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.

Gary Shapiro

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:

NORTH SUBURBAN MAN SENTENCED TO 10 YEARS IN PRISON FOR $4 MILLION FRAUD OF 50 INVESTORS IN SLEEP DISORDER BUSINESSES

CHICAGO — A north suburban man with a history of multiple bankruptcies, financial schemes and civil lawsuits that twice resulted in contempt findings, was sentenced today to 10 years in federal prison for fraudulently obtaining more than $4 million from 51 investors in a now-defunct sleep disorder businesses that he operated in Northbrook.

The defendant, KENNETH A. DACHMAN, pleaded guilty without a plea agreement last October to 11 counts of wire fraud.

The government established that Dachman misappropriated at least $2 million of co-mingled funds from investors and the companies to benefit himself and his family.

Dachman, 52, of Glencoe and formerly of Lake Forest, was ordered to pay both restitution and forfeiture totaling just over $4 million each by U.S. District Judge James Zagel, who set a hearing for Jan. 30 to decide when Dachman will begin serving his sentence. Judge Zagel also placed Dachman on three years of supervised release following his sentence.

“His business was not sleep apnea but putting money in his pocket,” Judge Zagel said in imposing the sentence. Three investors spoke at the sentencing hearing and told the judge that Dachman’s crimes had seriously affected their lives and retirement security.

Gary Shapiro

The sentence was announced by Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois, and Cory B. Nelson, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

Dachman operated Central Sleep Diagnostics, LLC, which purported to treat sleep apnea and sleep-related illnesses by conducting diagnostic studies in a patient’s own home instead of a hospital or clinic, and Advanced Sleep Devices, LLC, which purported to sell equipment used to treat sleep disorders to patients. He also operated Key Partners, LLC, to handle marketing for both businesses.

Between June 2008 and September 2010, Dachman fraudulently obtained funds from investors by misrepresenting the use of the funds, the expected return on and risks involved in investments, his business background, the financial condition of Central Sleep and Advanced Sleep and the status of investments.

Instead of using the funds to operate the businesses as he promised, Dachman used a significant amount of the investors’ funds

• to purchase a two-acre mansion in Lake Forest,
• to operate a tattoo parlor in Chicago that was co-owned by his son-in-law,
• to purchase vacations and cruises for himself and his family to Italy, Nevada, Florida and Alaska,
• to purchase a new sport utility vehicle,
• to fund personal gambling in Las Vegas and stock trading, and
• to purchase rare books and antiques.

According to the indictment, Dachman and an individual he retained as director of investor relations offered and sold at least three forms of investments in Central Sleep and Advanced Sleep to the public:

• an “Assignment of Units” agreement which gave investors units or shares in Central Sleep or Advanced Sleep;
• a “Convertible Debt Agreement” in which Dachman personally guaranteed he would repay investors’ principal, as well as monthly payments equal to between 5 and 24 percent annually; and
• an agreement which enabled investors to purchase various sleep-related equipment and lease it back to Central Sleep Diagnostics.

Dachman told prospective investors and investors that the funds he raised would be used to purchase sleep-related equipment, to rent office space, to set up the companies’ offices, to hire and pay administrative personnel, and to retain and pay physicians to review sleep diagnostic studies.

From July 2008 through January 2009, Dachman falsely represented to the first 15 investors in Central Sleep that their combined funds of approximately $1.4 million would be used to open and operate Central Sleep.

In fact, he intended to and did use almost $1 million of these funds for his own use and benefit, including more than $200,000 for personal stock trading, more than $180,000 to operate the tattoo parlor, Windy City Ink, and more than $160,000 to fund checks made payable to himself and his wife, even though at the time, Central Sleep had not received any income from the operation of its business.

Dachman personally guaranteed to repay certain investors’ principal without disclosing that he had almost no assets to fund the guarantees and that he had declared personal bankruptcy on seven prior occasions.

Dachman falsely told victims that he had a PhD from Northwestern University, and that he had invested his own funds in Central Sleep, knowing that he had not done so.

To induce additional investments as late as March 2010, Dachman represented to investors that Central Sleep was a successful company and was “on pace to be the most important and largest sleep diagnostic firm in the world,” despite knowing that he was draining the financially-troubled business of previous investor funds.

The government is being represented by Assistant U.S. Attorney Sunil Harjani. The U.S. Securities and Exchange Commission assisted the investigation conducted by the FBI.

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:

OWNER OF BANKRUPT HOME BUILDING COMPANY INDICTED ON FEDERAL BANK FRAUD CHARGES RELATED TO COLLAPSE OF ALGONQUIN PROJECT

The Algonquin Riverside Square condo project in 2009. Most refer to the building as “Tyvek Towers.”

