U.S. Fraud Cases Illustrate Interconnected Nature of Multiple Fraud Charges

Ripple effect.jpg


Mason Wilder, CFE
ACFE Research Specialist

If you follow fraud stories in the news, there’s a chance one or two of them might have caught your attention last week.

Although the circumstances of each case differ, they all involve politically active defendants who either pleaded guilty to, were found guilty of, or were charged with committing fraud. The cases also illustrate the interconnected nature of many fraud charges. For example, if someone misuses or attempts to disguise funds, there may often be tax fraud charges available to prosecutors because the perpetrator didn’t claim those funds on their tax return. Similarly, if someone is carrying out a fraud scheme over a period of years and in coordination with others, they will likely communicate electronically over state lines via phone calls, text messages or emails, making wire fraud charges available to prosecutors.   

The Cases
On August 21, the U.S. District Court for the Eastern District of Virginia found Paul J. Manafort Jr. guilty of eight out of the 18 charges facing him in a jury trial: five counts of filing false income tax returns, one count of failing to report a foreign bank account and two counts of making false statements to a financial institution. The court declared a mistrial on the remaining 10 counts, which included two more counts of failing to report a foreign bank account, three additional counts of bank fraud and five counts of conspiracy to commit bank fraud; the jury was unable to reach a consensus on these 10 charges. Manafort had pleaded not guilty to all 18 charges.

The tax fraud charges stem from Manafort failing to report more than $16 million on his tax returns each year from 2010 to 2014, which he earned lobbying and consulting for former Ukraine President Viktor Yanukovych.

The charges for failing to report a foreign bank account related to Manafort allegedly using a network of shell companies and more than 24 foreign bank accounts in Cyprus, St. Vincent and the Grenadines, and the U.K. to hide the funds and evade U.S. taxes. He did not report the accounts on any tax forms from 2011 to 2014, but the jury only found him guilty for the charge related to 2012. Court documents suggest that Manafort regularly authorized withdrawals from these accounts and disguised proceeds as loans to fund a lavish lifestyle without paying taxes on the original income.

Despite tens of millions of dollars flowing through the shell companies and offshore bank accounts, and the money Manafort saved by not paying taxes on those funds, he apparently needed more money to live the lifestyle to which he was accustomed. The bank fraud and conspiracy to commit bank fraud charges relate to loan applications he submitted to obtain more than $20 million in four loans from three lenders beginning in 2015, alleging that he falsely inflated his income and failed to disclose existing debt to secure the loans. The jury found Manafort guilty of two of the bank fraud charges, but none of the conspiracy to commit bank fraud charges.


Also on August 21, Michael Cohen pleaded guilty in the U.S. District Court for the Southern District of New York to eight charges rather than face a jury trial: five counts of filing false income tax returns, one count of making false statements to a financial institution, one count of willfully causing an unlawful corporate contribution and one count of making an excessive campaign contribution.

The tax fraud charges relate to Cohen’s tax returns from 2012 to 2016, when he failed to report more than $4 million in income related to loans and leasing of medallions to two taxi operators. The bank fraud charges related to Cohen’s failure to disclose prior loan liabilities when obtaining a mortgage for a New York City condo in 2013 as well as lying about those liabilities when applying for a mortgage for a summer home in 2015.

The campaign finance violations relate to Cohen arranging payments of $150,000 to a model and $130,000 to an adult film actress, both for the purpose of influencing a federal election. The $150,000 payment qualified as an unlawful corporate contribution to a political campaign in coordination and at the direction of a candidate for federal office, while the $130,000 payment qualified as a campaign contribution in excess of the personal limit of $2,700 per election.


On the other side of the country, but also on August 21, the U.S. District Court for the Southern District of California issued a 60-count indictment for congressman Duncan Hunter and his wife related to the misuse of campaign funds. The indictment featured one charge of conspiracy, 43 counts of wire fraud, 13 counts of falsification of campaign finance records and three counts of prohibited use of campaign contributions. All of the charges related to a pattern of using campaign funds for personal expenses from 2013 to 2016, and the indictment included many details of how the funds were spent, ranging from clothing, meals, alcohol, golf outings, dental work, groceries, travel expenses and more. Hunter and his wife pleaded not guilty to the charges on August 23.


The case of the Hunters bore resemblances to another member of congress recently felled by fraud, Florida representative Corrine Brown, who began serving a five-year sentence in January of this year. A jury in the U.S. District Court for the Middle District of Florida found Brown guilty on 18 of 22 counts, including conspiracy, wire fraud, mail fraud and tax fraud related to her use of more than $800,000 raised for a charity that supposedly awarded scholarships to disadvantaged students. The funds instead went to support Brown’s lifestyle, with travel expenses, shopping and parties mentioned during the trial; only $1,200 ever went toward students’ education.

Stay tuned and check out my article in the next issue of Fraud Magazine about perceived governmental corruption in Iceland.