McHenry County Blog

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

FORMER LAW FIRM IT CHIEF AND CONTRACT EMPLOYEE VENDOR INDICTED IN $4.8 MILLION BILLING FRAUD AND KICK-BACK SCHEME

CHICAGO — The former chief information officer of a Chicago-based international law firm who was charged previously, and the president of a company that provided contract technology workers who was charged for the first time and arrested today, were indicted for allegedly engaging in a fraudulent billing and kickback scheme that netted each of them more than $2 million.

NICHOLAS DEMARS, the president of NS Mater, a defunct firm that provided contract employees and technology to assist in office automation, web and database development, and general information technology, was arrested today and indicted with DAVID TRESCH, the former law firm officer who supervised the work and billing related to the contract employees.

For the first six years of the scheme that began in 2004, Demars allegedly paid Tresch a portion of the profits that NS Mater made from work its contract employees performed at the victim law firm.

During the last two years ending in June 2012, Tresch allegedly received kickbacks totaling nearly all of the false billings that the law firm paid NS Mater for work that was not performed.

Tresch, 51, and Demars, 57, both of Itasca, were each charged with 10 counts of mail fraud in an indictment that was returned by a federal grand jury yesterday and unsealed today after Demars was arrested. Demars was released on bond after appearing this morning before U.S. Magistrate Judge Sidney Schenkier in U.S. District Court. Tresch, who was released on bond after he was arrested in August, will be arraigned at a later date in Federal Court.

The indictment also seeks forfeiture of $4,819,253 representing the combined net proceeds that both men allegedly obtained from the scheme, as well as

• their respective homes,
• Demars’ condominium in Chicago, and
• a residence in Lake Geneva, Wis., and
• more than $225,000 that was seized from Tresch along with his camping trailer, a van, and a luxury automobile.

Gary Shapiro

The charges were announced by Gary S. Shapiro, Acting United States Attorney for the Northern District of Illinois, and Thomas R. Trautmann, Acting Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

According to the initial complaint, the victim law firm, which was not identified by name, reported Tresch’s alleged criminal activity and cooperated in the investigation.

The firm, which has offices worldwide, hired Tresch in May 2004 and he held several positions in the information technology department before he was promoted in July 2011 to chief information officer.

The indictment alleges that between November 2004 and March 2011, the law firm issued checks totaling approximately $7.68 million to NS Mater, and Demars, in turn, kicked back $1.14 million to Tresch.

In 2004 and 2005, Demars allegedly paid kickbacks directly to Tresch after paying legitimate NS Mater contract employees and payroll administrators for work they had performed for the law firm.

Beginning in April 2006, allegedly to conceal the kickbacks, Demars began paying Tresch by issuing checks to Tresch’s wife and treating her as an employee of NS Mater, even though both defendants knew that she was not an employee and had not performed any work, according to the indictment. Tresch’s wife is not a defendant.

Subsequently, in late 2010, Tresch learned that that the law firm would soon stop using NS Mater contract employees, and, in February 2011, the firm directed Tresch to no longer permit NS Mater to provide personnel for the information technology department.

Between November 2011 and June 2012, Demars allegedly continued submitting invoices to Tresch totaling more than $1.1 million, falsely representing that NS Mater performed work that both defendants knew was not performed.

Tresch submitted the false invoices, which the firm paid, and of the $1.1 million paid during this period, Demars kicked back approximately $970,000 to Tresch, while retaining the remainder for himself, the indictment alleges.

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

The government is being represented by Assistant U.S. Attorney Terra Reynolds.

The public is reminded that an indictment 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:

FORMER CHIEF INFORMATION OFFICER FOR CHICAGO-BASED INTERNATIONAL LAW FIRM ARRESTED FOR ALLEGEDLY ENGAGING IN AT LEAST $850,000 FRAUDULENT BILLING SCHEME

CHICAGO — The former chief information officer of an international law firm based in Chicago was arrested today on federal charges for allegedly defrauding the firm of at least $850,000 over the last year as a result of an allegedly fraudulent billing scheme with a vendor company.

The defendant, DAVID TRESCH, allegedly approved payments to a vendor for work that had not been performed, and in turn, pocketed hundreds of thousands of dollars from that vendor.

As background, the charges state that Tresch obtained nearly $1.3 million in additional proceeds since approximately 2005, a year after he joined the victim firm. Also today, FBI agents seized approximately $210,000 in bank accounts controlled by Tresch, as well as a camping trailer, a van, and a luxury automobile, and agents obtained authority to seize a mobile home.