CHICAGO — The former owner of an area home building company that went bankrupt in 2008, leaving unfinished a commercial and residential property development in northwest suburban Algonquin, is facing federal bank fraud charges related to the collapse of the project, known as Riverside Square.

The defendant, Bruce Hawkins, who owned Aspen Homebuilders, Inc., was arrested yesterday in Denver, where he now lives, after being indicted last week by a federal grand jury in Chicago.

Hawkins, 62, formerly of Algonquin, was charged with eight counts of bank fraud for allegedly defrauding Amcore Bank of more than $1 million. He was released on a $25,000 unsecured bond after appearing yesterday in Federal Court in Denver, and he was ordered to appear for arraignment at 11:30 a.m. on Nov. 27 before U.S. Magistrate Judge Jeffrey Gilbert in U.S. District Court in Chicago.

The charges were announced by Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois, and John Lucas, Special Agent-in-Charge of the Federal Deposit Insurance Corporation Office of Inspector General in Chicago.

According to the indictment, in September 2006, Hawkins, acting through Riverside Square, LLC, obtained a $13.54 million commercial loan to finance the construction of Riverside Square, located at 1100 West Algonquin Rd.

Between January 2007 and June 2008, Hawkins fraudulently obtained slightly more than $1 million in loan proceeds from Amcore Bank by submitting

• false contractor statements,
• waiver of liens, and
• contract invoices that requested funds purportedly for permits, construction work, and consulting work for the development,

the indictment alleges.

To obtain funds from the bank loan, Hawkins allegedly submitted false contractor statements to the bank in which he verified that subcontractors and his company were owed funds for work performed on Riverside Square.

Hawkins submitted, and caused the submission of, false lien waivers and invoices for work performed to the title company, which was designated by Amcore Bank to keep and disburse funds for the project, the charges allege.

After these documents were submitted, the bank authorized the title company to disburse funds to Hawkins and the subcontractors.

The indictment seeks forfeiture of at least $1,017,183.

Each count of bank fraud carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal sentencing statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorney Sunil Harjani.

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.

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

FOREX TRADER SENTENCED TO THREE YEARS IN PRISON FOR DEFRAUDING 47 INVESTORS OF $2.3 MILLION OVER TWO YEARS

CHICAGO — A former floor trader at the Chicago Mercantile Exchange who later conducted spot foreign exchange trading in Florida was sentenced today to three years in federal prison for a fraud scheme in which he concealed trading losses and inflated investment returns that caused 47 investors to lose approximately $2.3 million.

The defendant, Mark Adrian, was employed as a consultant at the bankrupt Avidus Trading, Inc., in Boca Raton, which conducted foreign exchange (FOREX) trading at its discretion for investors.

Adrian was responsible for communicating with an investment group in Chicago that solicited and pooled individuals’ investment funds for Avidus.

These investors and others lost savings, retirement, and other funds as a result of the fraud scheme.

Adrian, 54, of Delray Beach, Fla., and formerly of Chicago, was ordered to start serving his 36-month prison term on Jan. 7, 2013.

U.S. District Judge Ruben Castillo also ordered Adrian to pay $2.3 million in restitution. Adrian pleaded guilty to one count of wire fraud in October 2010.

According to his plea agreement, between July 2006 and October 2008, Avidus’ trading was not profitable and resulted in the $2.3 million loss for investors.

Adrian concealed the losses in order for Avidus to retain the investors’ business.

He prepared and sent false monthly spreadsheets concealing the losses to the investment group in Chicago, knowing that it would report the false information to other investors.

Adrian also hid the losses from other employees at Avidus by creating fake brokerage statements that showed an inflated balance for client funds that were on deposit with the broker.

Gary Shapiro

The sentence plea was announced by Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois, and William C. Monroe, Acting Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. The Commodity Futures Trading Commission assisted in the investigation.

The government was represented by Assistant U.S. Attorney Sunil Harjani.

Today’s announcement is part of efforts underway by the Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.

Since its formation, the task force has facilitated increased investigation and prosecution of financial crimes; enhanced coordination and cooperation among federal, state and local authorities; addressed discrimination in the lending and financial markets, and conducted outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

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

WILL COUNTY COUPLE SENTENCED TO FEDERAL PRISON TERMS FOR INVESTMENT FRAUD SCHEME THAT SWINDLED 40 VICTIMS OF $1 MILLION

CHICAGO — A Will County couple has been sentenced to federal prison terms for engaging in a brazen investment fraud scheme that swindled more than $1 million from approximately 40 victims, causing some of them to lose their homes and financial security while the couple spent the money primarily on themselves.

JAMES PILON was sentenced today to 53 months in prison, while his wife, VERNA PILON, was sentenced last week to 78 months in prison, and they were ordered to pay $967,702 in restitution.

