Co-Founder And Chief Investment Officer Of London-Based Hedge Fund Charged With FX Market Manipulation And Fraud

 

 Damian Williams, the United States Attorney for the Southern District of New York, and Michael J. Driscoll, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment charging NEIL PHILLIPS, the co-founder and chief investment officer of a hedge fund based in the United Kingdom, with conspiracy to commit commodities fraud, conspiracy to commit wire fraud, commodities fraud, and wire fraud in connection with a scheme to artificially manipulate the United States dollar (“USD”) / South African rand (“ZAR”) exchange rate to fraudulently trigger a $20 million payment under a barrier options contract.  PHILLIPS was arrested in Spain earlier this week at the request of the United States.

U.S. Attorney Damian Williams said:  “As alleged, Neil Phillips – the co-founder and chief investment officer of a prominent U.K. hedge fund – manipulated the FX market in order to unlawfully obtain millions of dollars in payments for his hedge fund under an options contract.  Market manipulation is pernicious in all of its forms and today’s charges are a reminder that the Southern District of New York will steadfastly investigate and prosecute such activity whether it occurs in the equity market, the FX market, or elsewhere in the financial system.”

FBI Assistant Director Michael J. Driscoll said:  “As alleged, Mr. Phillips maliciously manipulated global markets in order to defraud financial institutions for illicit profit.  The FBI is determined to root out these types of frauds so financial markets remain a level playing field.  As shown today, the FBI will find fraudulent actors no matter where in the world they are located and seek to bring them back to the United States to face the consequences of their actions in our federal criminal justice system.”

As alleged in the Indictment unsealed in Manhattan federal court:[1]

Background on Hedge Fund-1 and the FX Markets

At all relevant times, PHILLIPS was the co-founder and co-Chief Investment Officer of a hedge fund based in the United Kingdom (“Hedge Fund-1”), which was a global “macro” fund that focused on macroeconomic trends and emerging markets, foreign currency exchange (“FX”) markets, and currency and commodity products.  Hedge Fund-1 was at all relevant times a registered commodity pool operator with the Commodity Futures Trading Commission (the “CFTC”) and PHILLIPS was himself registered with the CFTC as well.

The FX market is a global market in which participants trade currencies in pairs.  In a currency pair, each currency is valued relative to the other, and the ratio that expresses the value of one currency against the other is referred to as the “exchange rate” or the “rate.”  FX “spot” trades involve one party agreeing to receive a particular currency in exchange for delivering a different currency, at an agreed-upon price and quantity. 

The $20 Million One Touch Option

In late October 2017, Hedge Fund-1 purchased a “one touch” digital option for the USD/ZAR currency pair that was set to expire on January 2, 2018.  The option had a notional value of $20 million and a barrier rate of 12.50 ZAR to USD (the “$20 Million One Touch Option”).  Under the terms of the $20 Million One Touch Option, if the USD/ZAR exchange rate went below the rate of 12.50 at any point prior to January 2, 2018, Hedge Fund-1 would be entitled to a $20 million payment.  Hedge Fund-1 subsequently allocated a portion of the $20 million notional value to a client (“Client Fund-1”), thereby entitling Client Fund-1 to receive $4,340,000 in the event that the $20 Million One Touch Option was triggered.

Other financial institutions were party to the transaction:  Hedge Fund-1 purchased the $20 Million One Touch Option through a financial services firm (“Intermediary Firm-1”) that facilitates trades on behalf of underlying clients; a subsidiary of a bank headquartered in Manhattan, New York (“Bank-1”) was obligated to pay the $20 million in the event the $20 Million One Touch Option was triggered; and a bank headquartered in Manhattan, New York (“Bank-2”) acted as Hedge Fund-1’s prime broker in connection with the $20 Million One Touch Option.

Hedge Fund-1 and Bank-2 entered into a letter agreement that set forth the terms and conditions of the transaction.  This letter agreement provided that Hedge Fund-1 would be “acting in good faith and in a commercially reasonable manner” as the “Calculation Agent” in connection with the $20 Million One Touch Option and that Hedge Fund-1 would determine whether a barrier event occurred in good faith and in a commercially reasonable manner.

