White Collar Criminal Defense Group

New Jersey Biotech Companies And Former Executive Ordered To Pay $11M To Resolve Civil Fraud Suit

Thomas J. Fagan and the two companies he ran have been ordered to pay more than $11 million in restitution and civil penalties to resolve a civil fraud suit brought by New Jersey State authorities. Fagan, President and CEO of Energex Systems, is also permanently barred from selling securities in New Jersey, and from holding controlling interest in or serving as an officer or director of any company that issues securities in New Jersey, including his former companies.

Earlier in May 2013, Fagan was indicted by a New Jersey Grand Jury in connection with an alleged scheme that defrauded nearly 800 investors of $9.5 million by selling unregistered stock in Energex Systems, Inc. The grand jury indictment charges Fagan with misapplication of entrusted property, theft, money laundering, and corporate misconduct. He is also charged with three counts of failing to file personal income tax returns and filing a fraudulent state tax return in 2010. The charges stemmed from an investigation by the state Division of Criminal Justice Financial & Computer Crimes Bureau, which received a referral from New Jersey Bureau of Securities. The Bureau filed the civil suit against Fagan and his companies in July 2011.

Fagan allegedly commingled investor funds among the two companies, stealing or misappropriating more than $230,000 for his personal use and enrichment, including withdrawals of tens of thousands of dollars for casino gambling. According to the indictment, Fagan often used the money for overseas vacations and gambling junkets to Atlantic City and Las Vegas. The indictment also alleges Fagan made $114,031 in cash withdrawals for personal use from accounts of Energex and Arbios Systems, including withdrawals made in Atlantic City and Las Vegas. The indictment also alleges that Fagan wrote Energex checks to himself in 2008 totaling $117,772.

This case highlights the New Jersey Attorney General’s continuing initiative to investigate and prosecute financial crimes in the State.

Give Me Liberty!

On May 28, 2013 the Department of Justice announced the unsealing of the largest international money laundering case ever prosecuted.  Arthur Budovsky, the founder of Liberty Reserve, along with 6 co-defendants were indicted in the Southern District of New York for laundering more than $6 BILLION in criminal proceeds.  Liberty Reserve is an online service incorporated in Costa Rica in 2006 and allows electronic transfer of funds effortlessly and anonymously.  The company charged a 1% fee for each transaction and, for an additional $0.75, Liberty Reserve hid the online user’s account number when performing the transaction.  The government’s investigation found that Liberty Reserve was favored by cyber-criminals and was used in a recent $45 million bank heist that drained two Middle Eastern banks through ATMs around the world.

Surprisingly, this is not Budovsky’s first experience in the American criminal justice system.  Budovsky, a Costa Rican national, was indicted in New York in 2006 for operating an illegal financial services company known as Gold Age.  Budovsky was sentenced to 5 years probation following a guilty plea.  So much for specific deterrence!

For more information see: 

http://www.justice.gov/opa/pr/2013/May/13-crm-608.html

http://www.wired.com/threatlevel/2013/05/liberty-reserve-indicted/