The couple “lived a life of ease while others were being pushed out onto the streets,” U.S. District Judge Virginia Kendall said today in imposing sentence for James Pilon, 68, of Joliet.

His lower sentence resulted primarily from an early guilty plea to the fraud scheme, and he was ordered to begin serving his sentence on Nov. 7, 2012.

Verna Pilon, 59, who has been in federal custody since 2010, pleaded guilty to the fraud scheme on the second day of trial in May of this year after eight victims testified against her.

“The victims in this case were hard-working individuals who did not have money to spare, and indeed, many refinanced their homes in order to make an investment with the defendants,” said Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois, who announced the sentences with William C. Monroe, Acting Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The Will County State’s Attorney’s Office and the Monee Police Department assisted in the investigation.

According to court records, the investigation of the Pilons, of Monee at the time, began in 2005 when the Illinois Securities Department ordered them to cease selling investments in the state. Instead of complying, the couple continued to solicit and obtain investment funds through 2005 and 2006.

The couple operated numerous businesses through which they purported to sell two forms of investment —

• the Mortgage Acceleration Program, which essentially promised to pay investors’ monthly mortgage payments, completely pay off the outstanding balance in two years, and generate additional returns, and
• the Private Placement Program, which also promised high-yield returns of as much as 100 percent or more on investments within 90 days.

In fact, neither investment program existed and the Pilons used some funds they fraudulently obtained to make Ponzi-type payments to lull some investors, while using the remaining funds for themselves.

As a result, some investors’ mortgage payments were never made and their homes were foreclosed.

Among the funds the Pilons spent on themselves were

• $14,000 for a diamond ring,
• $54,000 for a Cadillac SUV, and
• $125,000 for the down payment on a California residence once owned by tennis player Andre Agassi.

They used additional funds to pay off their bankruptcy debts and to pay for restaurants, hotels, and airline tickets.

During court proceedings, Verna Pilon was identified as a member of the so-called Washitaw nation sovereign group and she repeatedly maintained that the U.S. District Court had no jurisdiction over her.

Evidence showed that the Pilons were acquainted with many of their victims, including some who testified that the couple preyed upon their religious faith in appealing for investment funds.

The government was represented by Assistant U.S. Attorneys Sunil Harjani and Bolling Haxall.

Today’s announcement is part of efforts underway by the Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ Offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has facilitated increased investigation and prosecution of financial crimes; enhanced coordination and cooperation among federal, state and local authorities; addressed discrimination in the lending and financial markets, and conducted outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

The proposed $1 a pack increase in cigarette taxes will make tax evasion twice as profitable.

A press release from the U.S. Attorney’s Officeabout cigarette bootlegging offenses before the tax is increase another $1 a pack:

U.S. INDICTS 10 DEFENDANTS ARRESTED FOR ALLEGEDLY TRAFFICKING MILLIONS OF UNSTAMPED, UNTAXED CIGARETTES IN UNDERCOVER STING

CHICAGO — At an undercover warehouse in suburban Hickory Hills, defendants allegedly brought millions of dollars in cash, firearms, narcotics, and counterfeit cigarette tax stamps to purchase millions of unstamped, untaxed cigarettes from two cooperating individuals working undercover with federal agents from the Bureau of Alcohol, Tobacco, Firearms and Explosives.

Altogether, between March 2010 and March 2012, defendants allegedly paid more than $20 million to buy more than 100 million cigarettes without paying Cook County and State of Illinois taxes.

The investigation resulted in federal charges against more than a dozen defendants, including a veteran Cook County sheriff’s police officer.

Following their arrest on March 13, 2012, 10 of those defendants were formally charged in six indictments that were returned yesterday by a federal grand jury, while other defendants remain charged in complaints that were filed previously.

Patrick Fitzgerald

The indictments were announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Andrew L. Traver, Special Agent-in-Charge of the Chicago Office of ATF; and Thomas M. Jankowski, Acting Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago. The Illinois Department of Revenue and the Hickory Hills Police Department provided valuable assistance in the investigation.

“The distribution of untaxed cigarettes deprives the state and county of significant revenue and this investigation shows that we will work aggressively to ensure that those who allegedly traffic in contraband cigarettes are prosecuted,” Mr. Traver said.

According to court documents, distributors or wholesalers of cigarettes in Illinois must apply for and receive a license from the Illinois Department of Revenue.

Licensed distributors must also purchase tax stamps from the state and Cook County and affix the stamps to each pack of cigarettes that they sell, evidencing proof that the taxes have been paid.

Beginning in March 2010, two cooperating individuals (CS1 and CS2) sold unstamped cigarettes under the direction of ATF agents, and they recorded their telephone conversations and in-person meetings with their customers.

