Business Crimes Hotline

FLORIDA

Wachovia Receives $160 Million Fine

On March 17, 2010, before Judge Joan A. Leonard of the U.S. District for the Southern District of Florida, Wachovia Bank, N.A., entered into a deferred prosecution agreement (DPA) relating to allegations that the company willfully failed to maintain an anti-money laundering program, in violation of the Bank Secrecy Act (BSA), as well as addressing admitted failures regarding third-party payment processor accounts ' including suspicious transaction reporting.

The DPA is tied to a criminal information, originally filed under seal on March 12, 2010, that is the result of a U.S. government, multi-agency investigation into Wachovia's transactions with Mexican currency exchange houses, generally referred to as “casas de cambio” (CDCs), from May 2003 through June 2008.

According to the government, $420 billion in CDC financial transactions were not properly monitored by Wachovia for potential money laundering despite Wachovia's knowledge of a high risk that proceeds from illegal drug operations were actively laundered via CDCs. Additionally, the government noted awareness by Wachovia of contrary actions taken by a number of U.S. banks to cease business with the CDCs based on money laundering concerns. Rather than follow other U.S. banks and cease business, Wachovia expanded its business with the CDCs by providing a variety of correspondent banking services.

The DPA requires Wachovia to forfeit $110 million, an amount equal to the illegal drug transaction proceeds laundered through the bank. This amount will also satisfy a Civil Money Penalty, in the same amount, assessed against Wachovia by the Financial Crimes Enforcement Network, for “serious and systemic” violations of the BSA. In addition to this amount, the company has agreed to pay a $50 million fine for its actions. Additionally, as Wachovia is merging with Wells Fargo Bank, the agreement's obligation to implement remedial BSA compliance measures remains binding against Wells Fargo.

In announcing the settlement, U.S. Attorney Jeffrey H. Sloman stated, in part, that “Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations by laundering at least $110 million in drug proceeds. Corporate citizens, no matter how big or powerful, must be held accountable for their actions.”

ILLINOIS

Former CEO of Children's Beverage Group Sentenced to Five Years on Tax Evasion

U.S. District Judge David H. Coar sentenced Jon A. Darmstadter to five years in prison and ordered him to pay $2.3 million in restitution as a result of the latter's June 2009 guilty plea to counts of tax evasion and filing a false federal income tax return.

According to the government, Darmstadter opened accounts in Canada and the Caribbean and then had his company, Children's Beverage Group, Inc., issue hundreds of thousands of shares of stock to parties holding his off-shore accounts. He sold the shares and kept the proceeds, allegedly doing the same with another company, Zkid Network Company.

The government alleged that Darmstadter's tax evasion lasted from 1998 to 2007, over which period he failed to report more than $5.3 million in income.

MINNESOTA

Guidant Pleads Guilty to Federal Food, Drug and Cosmetic Act Violations

On April 5, 2010, in a hearing before Judge Donovan W. Frank of the U.S. District Court for the District of Minnesota, Guidant LLC, a wholly owned subsidiary of Boston Scientific Corporation, pled guilty to criminal violations of the Federal Food, Drug and Cosmetic Act (FFDCA). The plea agreement, which calls for Guidant to pay a combined criminal penalty in excess of $296 million, resolves charges filed against Guidant LLC on Feb. 25, 2010, in relation to the company's implantable cardioverter defibrillators (ICDs). These are devices that monitor the heart's electrical activity for abnormal rhythms. When an abnormal rhythm is detected, the ICD delivers an electrical shock to the heart, in an attempt to normalize the heartbeat. The penalty represents the largest FFDCA criminal penalty imposed against a device manufacturer.

According to the DOJ, the charges and resultant plea were the culmination of a four-year investigation into how the company managed short-circuiting failures by three models of its ICDs. Under the terms of the plea agreement, Guidant LLC pled guilty to withholding information about the ICD failures from the U.S. FDA. In part, the company admitted that it both made a materially false statement about an ICD in an FDA-required submission and did not notify the FDA of an ICD “correction.”

TEXAS

Multistate Fraud Defendant Sentenced to 99 Years in State Prison

Edward S. Digges, Jr. was sentenced to 99 years in prison for his role in creating and directing a multistate fraud scheme involving the lease of credit and debit card terminals.

Digges was in charge of the Millenium Terminal Investment Program, offering securities based on the proceeds of the terminals. He raised approximately $10 million from 130 investors. To do so, he assured investors that they would be paid $50 monthly for each terminal they purchased and would be able to return the equipment after five years. Although investors were promised there was a reserve fund, no such fund existed. Further, the terminals did not make money; the funds paid to investors came from other investors.

Digges was convicted of aggravated securities fraud after a four-week trial in Collin County, TX, District Court. In addition to a number of regulatory sanctions related to the Millenium Terminal program, Digges had previously been convicted of mail fraud in 1990.

The Texas State Securities Board and the Collin County district attorney prosecuted the case.