PHILLIPS Intentionally Manipulates the USD/ZAR Rate on Boxing Day 2017

With the $20 Million One Touch Option set to expire in a matter of days without having been triggered, on December 26, 2017 (Boxing Day), PHILLIPS engaged in a scheme to intentionally and artificially manipulate the USD/ZAR rate to drive the rate below 12.50 and trigger payment under the $20 Million One Touch Option.  PHILLIPS caused and sought to cause the USD/ZAR exchange rate to fall below 12.50 by engaging in FX spot trades in which he caused hundreds of millions of USD to be exchanged for ZAR.  PHILLIPS engaged in this USD/ZAR FX spot trading for the express purpose of artificially driving the USD/ZAR rate below 12.50.  On December 26, 2017, in the hours that followed the completion of the USD/ZAR FX spot trading directed by PHILLIPS, the USD/ZAR rate once again increased and returned to levels above the 12.50 barrier and did not go below that rate for the remainder of the day.

In particular, during the span of less than an hour between shortly before midnight London time on December 25, 2017 (Christmas day), and approximately 12:45 a.m. London time on December 26, 2017 (Boxing Day), PHILLIPS personally directed a Singapore-based employee (“CC-1”) of a bank (“Bank-3”) to sell, on behalf of Hedge Fund-1, a total of approximately $725 million USD in exchange for approximately 9,070,902,750 ZAR.  During the course of that approximately one-hour period, PHILLIPS, through his trading, caused the USD/ZAR rate to fall substantially until the rate went just below 12.50.  As soon as PHILLIPS had achieved his objective and the USD/ZAR rate fell below 12.50 due to PHILLIPS’ manipulative spot trading activity, PHILLIPS immediately directed that CC-1 cease trading.  PHILLIPS provided trading instructions to CC-1 through Bloomberg chat messages while PHILLIPS was located in South Africa and while CC-1 was located in Singapore.  In these Bloomberg chat messages, PHILLIPS explicitly directed CC-1 to continue selling until the USD/ZAR rate fell below 12.50 and PHILLIPS expressly stated that PHILLIPS’ purpose in directing these trades was to drive the USD/ZAR rate below 12.50 stating, among other things, “my aim is to trade thru 50,” “[n]eed it to trade thru 50. 4990 is fine,” and “[g]et it thru.”  Once PHILLIPS was informed by CC-1 that the USD/ZAR had traded at below 12.50, PHILLIPS immediately instructed CC-1 to “stop” trading and asked for proof “of the print.”

PHILLIPS Causes the Fraudulent Triggering of the $20 Million One Touch Option

Minutes after PHILLIPS artificially caused the USD/ZAR exchange rate to fall below 12.50 through his manipulative trading, PHILLIPS instructed another employee of Hedge Fund-1 (“CC-2”) to notify Intermediary Firm-1 that the $20 Million One Touch Option had been triggered.  Consistent with PHILLIPS’ directive, CC-2 contacted an employee of Intermediary Firm-1 to confirm that the $20 Million One Touch Option had been triggered and, in so doing, omitted the fact that the triggering event – the USD/ZAR rate falling below 12.50 – had occurred as a result of the manipulation of the USD/ZAR exchange rate by PHILLIPS.  Furthermore, Bank-2, which was serving as Hedge Fund-1’s prime broker in connection with the $20 Million One Touch Option and with whom Hedge Fund-1 had executed the relevant letter agreement governing the transaction, required confirmation from both the executing broker and from Hedge Fund-1 that the $20 Million One Touch Option had, in fact, been triggered.  In this regard, on or about December 27, 2017, an employee of Hedge Fund-1 notified Bank-2, that “[t]he below option level of 12.50 was hit yesterday” and sought to process payment in connection with the triggering of the $20 Million One Touch Option.  This representation by Hedge Fund-1 to Bank-2 that the $20 Million One Touch Option had been triggered likewise omitted the fact that the triggering event – the USD/ZAR exchange rate falling below 12.50 – had occurred as a result of the manipulation of the USD/ZAR exchange rate by PHILLIPS.

As a result of the fraudulent triggering of the $20 Million One Touch Option by PHILLIPS, Hedge Fund-1 ultimately received a wire transfer of $15,660,000 and Client Fund-1 received a wire transfer of $4,340,000. 

PHILLIPS, 52, of the United Kingdom, is charged with one count of conspiracy to commit commodities fraud, which carries a maximum sentence of five years in prison; one count of commodities fraud, in violation of Title 7, United States Code, Sections 9(1) and 13(a)(5), which carries a maximum sentence of 10 years in prison; and one count of conspiracy to commit wire fraud and one count of wire fraud, each of which carry a maximum sentence of 20 years in prison. 

The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge. 

Mr. Williams praised the investigative work of the FBI.  He also thanked the Justice Department’s Office of International Affairs, as well as authorities in Spain.  Mr. Williams further thanked the Commodity Futures Trading Commission for their cooperation and assistance in this investigation.