After October 2010, the vast majority of sales of unstamped cigarettes occurred at an undercover warehouse operated by ATF agents, with hidden cameras capturing audio and video recordings of meetings between CS1 and CS2 and their customers.

Between June 2011 and February, 2012, a pending criminal complaint alleges that

• Lawrence E. Draus, also known as “Eric,” 33, of Peotone, and
• his father, Lawrence A. Draus,, also known as “Larry,” 62, of Lansing, a Sheriff’s Police officer who was assigned to the Special Operations Division, Vice Unit, in Maywood

conspired to commit extortion by obtaining at least $10,000 to protect the cigarette trafficking from the warehouse.

Cigarette smoke pours out of this car.

Lawrence E. Draus, was also charged with purchasing contraband cigarettes.

Both defendants were released on bond and the charges remain pending.

The following six indictments were returned yesterday against a total of 10 defendants, all of whom were released on bond following their arrest in March and will be arraigned on later dates in U.S. District Court:

United States v. Mustafa Mohd Shaikh, 12 CR 166

Mustafa Mohd Shaikh, 47, of Tinley Park, was charged with 17 counts of trafficking contraband cigarettes, two counts of money laundering, and two counts of filing false federal income tax returns in a 21-count indictment.

Between March 2010 and February 2012, Shaikh allegedly conducted at least 66 transactions in which he paid the two cooperating individuals more than $9 million for more than 32 million unstamped cigarettes.

The indictment seek forfeiture of at least $680,000, including $600,000 that was seized when Shaikh was arrested, as well as an additional $37,200 that was seized a day later from two bank accounts and his residence, and two vehicles that were seized, a 2012 Infiniti QX56 and a 2009 Nissan Altima.

One money laundering count alleges that Shaikh attempted to illegally transfer money to Jordan, and the tax counts allege that he under-reported his total income on his 2010 and 2011 income tax returns.

United States v. Zulfiqar Alvi and John James, 12 CR 173

• Zulfiqar Alvi, 62, of Justice, was charged with four counts of trafficking contraband cigarettes and two counts of filing false federal income tax returns, and
• John James, 66, of Bourbonnais, was charged with three counts of trafficking contraband cigarettes and one count of possessing and selling counterfeit tax stamps, in an eight-count indictment.

Alvi allegedly conducted approximately 69 transactions in which he paid the two cooperating individuals more than $4 million for more than 32 million unstamped cigarettes. James allegedly conducted 11 transactions in which he paid approximately $675,000 for more than 6 million unstamped cigarettes. Alvi also allegedly under-reported his total income on his 2010 and 2011 income tax returns.

United States v. Aiman Othman, 12 CR 168

Aiman Othman, 32, of Oak Lawn, was charged with seven counts of trafficking contraband cigarettes, one count of money laundering, two counts of illegally possessing firearms as a previously convicted felon, and one count of dealing firearms without a license in an 11-count indictment. Othman allegedly conducted 44 transactions in which he paid the two cooperating individuals more than $3.4 million and provided 161 firearms in exchange for more than 23.1 million unstamped cigarettes. The indictment seeks forfeiture of approximately 161 firearms that were seized during the investigation and a 2008 Cadillac Escalade.

United States v. Firas el Matari and Ammar el Matari, 12 CR 171

• Firas el Matari, 37, and
• his brother, Ammar el Matari, 33,

both of Tinley Park, were each charged with one count of conspiracy to traffic contraband cigarettes in an 11-count indictment. Firas el Matari was also charged with seven counts of trafficking contraband cigarettes and one count of possessing and selling counterfeit tax stamps, while Ammar el Matari was also charged with six counts of trafficking contraband cigarettes. Together, they allegedly conducted approximately 25 transactions in which they paid more than $3.3 million for more than 23 million unstamped cigarettes.

A DuPage County gas station advertises lower taxes than in Cook County.

United States v. Mohammad al Sakhleh and Mahmoud al Qaisi, 12 CR 170

• Mohammad Al Sakhleh, 27, of Merced, Calif., and
• Mahmoud Al Qaisi, 41, of Justice,

were each charged with one count of conspiracy to traffic contraband cigarettes in a five-count indictment. Al Sakhleh was also charged with one count each of trafficking contraband cigarettes and money laundering, while Al Qaisi was also charged with two counts of trafficking contraband cigarettes. The charges allege that Al Sakhleh obtained contraband cigarettes bearing counterfeit New York and New Jersey tax stamps, and that Al Qaisi would find buyers for the cigarettes. Together, they allegedly purchased approximately 3.6 million cigarettes for more than $450,000. The indictment seeks forfeiture of $100,000 that was seized when they were arrested, as well as an additional $159,000 from Al Sakhleh in alleged money laundering proceeds.