FLORIDA

Wachovia Receives $160 Million Fine

On March 17, 2010, before Judge Joan A. Leonard of the U.S. District for the Southern District of Florida, Wachovia Bank, N.A., entered into a deferred prosecution agreement (DPA) relating to allegations that the company willfully failed to maintain an anti-money laundering program, in violation of the Bank Secrecy Act (BSA), as well as addressing admitted failures regarding third-party payment processor accounts ' including suspicious transaction reporting.

The DPA is tied to a criminal information, originally filed under seal on March 12, 2010, that is the result of a U.S. government, multi-agency investigation into Wachovia's transactions with Mexican currency exchange houses, generally referred to as “casas de cambio” (CDCs), from May 2003 through June 2008.

According to the government, $420 billion in CDC financial transactions were not properly monitored by Wachovia for potential money laundering despite Wachovia's knowledge of a high risk that proceeds from illegal drug operations were actively laundered via CDCs. Additionally, the government noted awareness by Wachovia of contrary actions taken by a number of U.S. banks to cease business with the CDCs based on money laundering concerns. Rather than follow other U.S. banks and cease business, Wachovia expanded its business with the CDCs by providing a variety of correspondent banking services.

The DPA requires Wachovia to forfeit $110 million, an amount equal to the illegal drug transaction proceeds laundered through the bank. This amount will also satisfy a Civil Money Penalty, in the same amount, assessed against Wachovia by the Financial Crimes Enforcement Network, for “serious and systemic” violations of the BSA. In addition to this amount, the company has agreed to pay a $50 million fine for its actions. Additionally, as Wachovia is merging with Wells Fargo Bank, the agreement's obligation to implement remedial BSA compliance measures remains binding against Wells Fargo.

In announcing the settlement, U.S. Attorney Jeffrey H. Sloman stated, in part, that “Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations by laundering at least $110 million in drug proceeds. Corporate citizens, no matter how big or powerful, must be held accountable for their actions.”

ILLINOIS

Former CEO of Children's Beverage Group Sentenced to Five Years on Tax Evasion

U.S. District Judge David H. Coar sentenced Jon A. Darmstadter to five years in prison and ordered him to pay $2.3 million in restitution as a result of the latter's June 2009 guilty plea to counts of tax evasion and filing a false federal income tax return.

According to the government, Darmstadter opened accounts in Canada and the Caribbean and then had his company, Children's Beverage Group, Inc., issue hundreds of thousands of shares of stock to parties holding his off-shore accounts. He sold the shares and kept the proceeds, allegedly doing the same with another company, Zkid Network Company.

The government alleged that Darmstadter's tax evasion lasted from 1998 to 2007, over which period he failed to report more than $5.3 million in income.

MINNESOTA

Guidant Pleads Guilty to Federal Food, Drug and Cosmetic Act Violations

On April 5, 2010, in a hearing before Judge Donovan W. Frank of the U.S. District Court for the District of Minnesota, Guidant LLC, a wholly owned subsidiary of Boston Scientific Corporation, pled guilty to criminal violations of the Federal Food, Drug and Cosmetic Act (FFDCA). The plea agreement, which calls for Guidant to pay a combined criminal penalty in excess of $296 million, resolves charges filed against Guidant LLC on Feb. 25, 2010, in relation to the company's implantable cardioverter defibrillators (ICDs). These are devices that monitor the heart's electrical activity for abnormal rhythms. When an abnormal rhythm is detected, the ICD delivers an electrical shock to the heart, in an attempt to normalize the heartbeat. The penalty represents the largest FFDCA criminal penalty imposed against a device manufacturer.

According to the DOJ, the charges and resultant plea were the culmination of a four-year investigation into how the company managed short-circuiting failures by three models of its ICDs. Under the terms of the plea agreement, Guidant LLC pled guilty to withholding information about the ICD failures from the U.S. FDA. In part, the company admitted that it both made a materially false statement about an ICD in an FDA-required submission and did not notify the FDA of an ICD “correction.”

TEXAS

Multistate Fraud Defendant Sentenced to 99 Years in State Prison

Edward S. Digges, Jr. was sentenced to 99 years in prison for his role in creating and directing a multistate fraud scheme involving the lease of credit and debit card terminals.

Digges was in charge of the Millenium Terminal Investment Program, offering securities based on the proceeds of the terminals. He raised approximately $10 million from 130 investors. To do so, he assured investors that they would be paid $50 monthly for each terminal they purchased and would be able to return the equipment after five years. Although investors were promised there was a reserve fund, no such fund existed. Further, the terminals did not make money; the funds paid to investors came from other investors.

Digges was convicted of aggravated securities fraud after a four-week trial in Collin County, TX, District Court. In addition to a number of regulatory sanctions related to the Millenium Terminal program, Digges had previously been convicted of mail fraud in 1990.

The Texas State Securities Board and the Collin County district attorney prosecuted the case.