The allegations in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the text of the Indictment, and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

NYC PUBLIC ADVOCATE'S STATEMENT ON THE ANNIVERSARY OF HURRICANE IDA'S LANDFALL IN QUEENS

 

 "One year after Hurricane Ida struck, families are still grieving, communities still rebuilding from the flooding that destroyed homes and took the lives of thirteen of our neighbors. It is maddening to know that one year later, if Ida were to strike our shores today, its impact would be much the same.

"The city, state, and federal government have not taken the necessary steps, with necessary urgency, to protect New Yorkers from climate catastrophes that are no longer once in a century, but regular occurrences. In addition to providing all possible aid to people still reeling from the devastation of last year, the government must take immediate steps to develop the infrastructure needed for when, not if, the next storm hits. Some of the efforts announced by the city today are promising, but must be accelerated. We must codify, not condemn, units created out of desperation in a housing crisis, and protect them from the climate crisis. And I ask the Council to pass our emergency alert and flood prevention legislation. 

"We cannot wait another year, for another catastrophic event, before we summon the courage and conviction to pursue long-term solutions."

NYS Office of the Comptroller DiNapoli: NYSLRS Announces Employers' Retirement System Contribution Rates for 2023-2024

 

New York State Comptroller Thomas P. DiNapoli today announced employer contribution rates for the New York State and Local Retirement System (NYSLRS). Employers’ average contribution rates for the State Fiscal Year 2023-24 will increase from 11.6% to 13.1% of payroll for the Employees’ Retirement System (ERS) and from 27.0% to 27.8% of payroll for the Police and Fire Retirement System (PFRS). NYSLRS is made up of these two systems, which pay retirement and disability benefits to public employees and death benefits to their survivors. “The state pension fund’s performance in the fiscal year that ended March 31 was strong, but recent domestic and global economic volatility demands caution,” DiNapoli said. “As we move forward with our prudent investment strategy, we remain focused on long-term stable returns for New York’s public employers and workforce. Uncertainty may be a constant in financial markets, but the rates announced today will help ensure that New York’s pension fund will continue to be one of the nation’s strongest and best funded, ready to provide retirement security for generations to come.” Employer rates for NYSLRS are determined based on investment performance and actuarial assumptions recommended by NYSLRS’s actuary, who is required to complete an annual report. The recommendations are reviewed by the independent Actuarial Advisory Committee and approved by DiNapoli. In addition to investment performance, other factors that impacted rates included inflation and the increased COLA for retirees, higher salary base and benefit changes enacted this year by the Legislature and Governor. The assumed rate of return will remain at the same rate as the prior year at 5.9%. According to the National Association of State Retirement Administrators (NASRA), the only other state pension fund with an assumed rate of return lower than New York’s state pension is the Kentucky Employees Retirement System. New York manages considerably more assets than all of the 11 other systems under 6.5% combined, a testament to how well the state pension fund is managed. DiNapoli has acted conservatively and lowered the assumed rate of return of the state pension fund four times since being State Comptroller as economic and demographic conditions changes. DiNapoli also announced that NYSLRS had a funded ratio of 102.9% at the end of fiscal year 2022. NYSLRS is consistently ranked among the nation’s best funded, best managed retirement systems in the nation. A strong funding ratio means NYSLRS has the funds available to pay out retirement benefits to its more than one million active state and local government employees, retirees and their beneficiaries. In 2012, DiNapoli began providing employers with access to a two-year projection of their annual pension bill. Employers can use this projection in the preparation of their budgets. Projections of required contributions vary by employer depending on factors such as the types of retirement plans they adopt, salaries and the distribution of their employees among the six retirement tiers. There are more than 3,000 participating employers in ERS and PFRS, and more than 300 different retirement plan combinations. Last fiscal year, $14.7 billion were paid out in benefits. Report Annual Report to the Comptroller on Actuarial Assumptions Related Reports First Quarter Investment Returns for 2022-23 Fiscal Year End Investment Returns for 2021-22 About the New York State Common Retirement Fund  The New York State Common Retirement Fund is one of the largest public pension funds in the United States. The Fund holds and invests the assets of the New York State and Local Retirement System on behalf of more than one million state and local government employees and retirees and their beneficiaries. It has consistently been ranked as one of the best managed and best funded plans in the nation.