United States v. Victoria Jaber and Chadia Abueid, 12 CR 172

• Victoria Jaber, 30, of Chicago, and
• Chadia Abueid, 32, of Chicago,

were each charged with one count of conspiracy to traffic contraband cigarettes in a 13-count indictment. Jaber was also charged with five counts of trafficking contraband cigarettes, two counts of possessing and selling counterfeit tax stamps, and four counts of distributing cocaine, while Abueid was also charged with four counts of trafficking contraband cigarettes and three counts of possessing and selling counterfeit tax stamps. Together, Jaber and Abueid allegedly conducted 26 transactions in which they paid $291,000 for more than 2.8 million unstamped cigarettes. They also exchanged approximately 100,000 counterfeit tax stamps for contraband cigarettes, which they resold for a profit, the charges allege. Jaber also allegedly distributed a total of approximately 4.9 kilograms of cocaine to one of the cooperating individuals.

The government is being represented by Assistant U.S. Attorneys Sunil R. Harjani, Christopher T. Grohman, and Scott V. Bruner.

The charges in these cases carry the following maximum penalties on each count:

• conspiracy and trafficking contraband cigarettes — five years in prison and a $250,000 fine;
• possessing and selling counterfeit tax stamps — 10 years in prison and a $250,000 fine;
• money laundering — different statutes carry a maximum of either 20 years in prison and a $500,000 fine, or 10 years and a $250,000 fine, and both provide for an alternative fine totaling twice the amount of the funds involved in the transaction;
• filing a false federal income tax return — three years in prison and a $250,000 fine. In addition, a defendant convicted of tax offenses faces mandatory costs of prosecution and remains civilly liable to the Government for any and all back taxes, as well as a potential civil fraud penalty of up to 75 percent of the underpayment plus interest; and
• distribution of cocaine — mandatory minimum of five years and a maximum of 40 years in prison and a maximum fine of $5 million.

If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.
The public is reminded that indictments and complaints contain only charges and are 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.

This press releases hit close to home, since I have sleep apnea:

NORTH SUBURBAN MAN INDICTED IN ALLEGED FRAUD SCHEME INVOLVING $4 MILLION RAISED FROM 50 INVESTORS IN SLEEP DISORDER BUSINESSES

CHICAGO — A north suburban man was indicted on federal charges for allegedly fraudulently obtaining approximately $4 million from more than 50 investors in now-defunct sleep disorder businesses that he operated in Northbrook.

The defendant, Kenneth A. Dachman, was charged with 11 counts of wire fraud in an indictment returned by a federal grand jury yesterday, 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, announced today.

Dachman allegedly misappropriated at least $2 million of co-mingled funds from investors and the companies to benefit himself and his family.

Dachman, 52, of Glencoe and formerly of Lake Forest, will be arraigned at a later date in U.S. District Court.

Sleep apnea equipment.

He operated Central Sleep Diagnostics, LLC, which purported to treat sleep apnea and sleep-related illnesses by conducting diagnostic studies in a patient’s own home instead of a hospital or clinic, and Advanced Sleep Devices, LLC, which purported to sell equipment used to treat sleep disorders to patients.

He also operated Key Partners, LLC, to handle marketing for both businesses.

Between June 2008 and September 2010, Dachman allegedly fraudulently obtained funds from investors by misrepresenting

• the use of the funds,
• the expected return on and risks involved in investments,
• his business background,
• the financial condition of Central Sleep and Advanced Sleep and
• the status of investments.

Instead of using the funds to operate the businesses as he promised, Dachman used a significant amount of the investors’ funds

• to purchase a two-acre mansion in Lake Forest,
• to operate a tattoo parlor in Chicago that was co-owned by his son-in-law,
• to purchase vacations and cruises for himself and his family to Italy, Nevada, Florida and Alaska,
• to purchase a new sport utility vehicle,
• to fund personal gambling in Las Vegas and stock trading, and
• to purchase rare books and antiques.

The indictment seeks forfeiture of at least $4 million, as well as a 2008 Land Rover.

According to the indictment, Dachman and an individual he retained as director of investor relations offered and sold at least three forms of investments in Central Sleep and Advanced Sleep to the public:

• an “Assignment of Units” agreement which gave investors units or shares in Central Sleep or Advanced Sleep;
• a “Convertible Debt Agreement” in which Dachman personally guaranteed he would repay investors’ principal, as well as monthly payments equal to between 5 and 24 percent annually; and
• an agreement which enabled investors to purchase various sleep-related equipment and lease it back to Central Sleep Diagnostics. Dachman told prospective investors and investors that the funds he raised would be used to purchase sleep-related equipment, to rent office space, to set up the companies’ offices, to hire and pay administrative personnel, and to retain and pay physicians to review sleep diagnostic studies.

