people, including six Americans, before initially planning the terrorist attack in Denmark in retaliation for the newspaper’s publication of cartoons depicting the Prophet Mohammed.

Rana was acquitted of conspiracy to provide material support to the Mumbai attacks.

“This serious prison sentence should go a long way towards convincing would-be terrorists that they can’t hide behind the scenes, lend support to the violent aims of terrorist organizations, and escape detection and punishment,” said Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois.

“Today’s sentence demonstrates that, just as vigorously as we pursue terrorists and their organizations, we will also pursue those who facilitate their violent plots from a safe distance. As established at trial, Tahawwur Rana provided critical support to David Headley and other terrorists from his base in the United States, knowing they were plotting attacks overseas. I thank the many agents, analysts and prosecutors who helped bring about today’s result,” said Lisa Monaco, Assistant Attorney General for National Security.

“It is my hope that the judge’s decision today sends a message to those who plot attacks and those who provide the support to make the plots possible, both here and abroad, that you will be held accountable for your actions. Our mission, detecting and preventing terrorist acts and eliminating the enabling support provided by terrorist sympathizers, remains our top priority,” said Cory B. Nelson, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

Rana is one of two defendants to be convicted, among a total of eight defendants who have been indicted, in this case since late 2009.

Co-defendant David Coleman Headley, 52, pleaded guilty in March 2010 to 12 terrorism charges, including aiding and abetting the murders of the six Americans in Mumbai. Headley, who is scheduled to be sentenced next Thursday, has cooperated with the Government since he was arrested in October 2009, and testified as a Government witness at Rana’s trial. He is facing a maximum of life in prison

The evidence at Rana’s trial showed that he knew he was assisting a terrorist organization and murderers, knew their violent goals, and readily agreed to play an essential role in achieving their aims.

The government contended that Rana knew the objective of his co-conspirators was to retaliate against and influence the Danish government for its perceived role in the publication of the Prophet Mohammed cartoons, and he knew that the goal of Lashkar was to retaliate against and influence the Indian and Danish governments and intended that the support he provided – enabling Headley’s activities – would be used toward that purpose.

In a post-arrest statement in October 2009, Rana admitted knowing that Lashkar was a terrorist organization and that Headley had attended training camps that Lashkar operated in Pakistan.

Headley testified that he attended the training camps on five separate occasions between 2002 and 2005.

In late 2005, Headley received instructions from members of Lashkar to travel to India to conduct surveillance, which he did five times leading up to the Mumbai attacks three years later that killed more than 160 people and wounded hundreds more.

In the early summer of 2006, Headley and two Lashkar members discussed opening an immigration office in Mumbai as a cover for his surveillance activities.

Headley testified that he traveled to Chicago and advised Rana, his long-time friend since the time they attended high school together in Pakistan, of his assignment to scout potential targets in India.

Headley obtained approval from Rana, who owned First World Immigration Services in Chicago and elsewhere, to open a First World office in Mumbai as cover for his activities.

Rana directed an individual associated with First World to prepare documents supporting Headley’s cover story, and advised Headley how to obtain a visa for travel to India, according to Headley’s testimony, as well as emails and other documents that corroborated his account.

Between Nov. 26-28, 2008, 10 attackers trained by Lashkar carried out multiple assaults with firearms, grenades and improvised explosive devices against multiple targets in Mumbai, some of which Headley had scouted in advance.

Regarding the Denmark terror plot, Headley testified that in the fall of 2008, he met with a Lashkar member in Karachi, Pakistan, and was instructed to conduct surveillance of the Jyllands-Posten newspaper offices in Copenhagen and Aarhus.

In late 2008 and early 2009, after reviewing with Rana how he had performed surveillance of the targets attacked in Mumbai, Headley testified that he advised Rana of the planned attack in Denmark and his intended travel there to conduct surveillance of the newspaper’s facilities.

Headley obtained Rana’s approval and assistance to identify himself as a representative of First World and gain access to the newspaper’s offices by falsely expressing interest in placing advertising for First World in the newspaper.