Attorney General James’ Office of Special Investigation Releases Report on Death of David Wandell

 

 New York Attorney General Letitia James’ Office of Special Investigation (OSI) today released its report on the death of David Wandell in Elmira, Chemung County. Following a thorough and comprehensive investigation, including interviews with police officers and civilian witnesses, and close review of radio transmissions, ballistics testing, crime scene evidence, photographs, and body-worn camera (BWC) footage, OSI concluded that a prosecutor would not be able to disprove beyond a reasonable doubt at trial that the officers who shot Mr. Wandell were justified.

On August 21, 2021, Mr. Wandell was the subject of an officer safety alert sent to members of all law enforcement agencies in Chemung County, which advised officers he was wanted for a parole violation and to use caution if they encountered him because of his documented history of violence. On August 27, 2021, a New York State Police (NYSP) investigator saw Mr. Wandell walking in the Eldridge Park area of Elmira and radioed for assistance. An Elmira Police Department (EPD) officer who had heard the request for help over the radio passed Mr. Wandell in her cruiser and got out, intending to take him into custody. Mr. Wandell pointed what appeared to be a gun at her. The EPD officer fired shots at Mr. Wandell and then stumbled backward as Mr. Wandell fled the area. Though it does not appear that the EPD officer’s bullets hit Mr. Wandell, other responding officers saw Mr. Wandell point a gun at the officer, heard gunfire, and saw the officer fall. Presuming the EPD officer had been shot, another nearby officer reported over the radio that Mr. Wandell had shot an officer. In response, the dispatcher then transmitted a call to all county units for assistance because of “shots fired at officers.”

Officers from multiple county agencies followed Mr. Wandell and converged on him in Woodlawn Cemetery, shouting at him to drop his weapon and show his hands. Mr. Wandell, taking cover behind a tree, raised the gun toward the officers, and five officers — an NYSP trooper, an EPD investigator, a sergeant and a deputy from the Chemung County Sheriff’s Office, and a parole officer with New York State Department of Correction and Community Supervision — fired at Mr. Wandell.

A medical examiner’s analysis found Mr. Wandell was struck five times, and two of the shots were fatal. The recovered bullet fragments were not able to be matched with specific officers’ guns. When the officers approached, they found an airsoft pistol on the ground next to Mr. Wandell’s body. The requisite orange paint on the tip that would have distinguished it from a normal firearm had been removed.

Under New York’s justification law, a person may use deadly physical force to defend against the imminent use of deadly physical force by another. When the defense of justification is raised at trial, the prosecutor must disprove it beyond a reasonable doubt. In this case, the officers who fired at Mr. Wandell saw him raise what appeared to be a regular gun at them, had heard over the radio that he had fired at an officer in Eldridge Park minutes earlier, and had been warned days before that he had a history of violence. Based on the law and the evidence, OSI determined that criminal charges could not be pursued against the officers.

“In each and every case we review, my office remains committed to conducting thorough, fair, and transparent investigations,” said Attorney General James. “After an extensive review of the facts of this case, OSI determined that a prosecutor would not be able to disprove beyond a reasonable doubt that these officers’ actions were justified.”

Retired NYPD Officer Sentenced to 10 Years in Prison For Actions Related to Capitol Breach

 

Defendant Assaulted Law Enforcement Officer With Flagpole, Tackled Him, and Tried to Remove Officer’s Helmet and Gas Mask

  A retired New York Police Department officer was sentenced today to 10 years in prison for assaulting a law enforcement officer with a deadly or dangerous weapon and related charges for his actions during the breach of the U.S. Capitol on Jan. 6, 2021. His and others’ actions disrupted a joint session of the U.S. Congress convened to ascertain and count the electoral votes related to the presidential election.

Thomas Webster, 56, of the village of Florida, New York, was sentenced in the District of Columbia.

“As a former Marine and retired police officer, Thomas Webster could readily see the growing dangers to law enforcement when he and other members of the mob targeted the Capitol on Januarty 6th," said U.S. Attorney Matthew M. Graves. “He chose to escalate the situation, brutally going on the attack. Today’s sentence holds him accountable for his repeated attacks of an officer that day.”

“As a former police officer and U.S. Marine who took an oath to defend the Constitution against all enemies foreign and domestic, Thomas Webster knew the severity of his actions on January 6,” said Steven M. D’Antuono, Assistant Director in Charge of the FBI Washington Field Office. “When he assaulted an officer at the U.S. Capitol that day, Mr. Webster betrayed not only his oath but also his fellow law enforcement officers, who risk their lives every day to protect the American people. Today’s sentencing – the longest given to any Capitol riots subject to date — matches the gravity of Mr. Webster’s offenses. The FBI continues to work with our partners to bring the perpetrators of egregious assaults on law enforcement and our democracy to justice.”