Tresch, 51, of Itasca, was charged with one count of mail fraud in a criminal complaint that was filed yesterday and unsealed today following his arrest.

He was released on a $100,000 partially-secured bond after appearing before Magistrate Judge Sidney I. Schenkier in U.S. District Court. A status hearing was set for 11:30 a.m. on Sept. 5, 2012.

The arrest and charges were 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.

According to the complaint affidavit, Tresch was terminated on June 28, 2012, by the victim law firm, which was not identified by name.

The firm reported his alleged criminal activity to federal authorities and cooperated in the ensuing investigation.

The firm, which has offices worldwide, hired Tresch in May 2004 as a server operations manager in its information technology department.

He was promoted in 2008 to director of global operations, and was promoted again in July 2011, to chief information officer.

The charges allege that between May 2011 and May 2012, the law firm issued checks totaling approximately $980,000 to the unnamed vendor firm, based in Schaumburg, which purported to provide personnel and technology to assist businesses with office automation, website and database development, and general information technology.

During that same time, the vendor firm issued 11 checks totaling $854,250 to Tresch, who deposited the funds into one of two personal accounts he controlled, and then used funds from those accounts to purchase and make payments on the

• mobile home,
• camper, and
• vehicles,

the charges allege.

As part of his duties, Tresch was responsible for reviewing invoices from, and authorizing payment to, the vendor firm for the services of contract employees.

Between November 2004 and March 2011, the law firm paid the vendor firm nearly $7.8 million for work purportedly performed by the vendor firm contract employees.

During that time, records showed that more than 95 percent of the vendor firm’s income came from the victim law firm, the charges state.

Between February 2005 and March 2011, the vendor firm paid Tresch nearly $1.3 million, or more than 15 percent of the money it received from the law firm, according to the affidavit.

Tresch allegedly never disclosed to the law firm that he had any financial interest in the vendor firm.

According to a law firm official, in February 2011, Tresch was directed to stop using the vendor firm’s services.

However, the vendor firm continued to submit invoices to Tresch, who allegedly continued to approve payments, knowing that the vendor firm was no longer permitted to perform work for the law firm and, in fact, had not performed any work for the law firm after March 2011.

Between May 2011 and May 2012, the $854,250 that Tresch allegedly obtained represented nearly 90 percent of the $980,000 that the victim law firm had paid to the vendor, the charges allege.

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 the victim or twice the gain to the defendant, whichever is greater. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorney Terra Reynolds.

The public is reminded that a complaint 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:

RETIRED CHICAGO POLICE OFFICER AND FOUR OTHERS CONVICTED OF DRUG DISTRIBUTION CONSPIRACY AFTER TWO-MONTH TRIAL ALLEGING MURDERS, KIDNAPPINGS, ROBBERIES AND OBSTRUCTION OF JUSTICE

CHICAGO — A retired Chicago police officer was taken into federal custody today immediately after a jury convicted him and four co-defendants of conspiracy to distribute multiple kilograms of cocaine, following a two-month trial in U.S. District Court.

Glenn Lewellen, a Chicago police officer from 1986 to 2002, was released on bond after he was arrested in November 2010 and now faces a maximum sentence of life in prison.

The jury did not reach a verdict on whether Lewellen also participated in a racketeering (RICO) conspiracy that included kidnappings, robberies, and drug-trafficking spanning a decade from 1998 to 2009.

The partial verdicts against Lewellen, 55, formerly of Chicago and Las Vegas and most recently of south suburban Frankfort, and five trial co-defendants were rendered after two weeks of deliberations, following a two-month trial that began in November in Federal Court.

U.S. District Judge Joan Gottschall also ordered co-defendants

• Tony Sparkman , 25, and
• Robert Cardena, 32,

both of Chicago, who were also free on bond, taken into federal custody after they were also convicted of conspiracy to distribute cocaine and related charges.

Sparkman and brothers

• Hector Uriarte, 33, formerly of Bur Ridge, and
• Jorge Uriarte, 31, formerly of Oak Forest,

both of whom remain in custody, were each convicted of the RICO conspiracy count and other charges.

The jury was also deadlocked on the RICO conspiracy count against another brother, Manuel Uriarte, 34, formerly of Chicago and Watsonville, Calif., but found him not guilty of two counts of murder in aid of racketeering. Manuel Uriarte also remains in custody pending further proceedings.

