Ponzi Scheme Involved Sale of Medical Debts
Baltimore, Maryland – A federal jury convicted Richard
Shusterman, age 53, of Highland Beach, Florida late on May 2, 2016, of
conspiring to commit wire fraud and nine counts of wire fraud in connection
with a complex scheme to defraud investors and lenders of $278 million by
selling fraudulent investment portfolios of debts purportedly owed by hospital
patients. U.S. District Judge James K. Bredar detained Shusterman pending a
detention hearing scheduled for today at 11:00 a.m. Shusterman is the
fourth and final conspirator to be convicted in the scheme.
The conviction was announced by United States Attorney
for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Kevin
Perkins of the Federal Bureau of Investigation, Baltimore Field Office; and
Special Agent in Charge Andre R. Watson of U.S. Immigration and Customs
Enforcement’s (ICE) Homeland Security Investigations (HSI).
“Richard Shusterman and his co-conspirators
perpetrated a brazen and complex Ponzi scheme that defrauded investors of more
than $278 million,” said U.S. Attorney Rod J. Rosenstein. “The conspirators
pretended that they were repaying investors with revenue earned by collecting
debts, but they were really using the money of new victims to repay previous
investors.”
According to trial evidence, Shusterman was a
shareholder and president of International Portfolio, Inc. (IPI), located in
Pennsylvania. Co-conspirator Robert Feldman was part owner of IPI, and
president of United Consulting, Inc. Shusterman and Feldman represented
that IPI had experience in the purchase, valuation, collection and resale of
medical accounts receivable, comprising of past due patient accounts which the
hospitals and other entities selling the accounts had been unsuccessful in
collecting. Beginning on June 21, 2006, Shusterman and Feldman, through United
Consulting and IPI, bought and sold consumer debt, including medical debt
portfolios. From December 2006 through June 2008, IPI paid more than $25
million to purchase over $4.1 billion in medical accounts receivable,
comprising more than 3,872,514 past due patient accounts.
Jonathan Rosenberg and Douglas Kuber operated Account
Receivable Services, LLC (ARS) in New York, New York. They agreed to
promote the sale of IPI debt portfolio. Pursuant to their agreement,
Shusterman, through IPI, bundled the past due patient accounts from IPI’s
inventory into investment portfolios, and then sold the portfolios to ARS at a
discounted rate. ARS’s purchases of the medical debt portfolios from IPI
came from investors who agreed to lend money to ARS on a fixed-term basis in
return for a high, fixed interest rate.
Shusterman and IPI agreed to
manage the collection activity for each debt portfolio that IPI sold. Any
funds collected by IPI were to be forwarded to escrow accounts opened and
maintained by ARS, which, in turn, would use the funds to cover the periodic
interest payments and outstanding balances owed to the investors.
Fraudulent Inflation of Purchase Prices for IPI Debt
Portfolios to Obtain
Larger Investor Loans
Rosenberg and Kuber misrepresented to investors that a
loan secured by IPI debt portfolios would not be used to pay up-front fees and
commissions associated with the investment offering. In fact, however,
ARS and IPI devised an elaborate process involving the use of multiple escrow
accounts and independent accountants to feign a transparent tracking of the
deposit of the loan proceeds, the revenue from collection activity, the
repayment of interest, and the sale of portfolios. Funds to pay a 5% to
10% fee would come from the investor’s loan proceeds. Pursuant to this
undisclosed fee arrangement, ARS and IPI would agree to a concealed purchase
price for a debt portfolio. Then they would tell the investor that the
portfolio price was 5% to 10% higher than the concealed price.
Shusterman agreed to kickback the loan proceeds in
excess of the true purchase prices to Rosenberg and Kuber. The kickbacks were
characterized as a refund or a rebate. In so doing, ARS and IPI avoided the
intricate escrow arrangement they had created to convince investors to finance
the joint venture. From June 2007 to March 2009, Shusterman paid Kuber and
Rosenberg kickbacks totaling in excess of $8 million.
In reliance on those misrepresentations, investors
provided loans to ARS of approximately $145 million to purchase IPI debt
portfolios, which IPI managed. Other investors purchased approximately
$122,500,000 worth of IPI debt portfolios, which IPI also managed.
Fraudulent Inflation of Collection Results
In order to induce existing investors to maintain and
increase their participation in the investment scheme and to persuade new
investors to join, ARS and IPI falsely represented the amount of income being
generated from the collection activity for the medical debt portfolios.
It became apparent almost from the start that collections were
significantly inadequate, not only in their failure to cover periodic interest
payments that ARS owed its investors, but also to repay the investors’
principal.
Shusterman and Rosenberg agreed that IPI would advance
ARS the money needed to make ARS’s periodic interest payments to the
investors. From July 2008 to December 2009, and without the investors’
knowledge, Shusterman and his conspirators wired approximately 209 advances
from IPI into the bank accounts of the ARS debt portfolios, which were
subsequently used to pay periodic interest payments due to an investor and/or
inflate the collection history of the respective investor debt
portfolios. Misleading collection reports were created to deceive the
investors.
After their plan to subsidize ARS with monthly
advances was implemented, an investor was induced to fund the purchase of 12
more portfolios between July and November 2008, totaling approximately $65
million in new investments.
Another investor representative living in
West River, Maryland was induced to fund the purchase of a portfolio on
November 8, 2008 for $10 million, and another portfolio on May 26, 2009 for $5
million.
To conceal poor collection results and artificial
resale prices for IPI debt portfolios, and to assure a continuing flow of new
funding into the investment scheme, Shusterman and his conspirators continued
to solicit existing and prospective investors to purchase or finance IPI debt
portfolios. In so doing, they fraudulently used new investor funds to
make interest and resale payments in order to meet the investment benchmarks of
prior investors.
As a result of the scheme, the loss to investors was
$278 million.
Shusterman faces a maximum sentence of 20 years in
prison. Judge Bredar scheduled his sentencing for October 11, 2016, at 11:00
a.m.
New Jersey residents Robert Feldman, age 68, of Beach
Haven; Jonathan E. Rosenberg, age 47, of West Orange; and Douglas A. Kuber, age
55, of Livingston, previously pleaded guilty to their participation in the
conspiracy and face a maximum sentence of 20 years in prison. Feldman,
Rosenberg and Kuber are scheduled to be sentenced on June 2, 14 and 30, 2016,
respectively.
Today’s announcement is part of the efforts undertaken
in connection with the President’s Financial Fraud Enforcement Task
Force. The task force was established 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 made great strides in facilitating increased investigation
and prosecution of financial crimes; enhancing coordination and cooperation
among federal, state and local authorities; addressing discrimination in the lending
and financial markets; and conducting outreach to the public, victims,
financial institutions and other organizations. Since fiscal year 2009,
the Justice Department has filed over 18,000 financial fraud cases against more
than 25,000 defendants. For more information on the task force, please
visitwww.StopFraud.gov.
United States Attorney Rod J. Rosenstein thanked the
FBI and HSI Baltimore for their work in the investigation. Mr. Rosenstein
praised Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who are
prosecuting the case.
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