According to the government’s evidence, on Jan. 6, Webster first attended a rally and then moved to the Capitol, where he illegally entered the Capitol grounds. He wore a bulletproof vest and carried a large metal flagpole bearing the red and yellow flag of the U.S. Marine Corps. At approximately 2:28 p.m., Webster was among the mob on the other side of metal barricades set up by law enforcement officers attempting to secure the Lower West Plaza area of the Capitol. Webster approached an officer from the Metropolitan Police Department who was behind the metal gates. Webster pointed his finger at the officer and began swearing at him, telling him, among other things to “take your sh--- off,” an apparent invitation to the officer to take off his badge and fight.

Webster then aggressively shoved the metal gate into the officer’s body. He raised the flagpole and forcefully swung it toward the officer. The officer managed to wrest the flagpole away. Webster, however, then broke through the metal barricade, tackled the officer to the ground, and tried to remove his helmet and gas mask, choking him. During this attack, the officer struggled to breathe. While Webster had the officer restrained on the ground and unable to breathe, others in the mob began kicking the officer. The officer sustained several injuries as a result of Webster’s attack.

Webster was arrested on Feb. 21, 2021. He was found guilty by a jury on May 2, 2022, of five felonies: assaulting, resisting, or impeding officers with a dangerous weapon; obstructing officers during a civil disorder; entering and remaining in a restricted building or grounds, while carrying a dangerous weapon; engaging in disorderly or disruptive conduct in a restricted building or grounds, while carrying a dangerous weapon, and engaging in physical violence in a restricted building or grounds, while carrying a dangerous weapon. He also was found guilty of one misdemeanor, engaging in an act of physical violence in the Capitol building or grounds.

Following his prison term, Webster will be placed on three years of supervised release. He also must pay $2,060 in restitution.

The case was prosecuted by the U.S. Attorney’s Office for the District of Columbia and the Department of Justice National Security Division’s Counterterrorism Section. Valuable assistance was provided by the U.S. Attorney’s Office for the Southern District of New York.

The case was investigated by the FBI’s Washington Field Office, which identified Webster as AFO #145 on its seeking information photos, and the FBI’s New York Field Office, Hudson Valley Resident Agency. Valuable assistance was provided by the U.S. Capitol Police, the Metropolitan Police Department, and the U.S. Secret Service.

In the 19 months since Jan. 6, 2021, more than 860 individuals have been arrested in nearly all 50 states for crimes related to the breach of the U.S. Capitol, including over 260 individuals charged with assaulting or impeding law enforcement. The investigation remains ongoing. 

Anyone with tips can call 1-800-CALL-FBI (800-225-5324) or visit tips.fbi.gov.

CITY TO BEGIN OFFERING SECOND DOSES OF MONKEYPOX VACCINE TO NEW YORKERS AND BEGIN ACCEPTING WALK-IN APPOINTMENTS

 

Second doses will be available — by appointment only — at least 10 weeks after receiving their first doses

City will also open eligibility to sex workers, and those forced to engage in survival sex, and begin accepting walk-ins for first doses at City-run sites on Friday, September 2nd, though appointments are still recommended by going to at vax4nyc.nyc.gov/monkeypox and by calling 877-VAX-4NYC (877-829-4692)

8,000 new first dose appointments open to public at 4 p.m. on Friday, September 2

 New York City has announced that it will begin making second doses of the monkeypox vaccine available by appointment only. People who received their first dose at least 10 weeks earlier will be notified by email or text that they are eligible for their second doses so that they can make appointments online or by phone. Second doses will only be available at least 10 weeks after the first dose and not earlier. The City will also begin welcoming walk-ins for first doses at City-run sites, though making an appointment in advance is still recommended, and there will be 8,000 public appointments available for reservation on Friday, September 2 at 4 p.m. The city’s Vaxfinder will indicate which sites offer walk-ins. In addition, to reach more New Yorkers who may be at-risk, the city will expand eligibility to people engaged in sex work.

“While our strategies have been constrained by scarcity, our goals have always been expansive, and that is to get vaccine to New Yorkers who need it, including second doses,” said Health Commissioner Dr. Ashwin Vasan. “Now that we’ve gotten first doses to more than 70,000 New Yorkers, people can get their eagerly awaited second shots by appointment — and we’re making vaccination even more convenient by welcoming walk-ins for first doses.”