From July 2008 through January 2009, the indictment alleges that Dachman falsely represented to the first 15 investors in Central Sleep that their combined funds of approximately $1.4 million would be used to open and operate Central Sleep.

In fact, he allegedly intended to and did use almost $1 million of these funds for his own use and benefit, including

• more than $200,000 for personal stock trading,
• more than $180,000 to operate the tattoo parlor, Windy City Ink, and
• more than $160,000 to fund checks made payable to himself and his wife, even though at the time, Central Sleep had not received any income from the operation of its business.

The charges allege that Dachman personally guaranteed to repay certain investors’ principalwithout disclosing that he had almost no assets to fund the guarantees and that he had declared personal bankruptcy on seven prior occasions.

Dachman also allegedly falsely told victims that he had a PhD from Northwestern University, and that he had invested his own funds in Central Sleep, knowing that he had not done so.

To induce additional investments as late as March 2010, Dachman allegedly represented to investors that Central Sleep was a successful company and was “on pace to be the most important and largest sleep diagnostic firm in the world,” despite knowing that he was draining the financially-troubled business of previous investor funds.

The government is being represented by Assistant U.S. Attorney Sunil Harjani. The U.S. Securities and Exchange Commission assisted the investigation conducted by the FBI.

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.

Each count of wire 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 the advisory United States Sentencing Guidelines.

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.

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

TWO SUBURBAN MEN ALLEGEDLY OBTAINED $16 MILLION FROM 300 INVESTORS IN FRAUDULENT REAL ESTATE INVESTMENT SCHEME

CHICAGO — Two businessmen who operated a defunct northwest suburban real estate investment company were charged today with engaging in an alleged investment fraud scheme that obtained more than $16 million from more than 300 investors.

The defendants, Michael Morawski and Frank Constant, were each charged with one count of mail fraud and one count of wire fraud in a criminal complaint, 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 defendants, who operated Michael Franks LLC, and several related business entities in Palatine, allegedly misused money they raised from investors for their own benefit and to make Ponzi-type payments to earlier investors.

Morawski, 53,of Sleepy Hollow, and Constant, 57, of West Dundee, are scheduled to voluntarily appear at 11 a.m. tomorrow before U.S. Magistrate Judge Sheila Finnegan in U.S. District Court.

According to the charges, Michael Franks offered investors passive ownership in multi-family residential properties, including apartment building complexes located in Illinois, Texas and Alabama.

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

• in one, they represented that investors’ funds would be used to acquire, improve and operate specific apartment complexes for a period of three to five years, and for the most part, investors were told they would earn between seven and nine percent annually, and potentially more upon the sale of the property;
• in the second, they offered real estate-based “funds” to investors, which were executed using promissory notes, and often offered an annual interest payment of between 8 and 30 percent per year to investors. Through these purported investments, the defendants raised more than $16 million from more than 300 investors between 2006 and 2010.

The charges allege Morawski and Constant, through Michael Franks, engaged in a scheme to defraud investors about the nature of their investments and their use of investor funds.

It alleges that they engaged in a Ponzi-scheme by continually using funds raised from new investors to pay purported returns to earlier investors, all of which they concealed from both new and earlier investors.

In November 2010, Morawski and Constant turned over Michael Franks, its real estate projects and investment funds to a company called Commercial Recovery Assets to act as a private trustee/receiver.

Since then, federal agents learned that many of the real estate properties have gone into foreclosure and the secured lending banks will likely take possession of the properties and any proceeds, leaving investors to lose much, if not all, of the principal they invested in Michael Franks.

The charges allege that 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 with funds raised from new investors, without disclosing this information, the charges add.

At the same time, they allegedly 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,
• country club payments, and
• to extend loans to certain friends of Morawski.

The government is being represented by Assistant U.S. Attorney Sunil Harjani.

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.

Each count of mail fraud and wire 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, however, the Court must impose a reasonable sentence under the advisory United States Sentencing Guidelines.

A complaint 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.

Three Chicago banks got defrauded out of millions of dollars financed by a Ponzi scheme that cheated hundreds the U.S. Attorney’s Office charged today. The press release follows:

THREE OWNERS OF BANKRUPT SUNRISE EQUITIES ACCUSED OF CHEATING

HUNDREDS OF INVESTORS IN $43 MILLION PONZI AND BANK FRAUD SCHEME

CHICAGO — Three owners of a bankrupt Chicago real estate development firm that purported to adhere to Islamic law in handling investments from individuals in the Chicago area and nationwide actually operated a Ponzi-scheme that defrauded hundreds of victims and three banks of more than $43 million, according to a federal indictment made public today.

The defendants, who owned Sunrise Equities, Inc., allegedly fraudulently obtained more than $40 million from more than 300 investors through the sale of promissory notes and fraudulently obtained more than $29 million in loans from three area banks.

