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Financial Crimes
09/05/2013

2 men indicted in $275 million investment fraud scheme

BALTIMORE – A federal grand jury indicted two New Jersey men on charges of conspiracy and wire fraud in connection with a scheme to defraud equity investors and asset-based lenders in medical accounts receivable of more than $275 million. The indictment was returned Wednesday and unsealed Thursday after U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) special agents arrested the defendants.

Richard Shusterman, 50, of Highland Beach, Fla., and Jonathan E. Rosenberg, 44, of West Orange, N.J., were indicted following an investigation by HSI Baltimore and the FBI.

The guilty pleas of Robert Feldman, 65, of Beach Haven, N.J., and Douglas A. Kuber, 53, of Livingston, N.J., were also unsealed Sept. 5. Feldman and Kuber pleaded guilty to conspiracy to commit wire fraud Sept. 3 and Oct. 11, respectively.

"The indictment alleges that the defendants perpetrated a brazen and complex Ponzi scheme that defrauded investors of more than $275 million," said U.S. Attorney Rod J. Rosenstein.

According to the 10-count indictment, Shusterman was a shareholder and president of International Portfolio, Inc. (IPI). Feldman was part owner of IPI, and was also the president of United Consulting, Inc. Shusterman and Feldman represented that IPI was a company that had experience in the field of medical accounts receivable, including their purchase, valuation, collection and resale. Beginning June 21, 2006, Shusterman and Feldman, through United Consulting and IPI, engaged in the business of buying and selling consumer debt, including medical debt portfolios.

According to the indictment, Rosenberg and Kuber, operated Account Receivable Services, LLC (ARS). ARS invested in medical accounts receivable purchased from IPI using funds borrowed from investors interested in asset-based lending. Rosenberg was also president of two other companies that recruited investors for medical accounts receivable portfolios purchased from IPI.

From December 2006 through June 2008, IPI paid more than $25 million to purchase more than $4.1 billion in medical accounts receivable, comprising more than 3,872,514 past due patient accounts which the hospitals and other entities selling the accounts had been unsuccessful in collecting. Beginning in June of 2007, Shusterman, Rosenberg, Feldman and Kuber began promoting an investment model to individual investors and investment fund managers.

To implement the investment model, the conspirators allegedly agreed that Shusterman, through IPI, would batch accounts receivable from IPI’s inventory into discrete debt portfolios with specified total outstanding account balances. These portfolios would then be offered for sale to investors. In addition, Shusterman and IPI would manage all the collection efforts for each debt portfolio IPI sold.

The indictment alleges that Shusterman, Rosenberg, Kuber and Feldman made fraudulent representations and omissions regarding purchase prices, collection results, and resale values of IPI medical debt portfolios in order to persuade investors to invest in those portfolios. The indictment also alleges the four men negotiated and agreed upon two different purchase prices for each IPI debt portfolio that hedge funds and other investors financed on behalf of ARS. The conspirators set higher purchase prices for the IPI debt portfolios ARS financed through hedge funds and other investors. IPI agreed to kickback the loan proceeds in excess of the true purchase prices to Rosenberg and Kuber. The defendants allegedly characterized the kickbacks as a refund for any unqualified accounts in the portfolio, such as when a debtor was deceased or bankrupt. The indictment alleges that between June 2007 and March 2009, Shusterman paid Kuber and Rosenberg kickbacks totaling approximately $8,318,718.

Further, the indictment alleges that in order to induce existing investors to maintain and increase their participation in the investment scheme and to persuade new investors to join, Shusterman, Rosenberg, Feldman and Kuber falsely represented the actual amount of collections and rates of liquidation of IPI debt portfolios. In fact, because IPI debt portfolios did not generate sufficient collections to meet the minimum debt service payments due to the investors, Shusterman, Rosenberg, Feldman, and Kuber allegedly caused IPI to wire money disguised as "direct payments" to ARS entities to fund interest payments owed to hedge funds and other investors who loaned money for the acquisition of IPI debt portfolios. Specifically, the indictment alleges that between July 2008 and March 2010, the defendants made false and misleading collection reports stating that a total of approximately $56,180,158 in "direct payments" were collected during the liquidation of IPI debt portfolios, in order to deceive hedge funds such as Platinum Partners and other investors. The indictment alleges that in February 2010, Shusterman, Rosenberg, Feldman and Kuber attempted to induce Eton Park Capital Management to invest by portraying four portfolios financed by Platinum as receiving approximately $28.7 million in collections. In fact, the total net collections were approximately $2 million.

Finally, in order to induce investors to buy and/or maintain their investment positions in IPI debt portfolios, and to further conceal substantially lower than projected collection results, Shusterman, Rosenberg, Feldman and Kuber fraudulently repurchased and resold investors’ IPI debt portfolios at artificially inflated prices that neither corresponded to a particular debt portfolio’s actual collection results, nor to an asking price from a purchaser in the debt-buying industry. According to the indictment, Shusterman, Rosenberg, Feldman and Kuber represented to investors that the IPI debt portfolios sold to them or used as collateral were comprised of medical accounts receivable that IPI had purchased directly from hospitals and medical providers after those institutions had exhausted their efforts to collect from their debtor patients. In fact, the indictment alleges that Shusterman and Feldman intentionally sold to some investors IPI debt portfolios that IPI had previously sold to and repurchased from a different investor, and sometimes multiple investors.

The indictment also seeks the forfeiture of $278,105,193, alleged to be the proceeds of the scheme.

Shusterman and Rosenberg each face a maximum sentence of 20 years in prison for the conspiracy and for each of nine counts of wire fraud. Shusterman was arrested in Baltimore and is scheduled to have his initial appearance in U.S. District Court in Baltimore Thursday at 3:30 p.m. Rosenberg was arrested in Newark, N.J., and is expected to have his initial appearance in U.S. District Court there Thursday.

Richard Feldman and Douglas Kuber, each pleaded guilty to conspiracy to commit wire fraud and face a maximum sentence of 20 years in prison. Feldman is scheduled for sentencing Dec. 3. No sentencing date has been set for Kuber.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 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. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

The case is being prosecuted by Assistant U.S. Attorneys Martin J. Clarke and Joyce K. McDonald.