On July 15, the city announced a first dose strategy to offer protection to as many New Yorkers as possible and to help stop the spread given the extremely constrained vaccine supply. A 28-day interval between doses is indicated in the FDA prescribing label. There is no concern about the immune response to the vaccine by waiting 10 weeks. Second doses will be provided at 10 weeks to ensure adequate supply and capacity for administration of vaccines to all eligible New Yorkers who need their first and second doses.

The City will continue to work with community-based organizations serving New Yorkers at higher risk to offer direct referrals for their clients.

Eligibility has so far been limited to people who meet all of the following conditions:

1 -      People who are 18 and older who have had multiple or anonymous sex partners in the last 14 days and identify as at least one of the following:

2 -   A man (cisgender or transgender) who has sex with cis or transgender men or transgender women

3 -    Transgender, gender non-conforming, or gender non-binary (regardless of the gender of your sex partners)

Starting immediately, New York City will now open eligibility to sex workers and anyone engaging in survival sex or any other type of transactional sex (e.g., sex in exchange for shelter, food, money, and other goods) of any sexual orientation or gender identity.

It is crucial to seek care as soon as a rash or sore is identified. New Yorkers should call their health care provider immediately. For those who do not have one, they can call 311 to get connected to an NYC Health + Hospitals location or to access H+H Virtual Express Care. New Yorkers can also visit the NYC Health Map to find a nearby provider. Care is available in New York City regardless of immigration status, insurance coverage, or ability to pay.

For more on MPV, visit our Monkeypox page.

THE NEW YORK STATE DEPARTMENT OF LABOR MAKES HISTORIC RECOVERY OF OVER $270,000 IN UNPAID WAGES FOR DOMESTIC WORKER

Department Investigators Uncovered Three Years of Unpaid Wages

The New York State Department of Labor (NYSDOL) today announced that $271,527 in wages has been returned to a domestic worker after an investigation by NYSDOL’s Division of Labor Standards determined the individual was chronically underpaid over the course of three years. This was one of the largest recoveries in the history of NYSDOL for a single worker.

“Withholding rightfully-earned wages from workers is unacceptable, and won’t be tolerated in New York State,” said New York State Department of Labor Commissioner Roberta Reardon. “I applaud this victim for coming forward and hope her story inspires others to act. It is our mission to safeguard the rights of all workers in New York State. If you feel you are entitled to unpaid wages, please reach out to us so we can help.”

The victim was hired by Habib Tawil and Charles Tawil to serve as a domestic worker and companion for their mother at 372 Avenue U, Brooklyn. Her duties included bathing, changing, and feeding the mother, as well as performing cleaning duties, laundry, and many other household tasks. On average, the victim worked 115 hours per week from 2015 to 2018, and was paid $260 each week. The victim was released from her position when the mother passed away.

The victim detailed her experience, saying “In the end, when the years passed, they no longer brought food, I had to look after her alone and I was often going hungry. I was there all day and all night with her. There was no one going to visit, no nurses, no one came by. And I would let Mr. Habib know, but they wouldn’t come, they wouldn’t visit her.” She went on to explain that she often went months without pay.

Once reported by the victim, the Division of Labor Standards notified the employers several times from 2018 to 2021. There was a dispute among family members about who was responsible for the wages. The executor of the estate said he needed a letter from NYSDOL in order to release the funds, which the agency provided, but still no payment was released to the victim. After several outreach attempts, the Division notified all parties that NYSDOL would issue an Order to Comply. The Estate ultimately released the funds on June 16, 2022, and they have since been distributed to the victim.

NYSDOL also connected the victim with its Division of Immigrant Policies and Affairs (DIPA), who worked with the Consulate in the victim’s home country to fulfill the victim’s request of returning home to her family.

DIPA supports immigrants and helps them integrate into the workforce, while ensuring the services, programs and protections of the Department of Labor are available to all workers – including the large and growing group of people who work in or move to New York from another country. If you are in need of assistance with Immigrant Policies and Affairs or would like to request additional information, call the DIPA hotline at: 877-466-9757 or visit its homepage.

DIPA also coordinates NYSDOL’s anti-human trafficking and victim support efforts. Labor trafficking affects millions around the world, including in the U.S. Both the federal government and the New York State government have passed laws that criminalize human trafficking and provide services for victims. Forced labor includes the following:

• Being told you must work to pay off debt,
• Being promised benefits – such as a green card – that you do not receive,
• Having your ID, passport, or employment contract kept from you by your employer,
• Being threatened physically or with police or immigration action if you do not work,
• Experiencing harm at the hands of an employer.