Headley and Rana caused business cards to be made that identified Headley as a representative of the Immigration Law Center, the business name of First World, according to the evidence at trial.

The trial evidence also included transcripts of recorded conversations, including those in September 2009, when Headley and Rana spoke about reports that a co-defendant, Ilyas Kashmiri, an alleged Pakistani terrorist leader, had been killed and the implications of his possible death for the plan to attack the newspaper.

In other conversations, Rana told Headley that the attackers involved in the Mumbai attacks should receive Pakistan’s highest posthumous military honors.

In the late summer of 2009, Rana and Headley agreed that funds that had been provided to Rana could be used to fund Headley’s work in Denmark, and the evidence showed that Rana, pretended to be Headley in sending an email to the Danish newspaper.

The government is being represented by Assistant U.S. Attorneys Daniel Collins and Sarah E. Streicker, with assistance from the Counterterrorism Section of the Justice Department’s National Security Division.

Federal prosecutors in Los Angeles have worked on a broader investigation of the Mumbai attacks. The investigation has been conducted by the Chicago Joint Terrorism Task Force, led by the Chicago Office of the Federal Bureau of Investigation, with assistance from FBI offices in Los Angeles, New York and Washington, D.C., as well as both U.S. Customs and Border Protection and the U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).

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

FORMER COOK COUNTY OFFICIAL CHARGED WITH STEERING CONTRACTS UNDER $25,000 IN RETURN FOR KICKBACKS

CHICAGO — A former Cook County official was indicted on federal charges for allegedly fraudulently steering four county contracts, each just under $25,000, to four acquaintances and then soliciting a portion of the contract payments as a kickback from each of them, totaling approximately $34,700, federal and state law enforcement officials announced today.

Eugene Mullins, who was director of the Cook County Department of Public Affairs and Communications between March 2008 and November 2010, was arrested today after being indicted on fraud and corruption charges.

The four individuals who allegedly received county contracts and returned a portion of the payments to Mullins were each charged with misprision of a felony for allegedly concealing Mullins’ alleged fraud and kickback crimes.

Mullins, 48, of Chicago, was charged with four counts of wire fraud and four counts of soliciting kickbacks in a 12-count indictment that was returned by a federal grand jury yesterday and unsealed today when he appeared in U.S. District Court.

He pleaded not guilty and was released on his own recognizance.

A status hearing was scheduled for 8:45 a.m. on Sept. 5, 2012, before U.S. District Judge Amy St. Eve.

The four co-defendants were not arrested and will be arraigned later on dates to be determined before Judge St. Eve. They are:

• Gary Render, 43, of Chicago;
• Michael L. Peery, 51, of Chicago;
• Clifford Borner, 45, of Chicago, and
• Kenneth Gregory Demos, 50, of Oak Park.

Each was charged with one count of misprision of a felony.

The arrest and charges were announced by Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois; Anita Alvarez, Cook County State’s Attorney; Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Patrick Blanchard, Cook County Inspector General.

The charges stem from a joint state and federal corruption investigation that resulted previously in pending state charges against Carla Oglesby, a former Cook County official, who allegedly also illegally steered county contracts under $25,000.

Between January 2010 and January 2011, Mullins allegedly used his county position to submit and cause others to submit false documents to the county to assist the four co-defendants in obtaining professional and managerial service contracts and payment from the county.

Mullins then solicited the individuals who obtained contracts for payments from the contract proceeds for his own benefit, the charges allege.

Mullins also allegedly steered contracts under $25,000 to two other individuals who later returned the checks they received from the county in full and were not charged.

According to the indictment, county contracts for professional and managerial services under $25,000 required approval only by the county purchasing agent and did not require approval by the county Board of Commissioners.

