Leader of $242 Million Investment Fraud Scheme Sentenced to 18 Years in Federal Prison

[nitpicker]

https://www.justice.gov/usao-md/pr/leader-242-million-investment-fraud-scheme-sentenced-18-years-federal-prison

Department of Justice
U.S. Attorney’s Office
District of Maryland

FOR IMMEDIATE RELEASE
Friday, December 23, 2016

Leader of $242 Million Investment Fraud Scheme Sentenced to 18 Years in Federal Prison

Ponzi Scheme Involved Sale of Medical Debts

Baltimore, Maryland – U.S. District Judge James K. Bredar sentenced Richard Shusterman, age 53, of Highland Beach, Florida, today to 18 years in prison, followed by three years of supervised release, for a wire fraud conspiracy and nine counts of wire fraud in connection with a complex scheme to defraud investors and lenders of $242 million by selling fraudulent investment portfolios of debts purportedly owed by hospital patients. Judge Bredar also entered orders requiring Shusterman to pay restitution of $171,383,834, and to forfeit $242,485,254.
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According to evidence presented at his 22-day trial, 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, comprised 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 to investors. Pursuant to their agreement, Shusterman, through IPI, bundled the past due patient accounts from IPI’s inventory into investment portfolios, 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 in return for a high, fixed interest rate. Shusterman and IPI agreed to manage the collection activity for each debt portfolio that IPI sold. Investors were told that 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 Pay Fees and Commissions

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 agreed to a concealed purchase price for a debt portfolio, then told the investor that the portfolio price was 5% to 10% higher than the concealed price, in order to cover their fees and commissions. Specifically, Shusterman paid the loan proceeds in excess of the true purchase prices to Rosenberg and Kuber, characterizing these kickbacks as a refund or a rebate. From June 2007 to March 2009, Shusterman paid Kuber and Rosenberg kickbacks totaling in excess of $8 million. In reliance on the misrepresentations of Rosenberg and Kuber, investors provided loans to ARS of approximately $145 million to purchase IPI debt portfolios, and other investors purchased approximately $122.5 million worth of IPI debt portfolios, all of which IPI managed.

Fraudulent Inflation of Collection Results to Maintain and Increase Investments

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. According to trial testimony, 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.
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[safeinOhio]

1. John Sinclair got 12 for 2.