To report labor trafficking, request certifications for U or T visas, or schedule a Human Trafficking awareness presentation, please call the Division of Immigrant Policies and Affairs at 877-466-9757 or email trafficking@labor.ny.gov. 

NYSDOL is committed to helping workers collect wages owed to them, including unpaid wages, withheld wages, illegal deductions, tip appropriation, and more. The Division of Labor Standards also investigates and collects unpaid benefits, such as wage supplements, which includes vacation/holiday pay, paid sick leave, expense reimbursement, and more. For more information, including how to file a claim, visit https://dol.ny.gov/unpaidwithheld-wages-and-wage-supplements.

U.S. Attorney Settles Fraud Lawsuit Against Non-Profit For Inflating Medicaid Reimbursements By Falsely Reporting Millions In Costs

 

Maranatha Human Services Agrees to Cease Operations and Will Pay $850,000

 Damian Williams, the United States Attorney for the Southern District of New York, and Scott Lampert, the Special Agent in Charge of the New York Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), announced that the United States has settled civil fraud claims against Maranatha Human Services, Inc. (“MARANATHA”) for falsely claiming that millions of dollars expended to benefit for-profit ventures owned and controlled by MARANATHA and its founder HENRY ALFONSO COLEY (“COLEY”), as well as payments to cover COLEY’s personal expenses and excessive payments to COLEY’s family members, were reasonable and necessary costs in connection with MARANATHA’s provision of Medicaid-funded services to individuals with developmental disabilities.  MARANATHA is a non-profit organization based in Poughkeepsie, New York; COLEY founded MARANATHA in 1988 and served as its chief executive officer until last year. 

Specifically, the Government’s complaint, which was filed in November 2021, alleges that MARANATHA, with its board’s approval, funded for-profit companies operated by COLEY; paid excessive salaries and consulting fees to COLEY’s family members, often in exchange for little to no work; and paid for tens of thousands of dollars of COLEY’s personal expenses.  The Government further alleges that, from 2010 to 2019, COLEY and MARANATHA submitted to the State of New York cost reports that falsely claimed millions of dollars of these expenses as “allowable” costs, which fraudulently inflated MARANATHA’s Medicaid reimbursement rates and resulted in MARANATHA receiving millions of dollars in Medicaid funds to which it was not entitled.

U.S. Attorney Damian Williams said:  “For a decade, Henry Alfonso Coley and Maranatha defrauded Medicaid by submitting reports that fraudulently claimed as allowable expenses millions of dollars spent on for-profit companies owned by them, excessive salaries and fees for Coley’s family members, and Coley’s personal expenses.  These expenses were not related to providing care or assistance to the individuals with developmental disabilities who Maranatha was meant to serve.  Now Coley and Maranatha have each agreed to pay damages, Coley has been barred from working for any entity that bills federal healthcare programs, and Maranatha will close its doors.”

HHS-OIG Special Agent in Charge Scott Lampert said:  “It is incumbent upon the recipient of Medicaid funds to ensure that costs reported for reimbursement are accurate and in accordance with the program’s regulations; this is a steadfast requirement of participating in the Medicaid program.  The use of federal dollars for unallowable expenses diverts much-needed resources meant to support health care services for vulnerable individuals.  Putting a stop to such activity, through collaboration with our law enforcement partners, is a prime objective of HHS-OIG.”

Under the settlement approved yesterday by U.S. District Judge Kenneth M. Karas, MARANATHA agrees to cease operations after transitioning the operation of its programs to other providers under the supervision of the governing state regulatory agency.  MARANATHA will also pay $340,000 to the United States and has admitted and accepted responsibility for conduct alleged by the Government in its complaint as further described below.  In addition, MARANATHA has agreed to pay $510,000 to the State of New York to resolve the State’s claims, for a total recovery of $850,000.  The settlement amount is based on the Office’s assessment of MARANATHA’s ability to pay based on the financial information it provided and its commitment to cease operations.  The United States previously resolved the claims against COLEY through a settlement approved by Judge Karas on November 17, 2021.  In addition to paying damages to the United States and the State of New York, COLEY was barred from working for any entity that bills federal healthcare programs; he also entered into a Voluntary Exclusion Agreement with HHS-OIG, which prohibits him from, among other things, billing Medicaid and other federal healthcare programs for 15 years.