In 2010, Mullins’ public affairs and communications department, as well as other county departments, had access to federal funds and county money to promote awareness and increase response rates by county residents for the 2010 U.S. Census, to promote awareness and assist residents impacted by floods in 2008, and to promote and increase energy efficiency and conservation.
At various times in 2010, the indictment alleges that :

• Mullins schemed to fraudulently steer a $24,980 disaster grant contract to Render, who returned $9,000 to Mullins;
• Mullins schemed to fraudulently steer a $24,985 energy grant contract to Peery, who returned $12,000 to Mullins;
• Mullins schemed to fraudulently steer a $24,995 census contract to Borner, who returned $5,000 to Mullins; and
• Mullins schemed to fraudulently steer a $24,997 census contract to Demos, who returned $8,700 to Mullins.
• Mullins also allegedly steered two additional census contracts for $24,995 and $24,390 to two other individuals whom he solicited for a portion of the proceeds, and in both instances those individuals returned their uncashed checks to the county.

In each instance, Mullins allegedly told the individuals who received the contracts that he could arrange for another company to perform portions of the work in exchange for a portion of the county payments they received.

In fact, the money that Mullins received from the individuals was not used to arrange for any other companies to perform the work.

Instead, it was used for Mullins’ own benefit, according to the indictment, and Render, Peery, Borner, and Demos performed little or no work for the county.

As part of an effort to conceal the scheme in late 2010 and early 2011, Mullins allegedly advised the contract recipients to falsely deny the circumstances surrounding the contracts if questioned by investigators.

For example, he advised Peery not to say anything about the cash payment to Mullins, and advised Borner to claim ownership of the invoice submitted in support of his census contract, the charges allege.

The indictment seeks forfeiture of approximately $34,700 from Mullins.

The government is being represented by Assistant U.S. Attorneys Lindsay Jenkins, Sarah Streicker, and Special Assistant U.S. Attorney Jack Blakey, chief of the Special Prosecutions Bureau of the Cook County State’s Attorney’s Office.

Each count of wire fraud carries a maximum penalty of 20 years in prison: each count of soliciting kickbacks carries a maximum of 10 years in prison; and misprision of a felony carries a maximum of three years in prison, and all counts carry a $250,000 maximum fine. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are 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 Office:

CHICAGO MAN INDICTED FOR ALLEGEDLY CAUSING 15 INVESTORS TO LOSE APPROXIMATELY $600,000 IN PONZI-TYPE FRAUD SCHEME

CHICAGO — A Chicago man who operated an investment trading pool allegedly fraudulently obtained approximately $1.4 million and caused some 15 individual investors to lose about $600,000, federal law enforcement officials announced today.

The defendant, Christopher Varlesi, was charged with six counts of mail and wire fraud in an indictment returned yesterday by a federal grand jury.

Varlesi allegedly misappropriated a substantial portion of investor funds for his own benefit, including misusing $99,750 in May 2010 to pay for a year’s rent for an apartment in the Trump International Hotel & Tower in Chicago, and to make Ponzi-type payments to other investors.

Varlesi, 53, of Chicago, will be arraigned at a later date in U.S. District Court.

He was the sole proprietor of Gold Coast Futures & Forex, which purported to buy and sell securities and commodities and operate a pool of investor money for trading purposes, but was not actually registered or licensed to do so.

The indictment seeks forfeiture of approximately $600,000.

The charges were 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. The Illinois Securities Department assisted in the investigation, as did the Commodity Futures Trading Commission, which filed a civil enforcement lawsuit against Varlesi in March of this year.

According to the indictment, between July 2008 and January 2012, Varlesi made

• false representations to clients about using their money to trade gold, Commodity futures and foreign currency,
• the expected return on their investments, and
• the security of their money.

He fraudulently retained investors’ funds and concealed the scheme by creating and distributing false account statements and making Ponzi-type payments to investors, the charges allege.

Varlesi also allegedly told clients that their investments were guaranteed to be profitable, with no risk of losing principal.

As part of the scheme, the charges allege that he provided promissory notes to certain investors, falsely promising to return the entire principal amount of their investment, as well as guaranteed interest ranging between 5 to 7.5 percent per month.

The government is being represented by Assistant U.S. Attorney Sarah E. Streicker.

Each count of wire and mail fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. The Court may also impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The investigation falls under the umbrella of the Financial Fraud Enforcement Task Force, which 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.

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.