Investigations Newsletter: Former State Senator Indicted for Fraud, Money Laundering, and Tax Evasion | Arent Fox

    Former State Senator Indicted for Fraud, Money Laundering, and Tax Evasion

    On February 3, a grand jury indicted Sam McCann, former Illinois State Senator and 2018 gubernatorial candidate, for his role in a scheme to misuse campaign funds for personal expenses. McCann is alleged to have used more than $200,000 in political donations to, among other things, purchase personal vehicles, pay off personal loans, and make mortgage payments.

    According to the indictment, McCann used over $40,000 in campaign funds to purchase a recreational vehicle (RV) and motor home, then created an account with a RV rental business in his own name in order to rent the two vehicles. McCann then established an online account as a potential renter named William McCann. From about May 2018 to June 2018, McCann then rented the two vehicles to himself using the sham rental account, causing over $60,000 in campaign funds to be used to pay the rental fees.

    In addition to wire fraud and money laundering, McCann was also charged with tax evasion for failing to report income from the rental payments he made to himself, and for allegedly depositing a $10,000 check originally issued by a campaign account into his personal checking account and failing to report it as income.

    If convicted, McCann faces up to 20 years in prison for the wire fraud and money laundering counts, and five years’ imprisonment for the tax evasion count.

    The DOJ press release can be found here.

    Cryptocurrency Company Promoter Charged For Role in $11.4 Million Fraud Scheme

    On February 1, John DeMarr was charged for his alleged participation in a cryptocurrency and securities fraud scheme that allegedly defrauded investors of $11.4 million. DeMarr is alleged to have made numerous misrepresentations and false promises to induce investors to invest in two companies owned by DeMarr and co-conspirators named “Start Options” and “Bitcoiin2Gen” (B2G).

    According to the complaint, between 2017 and 2018, DeMarr offered securities in the form of investment contracts to investors through the Start Options website. DeMarr and his co-conspirators allegedly represented that these investments, which could be made in cryptocurrency, U.S. dollars, or Euros, would be invested in digital mining and trading platforms and would result in significant profits. In reality, however, the investments were diverted to personal accounts and used by DeMarr and others for personal expenditures, including home renovations, jewelry, and sports cars. The complaint alleges that around January 2018, instead of allowing investors to withdraw their investments, DeMarr and his co-conspirators required them to roll over their accounts into an unregistered initial coin offering of B2G, and represented that the funds would be used to create an “ecosystem” allowing users to engage in trading activities. In order to attract investors, DeMarr allegedly created false press releases and white papers about B2G, hired actors as spokespersons, and falsely claimed that celebrity athletes endorsed Start Options.

    According to the complaint, DeMarr eventually staged his own disappearance to avoid angry investors by instructing others to release statements that he had been assaulted and went missing overseas.

    The SEC has brought a parallel action against DeMarr, B2G founder Kristijan Krstic, and Robin Enos, who allegedly worked with DeMarr to produce sham promotional material.

    The DOJ press release can be found here.

    California Man to Plead Guilty For Role in Bitcoin Money Laundering Scheme

    Hugo Sergio Mejia is expected to plead guilty to a criminal information alleging that he conducted Bitcoin-to-cash and cash-to-Bitcoin exchanges totaling at least $13 million, despite knowing that at least some of the funds included proceeds of illegal activities.

    According to the information and accompanying plea agreement, Mejia conducted at least five transactions totaling more than $250,000 for a client who explicitly informed him that his income was derived from the sale of methamphetamines. Mejia is also pleading guilty to operating a money transmitter business without registering with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

    According to the plea agreement, Mejia has agreed to forfeit over $200,000 in cash, $95,000 in cryptocurrency, as well as silver bars and other precious metals found at his residences. Mejia has also agreed to maintain only one virtual currency wallet that his probation officer will have access to and possess only open public blockchain virtual currencies.

    A copy of the criminal information can be found here.

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