The individual victims collectively lost approximately $30 million and the banks lost approximately $13.7 million when the alleged scheme collapsed in the fall of 2008.

Two defendants,

• Salman Ibrahim, the majority owner, president and chief executive officer of Sunrise, and
• Mohammad Akbar Zahid, senior vice president of investor relations and a 10 percent owner of Sunrise,

allegedly misrepresented that an investment in Sunrise was Shariah-compliant, which meant that investors would not be paid interest on their investments, which is prohibited under Islamic law.

Instead, the investors would receive monthly payments consisting of “profit” generated from real estate development.

As a result, they solicited and received investments from hundreds of Muslims in the Chicago area and around the country.

Ibrahim and Zahid offered and sold purported investments to the public in the form of promissory notes, claiming that investors’ funds would be invested in real estate development only, and they promised annual returns of between 15 and 30 percent, according to 14-count superseding indictment.

The charges were returned by a federal grand jury yesterday and announced today 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.

“This is the first time in Chicago that an alleged fraud scheme has been uncovered that used a pillar of Islam to induce potential victims to invest their funds. A key element in securing the charges was the extraordinary cooperation provided by members of Chicago’s Pakistani community, who were the primary victims of this alleged fraud scheme,”

Mr. Grant said.

Both Ibrahim, 37, a Pakistani national, and Zahid, 59, a U.S. citizen, formerly of Chicago, allegedly fled the country since Sunrise collapsed and was forced into bankruptcy by creditors. They are believed to be living abroad and anyone with information regarding their whereabouts is encouraged to contact the FBI at (312) 421-6700.

Ibrahim and Zahid were charged together with seven counts of mail fraud or wire fraud and one count of bank fraud. Ibrahim was charged alone with two additional counts of bank fraud, as well as two counts of making false statements to financial institutions. Zahid alone was charged with one count of making false statements to a financial institution. The indictment also seeks forfeiture of at least $43.7 million from them.

A third defendant, Amjed Mahmood, 47, of Des Plaines, who was senior vice president of construction and a 10 percent owner of Sunrise, was charged with one count of conspiracy to commit mail, wire and bank fraud. He will be arraigned at a later date in U.S. District Court.

According to the indictment, between January 2003 and September 2008, the defendants engaged in a Ponzi scheme by continually using funds raised through the sale of promissory notes to new investors to make purported “profit” payments to earlier investors, all of which they concealed and intentionally failed to disclose to both new and earlier investors.

The defendants allegedly knew that Sunrise was not generating any profits from real estate developments and the only way they could make the promised payments to investors was through the operation of the Ponzi scheme.

In addition, they allegedly obtained additional financing by making false statements to obtain loans from

• Mutual Bank,
• Cole Taylor Bank and
• Devon Bank.

Altogether, the charges allege that the defendants took in a total of more than $69 million from individual investors and banks during the scheme.

The defendants used a portion of investors’ funds to operate non-real estate projects that were not disclosed to investors, including

• a motorcycle parts manufacturing company in Pakistan,
• a gas station in suburban La Grange and
• a medical equipment sales company in Chicago,

the indictment alleges. Ibrahim misused investor funds to purchase a plot of land on which to build a residence for himself, to operate an Islamic school in order to enhance his reputation in the community, and to lease cars for his personal use; Zahid misused investor funds to renovate his personal residence; and Mahmood misused investors’ funds to make mortgage payments for his personal condominium, according to the indictment.

All three defendants allegedly took steps to fraudulently lull investors into believing their investments were doing well, including sending monthly “profit” payments and falsely representing that Sunrise was a successful real estate development company.

To obtain additional funds, Ibrahim allegedly arranged for certain investors to refinance their home mortgages in a “cash-out refinance” program so they could further invest their home loan proceeds into Sunrise.

The indictment details five examples of unnamed investors who each lost between $120,000 and $300,000 in the alleged Ponzi scheme, including several who refinanced their mortgages to make further investments.

In August 2008, the defendants allegedly organized an emergency investor meeting and falsely told investors that Sunrise needed an additional $1.2 million to continue operating.

The defendants allegedly knew, however, that Sunrise had expended all investor funds and had only approximately $200,000 remaining in its bank accounts and had no means to recover more than $40 million in principal that Sunrise owed to its investors.

As part of the alleged bank financing scheme, Ibrahim and Mahmood obtained loans totaling approximately $20.3 million from Mutual Bank to construct a high-rise condominium building at 24 South Morgan St., Chicago.

They allegedly submitted false personal financial statements indicating that they each had a net worth of approximately $8.4 million and $1.5 million, respectively, based primarily on their ownership of Sunrise and its real estate projects, knowing that the company and its projects had no value.