A status hearing was scheduled for Feb. 15.

Lewellen, together with Hector and Jorge Uriarte, Sparkman, and Cardena, were convicted of participating in the drug conspiracy with certain members and associates of a criminal organization directed by Saul Rodriguez, 36, formerly of Countryside.

Lewellen provided information to his cohorts about ongoing federal criminal investigations into their activities.

Rodriguez and three co-defendants pleaded guilty and testified as government witnesses at the trial.

The case began when Rodriguez and others were arrested in April 2009 after they conspired to steal hundreds of kilograms of purported cocaine from a warehouse in southwest suburban Channahon as part of an undercover sting operation.

A total of 11 defendants were eventually indicted in the case.

Patrick Fitzgerald

“We are pleased with the guilty verdicts that were returned today in a very significant case,” said Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois. He was joined by Jack Riley, Special Agent-in-Charge of the Chicago Field Division of the Drug Enforcement Administration, and Alvin Patton, Special Agent-in-Charge of the Internal Revenue Service Criminal Investigation Division in Chicago.

The officials had no immediate comment on the whether the deadlocked counts would be re-tried. The investigation was conducted under the umbrella of the Organized Crime Drug Enforcement Task Force (OCDETF).

In addition to Rodriguez, other co-defendants who pleaded guilty and testified were Fares Umar, 38; Andres Flores, 29; and Jorge Lopez, 37, all of Chicago. Rodriguez is facing a sentence of 40 years in prison under the terms of his plea agreement.

The narcotics distribution conspiracy count against Lewellen, Hector and Jorge Uriarte, Sparkman, and Cardena carries a mandatory minimum penalty of 10 years and a maximum of life in prison and a $4 million fine.

As a result of also being convicted of kidnapping and firearms offenses, Hector and Jorge Uriarte and Sparkman each face mandatory minimum sentences totaling 42 years. The Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is represented by Assistant U.S. Attorneys Terra Reynolds, Steven Block and Tiffany Tracy.

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

NORTHWEST SUBURBAN MAN SENTENCED TO SIX YEARS IN PRISON FOR

SWINDLING $5 MILLION FROM 150 VICTIMS IN INVESTMENT FRAUD SCHEME

CHICAGO — A northwest suburban man was sentenced to six years in federal prison for engaging in an investment fraud scheme that swindled more than $5 million from approximately 150 victims who invested in funds he purported to operate.

The defendant, Scott M. Ross, who pleaded guilty to mail fraud in March, was sentenced 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. Ross misused money he raised from investors for his own benefit, including salary and a stadium sky box, and to make Ponzi-type payments to certain customers who complained.

Ross, 42, of Woodstock, was also ordered to pay outstanding restitution totaling $3,699,834 by U.S. District Judge William Hibbler in Federal Court in Chicago. Ross was ordered to begin serving his sentence on Oct. 18, 2011.

Ross owned and operated Harbor Wealth Management, LLP, and two subsidiaries that together purportedly engaged in the insurance investment business, primarily from an office in Schaumburg.

Between 2006 and 2009, Ross’ businesses offered and sold investments to the public in three investment funds:

• the Elucido Fund, LP,
• the Moondoggie Fund, LP, and
• the Maize Fund LP.

Ross raised approximately $1.9 million from about 25 investors in the Elucido Fund, which claimed to invest in life settlement contracts, described as the purchase of the right to receive death benefits upon the death of the insured on a life insurance policy.

He raised approximately $3.1 million from approximately 134 investors in the Moondoggie Fund, which purported to invest in the stock of Moondoggie Technologies, Inc., and its reported development of a dual-sided computer monitor.

Ross caused more than 150 of these investors to lose more than $5 million they invested in the two funds by commingling the money he raised and misappropriating funds for his own use and benefit.

He made fraudulent statements to investors about his business and investment background, the risks involved in the investments, the return on investment, the use of investors’ funds, and the status of investments.

As part of the fraud scheme, Ross falsely represented to certain investors that he

• was board certified in estate planning;
• was a certified fund specialist, and
• “had passed a comprehensive seven-year background review with all regulatory bodies, including the NASD, SEC and all state insurance and securities boards.”

As an example of the misappropriation of funds, Ross used all of the funds invested in the Elucido Fund for such improper purposes as

• paying expenses of the Maize Fund,
• making Ponzi-type payments to repay investors in the Moondoggie Fund, purchasing a $75,000-per-year sky box at the Indianapolis Colts’ football stadium, and
• paying himself a $319,000 salary.