According to the Government’s complaint, from 2010 through 2019:

MARANATHA was required to submit cost reports, called Consolidated Financial Reports (“CFRs”), to the State of New York each year, specifying the reasonable and necessary costs MARANATHA incurred in providing services for its Medicaid-funded programs.  These costs were to be reported as “allowable” costs.  MARANATHA was required separately to report its other, “non-allowable” costs; “non-allowable” costs include costs unrelated to its Medicaid-funded programs, as well as any unreasonable or unnecessary costs. 

With its board’s approval, MARANATHA funded for-profit companies operated by COLEY and owned by COLEY or MARANATHA, as well as various unincorporated pet projects started by COLEY.  One of the chief purposes of these ventures was to serve as vehicles to funnel money to COLEY’s daughter, as well as others associated with COLEY, whom MARANATHA paid for work they purportedly did to support these ventures and projects.  Over the course of a decade, not one of these ventures ever launched a product or service or earned a single dollar in revenue.  COLEY and MARANATHA hired COLEY’s family members as employees and consultants, some in connection with these for-profit ventures, and others in connection with MARANATHA’s Medicaid-funded services.  COLEY and MARANATHA paid excessive salaries and consulting fees to COLEY’s family members, often in return for little to no work.  MARANATHA also paid for tens of thousands of dollars of COLEY’s personal expenses, including more than $34,000 for personal training sessions at a gym.

COLEY and MARANATHA knowingly submitted CFRs annually to the State of New York fraudulently reporting these expenses—totaling millions of dollars—as “allowable” costs.  On each CFR, COLEY falsely certified to the completeness and accuracy of the report.  COLEY and MARANATHA knew that the State of New York relied on providers’ CFRs when setting provider-specific reimbursement rates for certain Medicaid-funded programs, including MARANATHA’s largest Medicaid-funded program.  As a result of COLEY’s and MARANATHA’s falsely inflated cost reports, the State of New York awarded MARANATHA a higher reimbursement rate and MARANATHA received millions of dollars in Medicaid funds to which it was not entitled.

As part of the settlement, MARANATHA admits, acknowledges, and accepts responsibility for the following conduct:

• COLEY made a presentation to MARANATHA’s board of directors acknowledging that “[i]t was always the plan for Maranatha to use government funds as a launching pad to create private enterprise that would enable it to not be dependent on [the] government while at the same time fulfilling its function” consistent with its mission.
• MARANATHA knew of the requirement to distinguish “allowable costs” from “non-allowable costs” in its CFRs.
• MARANATHA knew that the allowable costs reported in its CFRs are used by the New York State Department of Health, in part, to determine MARANTHA’s reimbursement rates for the provision of Medicaid services.
• In each CFR that MARANATHA submitted from 2010 to 2019 (the “Covered Period”), MARANATHA’s CEO, COLEY, certified that (i) the “information furnished in this report . . . is in accordance with the instructions and is true and correct to the best of my knowledge”; and (ii) the statement attached to the CFR “fully and accurately represents all reportable income and expenditures made for services performed in accordance with the provision of the Mental Hygiene Law and approved budgets.”
• Throughout the Covered Period, MARANATHA submitted CFRs every year that reported as “allowable costs” amounts expended not for MARANTHA’s provision of Medicaid-funded services but instead to pursue certain for-profit business ventures.
• In particular, MARANATHA submitted CFRs reporting as “allowable costs” costs expended to benefit certain entities owned and/or operated by COLEY or MARANATHA that did not provide Medicaid-funded services (the “Non-Medicaid Ventures”).  
• MARANATHA’s board, which approved MARANATHA funding these Non-Medicaid Ventures, was briefed on them by COLEY.
• MARANATHA paid COLEY’s family members to perform work related to the Non-Medicaid Ventures.  For example, since 2010, MARANATHA paid COLEY’s daughter more than $300,000.  Though much of her time was spent on work related to the Non-Medicaid Ventures, MARANATHA reported her full compensation as an “allowable cost” in the CFRs.
• Since 2010, MARANATHA paid COLEY more than $2 million in salary and benefits, and MARANTHA claimed the full amount of that compensation as “allowable costs” on its CFRs. However, COLEY devoted much of his time to working on the Non-Medicaid Ventures.
• MARANATHA also paid for certain of COLEY’s personal expenses, including more than $34,000 spent on personal training sessions, as well as holiday gifts and jewelry.  MARANATHA reported these expenses as “allowable costs” in its CFRs.

This lawsuit originated as a whistleblower lawsuit filed under seal pursuant to the False Claims Act.

Mr. Williams praised the outstanding investigative work of HHS-OIG, and he thanked the Medicaid Fraud Control Unit at the New York State Attorney General’s Office for its extensive collaboration in the investigation.