In June 2007, Ibrahim and Zahid obtained a $7.2 million loan from Cole Taylor Bank to construct high-rise condominiums at Leland and Clarendon avenues in Chicago.

They allegedly submitted false personal financial statements reflecting that they had a net worth of approximately $10.4 million and $687,305, respectively, knowing that they had no such personal worth to guarantee the loan.

Similarly, Mahmood alone allegedly fraudulently obtained a $1.2 million loan from Devon Bank to build a high-rise condominium building at 2215 Madison St., Chicago.

The government is being represented by Assistant U.S. Attorney Sunil Harjani.

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.

Each count in the indictment, except the conspiracy count against Mahmood, carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. The conspiracy count carries a maximum penalty of five years in prison and a $250,000 fine. 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, however, the Court must determine a reasonable sentence to impose under the advisory United States Sentencing Guidelines.

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.

The guy’s name this time is Frank Castaldi. The U.S. Attorney’s press release follows:

SUBURBAN MAN SENTENCED TO 23 YEARS IN PRISON AFTER HUNDREDS OF
VICTIMS LOST MORE THAN $30 MILLION IN 22-YEAR “PONZI” SCHEME

CHICAGO — A Ponzi scheme that spanned 22 years and resulted in losses totaling more than $30 million to hundreds of individuals had “a horrific impact” on the victims, including many elderly Italian immigrants, a federal judge declared today in imposing the maximum possible prison term on the defendant.

U.S. District Judge John Darrah nearly doubled advisory federal sentencing guidelines in imposing the maximum 23-year prison term for Frank A. Castaldi, a suburban accountant and businessman who promised hundreds of investors between 10 and 15 percent annual interest rates on promissory notes he sold them.  The fraud scheme caused many of the victims to lose their homes, retirement income, and life savings.

This Chicago Sun-Times headline and article on page 2 indicates a 23-year sentence is a big deal.

The sentence marked the second time in less than a week that Judge Darrah nearly doubled sentencing guidelines in imposing sentence against a defendant in a Ponzi scheme case.

Castaldi, 57, most recently of Prospect Heights, was ordered to begin serving his sentence on Nov. 15.  Judge Darrah imposed the sentence after a three-hour hearing in which he heard directly from more than a dozen victims of the fraud scheme, as well as considering victim impact letters from dozens of others, announced 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.

Castaldi was charged in January 2009 after self-reporting his criminal activity to federal law enforcement authorities.

He pleaded guilty in August 2009 to one count of mail fraud and one count of impeding the IRS in the collection of taxes.

Judge Darrah imposed the maximum terms of 20 years on the mail fraud count and 3 years on the tax offense and ordered the terms to be served consecutively.  Federal sentencing guidelines called for a sentencing range of 151 to 188 months in prison, but Judge Darrah said the guidelines “grossly understated the seriousness” of the crimes.

Judge Darrah deferred ordering mandatory restitution for 90 days to allow more time to calculate the correct amounts owed to victims.  The government contends that individual and group investors are owed approximately $31.6 million, in addition to more than $8.8 million that is owed to the IRS.

During the early to mid-1980s, Castaldi, his father, and a business partner started two businesses – CZ Travel and CZ Realty.  They later purchased ownership interests in First State Travel Service, Inc., Parkway Towers Insurance Agency, Inc., and Cumberland Realty, Inc., which later became known as Remax Cumberland Realty, all of which were located at 4501 North Cumberland in Norridge, with Castaldi acting as the president of each business.

Since at least 1986, Castaldi began offering and selling 6-month promissory notes to investors, the majority of whom were people who were referred to him by other investors, and included friends, family members and customers of his businesses.

While the vast majority of notes stated that the annual interest rate was zero percent, Castaldi orally guaranteed that he would pay investors annual returns between 10 and 15 percent.

Castaldi made false representations to most investors about investing their principal in his various businesses, as well as the source of the funds that he used to make their interest payments.

Approximately six years ago, Castaldi began falsely telling investors that he was placing their money with financial institutions with whom he had a special relationship and would guarantee their principal and high returns.

Instead, Castaldi obtained loans and used certain investors’ principal payments to make interest payments to other investors, without disclosing the true source of the interest payments.

In all, Castaldi raised more than $77 million from some 473 individual and group investors, of which he used approximately $59 million to make payments of principal and interest to earlier investors.  When the scheme collapsed in December 2008, Castaldi was left owing approximately $31.6 million to more than 300 individuals and investor groups.

In addition to using new investors’ principal to make interest payments and return principal to earlier investors, Castaldi also lost investors’ money by funding a failed banquet hall and other failing businesses, and to purchase some stocks.

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.

The government is being represented by Assistant U.S. Attorneys Christopher Veatch and Sunil Harjani.