Ross falsely represented to investors in the Elucido Fund that they could expect returns of as much as 34 percent from the fund’s investing in a combination of traditional life settlement and viatical instruments, when he neither intended nor did purchase any such instruments.

In offering and selling interests in the Moondoggie Fund, Ross falsely represented that Moondoggie Technologies had agreed to buy back its shares purchased by the fund for $3.75 per share in 30 months and later for $5 per share in 36 months; however, Moondoggie Technologies never agreed to repurchase any of its shares at any price.

The government was represented by Assistant U.S. Attorneys Benjamin Langner and Terra Reynolds. The Securities and Exchange Commission assisted the investigation conducted by the FBI.

The prosecution 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.

The U.S. Attorney’s Office has apparently stopped another Ponzi scheme.  This time it was apparently run by a Woodstock man, Scott M. Ross.

The statement of  says,

“Defendant SCOTT M. ROSS owned and operated Harbor Wealth Management, LLP, and its subsidiaries, Harbor Private Funds, LLC, and Harbor Capital Funds, LLC, (which) purportedly engaged in the insurance and investment business, primarily from an office in Schaumburg, Illinois .”

Over 152 investors lost over $5,000,000.

NORTHWEST SUBURBAN MAN ALLEGEDLY SWINDLED $5 MILLION

FROM APPROXIMATELY 150 VICTIMS IN INVESTMENT FRAUD SCHEME

CHICAGO — A northwest suburban man was charged with allegedly engaging in an investment fraud scheme, swindling more than $5 million from approximately 150 victims who invested in funds he purported to operate.

The defendant, Scott M. Ross, was charged with three counts of mail fraud in a criminal information filed 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.

Ross allegedly misused money he raised from investors for his own benefit, including salary and a stadium sky box, and to make Ponzi-type payments to certain customers who complained.

Ross, 42, of Woodstock, will be arraigned at a later date in U.S. District Court.

According to the charges, Ross owned and operated Harbor Wealth Management, LLP, and two subsidiaries that together purportedly engaged in the insurance investment business, primarily from an office in Schaumburg. Between 2006 and 2009, Ross’ businesses offered and sold investments to the public in three investment funds:

• the Elucido Fund, LP,
• the Moondoggie Fund, LP, and
• the Maize Fund LP.

Ross raised approximately $1,920,000 from about 25 investors in the Elucido Fund, which claimed to invest in life settlement contracts, described as the purchase of the right to receive death benefits upon the death of the insured on a life insurance policy.

He raised about $3,080,000 from approximately 134 investors in the Moondoggie Fund, which purported to invest in the stock of Moondoggie Technologies, Inc., and its reported development of a dual-sided computer monitor.

Ross allegedly caused more than 150 of these investors to lose more than $5 million they invested in the two funds combined by commingling the money he raised and misappropriating funds for his own use and benefit. He allegedly made fraudulent statements to investors about his business and investment background, the risks involved in an investment, the return on an investment, the use of investors’ funds, and the status of an investment.

As part of the fraud scheme, Ross falsely represented to certain investors that he

• was board certified in estate planning;
• as a certified fund specialist;
• had earned a seal of approval from the National Ethics Bureau; and
• “had passed a comprehensive seven-year background review with all regulatory bodies, including the NASD, SEC and all state insurance and securities boards.”

As an example of the alleged misappropriation of funds, Ross allegedly used all of the funds invested in the Elucido Fund for such improper purposes as

• paying expenses of the Maize Fund, making Ponzi-type payments to repay investors in the Moondoggie Fund,
• purchasing a $75,000-per-year sky box at the Indianapolis Colts’ football stadium, and
• paying himself a $319,000 salary.

Ross falsely represented to investors in the Elucido Fund that they could expect returns of as much as 34 percent from the fund’s investing in a combination of traditional life settlement and viatical instruments, when he neither intended nor did purchase any such instruments, the charges allege. In offering and selling interests in the Moondoggie Fund, Ross falsely represented that Moondoggie Technologies had agreed to buy back its shares purchased by the fund for $3.75 per share in 30 months and later for $5 per share in 36 months; however, Moondoggie Technologies never agreed to repurchase any of its shares at any price, the charges add.

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

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 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.

An information 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.Woodstco