Tuesday, November 12, 2019

Individual charged with running $98 million scheme from Puerto Rico

By on May 16, 2019

U.S. Attorney for the District of Puerto Rico Rosa Emilia Rodríguez-Vélez (CB file)

Federal grand jury returns 34-count indictment

SAN JUAN – An investor who moved to Puerto Rico to benefit from the island’s tax incentives under Act 20 of 2012, the Export Services Act, has been indicted in federal court for running a fraudulent scheme that netted about $98 million.

On Wednesday, a federal grand jury returned a 34-count indictment charging Gopalkrishna Pai with conspiracy to commit wire and bank fraud, 19 counts of wire fraud, five counts of aggravated identity theft, and nine counts of money laundering, the U.S. attorney for the District of Puerto Rico, Rosa Emilia Rodríguez-Vélez, announced Thursday. The ongoing investigation is being conducted by the FBI.

“This individual took advantage of Puerto Rico and Law 20 to create a company, F9 Advertising, to generate significant revenue through a fraudulent scheme based on lies and falsified documents,” Rodríguez-Vélez said. “The indictment underscores the USAO’s commitment to the investigation and prosecution of all types of fraud, and to our continued efforts to ensure that Puerto Rico is not a safe haven for criminal activity.”

If found guilty, Pai is facing a maximum penalty of 20 years of imprisonment for each conspiracy and wire fraud count as well as a maximum two-year term of imprisonment for each aggravated identity count and a maximum 10 years of imprisonment for each money laundering count.

The indictment alleges that from around May 2014, through about October 2018, Pai operated a scheme to defraud merchant processors–which provide services to other businesses to process electronic payments, including but not limited to credit card payments–and others by submitting false information and falsified documentation to create merchant accounts in the name of straw, or liablity, companies to process credit card and electronic payments. The scheme Pai employed covered his involvement and use of more than 100 companies to facilitate the processing of about $98 million in gross revenue in online retail sales.

As a part of the conspiracy, Pai owned and operated F9 Advertising LLC, a for-profit limited liability company organized in Puerto Rico in May 2014 and registered under Act 20. F9 sold personal care products, such as skin creams, online “utilizing a negative option marketing model,” which the Justice Department explained as “a category of commercial transactions in which sellers interpret a customer’s failure to take an affirmative action, either to reject an offer or cancel an agreement, as assent to be charged for goods or services.”

Through the more than 100 companies Pai created, he obtained individual employer ID numbers (EINs) from the Internal Revenue Service (IRS) for each straw company and opened individual commercial bank accounts for each. False documents were then created and submitted to merchant processors to create merchant accounts to process online sales, and to disguise his involvement.

The merchant processors include: Humboldt Merchant Services (Humboldt); Paysafe Group Limited (Paysafe); Global Merchant Advisors (Global); and Merchant Payment Acceptance Corp. (PayKings).

Pai disguised himself through the falsification of bank records and EIN tax documents and other information to prevent the merchant processors and their related financial institutions from learning he was the companies’ owner and operator. Credit card and other payments processed were paid to accounts in the name of the straw companies and transferred to F9.

As part of the scheme to defraud the merchant processors, Pai exchanged emails and documents online, which constitutes interstate wire, “including applications, containing materially false representations, and falsified documentation, which included real individuals’ personal identification information like names, social security numbers, and signatures,” Justice said.

“The mission of the FBI San Juan Financial Investigation Strike Team is to identify patterns of sophisticated money laundering, determine the criminal conduct behind those transactions, and to partner with financial crimes experts at the U.S. Attorney’s Office to prosecute those responsible,” said Douglas A. Leff, special agent in charge of the FBI-San Juan Field Office. “This case is an example of the successful use of financial intelligence to follow the money and to solve a series of crimes that might otherwise have gone undetected.”

The case is being prosecuted by Assistant U.S. Attorney Seth A. Erbe.

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