Manhattan U.S. Attorney Prevails in Securities Fraud, RICO Case

The SEC has brought a series of investment fund fraud and Ponzi schemes. Indeed, the Commission has brought so many of these cases in recent years they have become a staple. None of those cases, however, involved securities fraud tied to an investment scheme, a racketeering charge centered on an automobile insurance scam and fraud tried to a very high stakes, illegal poker game. Yet those were the charges brought against Mikhail Zemlyansky brought by the Manhattan U.S. attorney and on which a conviction was obtained. U.S. v. Zemlyansky, Case No. 1:12-cr-00171 (S.D.N.Y.).

Mr. Zemlyansky was charged with securities fraud tied to defrauding investors out of about $18 million with his claimed investment funds. To implement the scheme, Mr. Zemlyanski used two entities, Lyons Ward & Associates and the Rockford Group. Investors were told the firms were settlement claims funding companies that invested in law suits in return for a portion of future settlements. Documents and account statements were created for use by cold-callers to solicit investors with boiler room tactics. In reality there were no investment funds. Rather, the investor money was misappropriated by Mr. Zemlyanski and wired to shell companies in Eastern Europe.

The racketeering claim was based on a scheme that ran over a five year period beginning in 2007 tied to the New York State no-fault auto insurance law. That law requires prompt payment for medical treatment from auto accidents. This eliminated the need to file personal injury suits. The law permitted patients to assign the right to reimbursement from an insurance company to others including clinics. Those clinics had to be owned by licensed medical professionals.

Over the years of the scheme Mr. Zemlyansky’s organization defrauded auto insurance companies out of over $100 million by creating and operating medical clinics that provided unnecessary and excessive medical treatment to take advantage of the no-fault law. The organization owned and controlled over a dozen medical professional, paying licensed medical professionals to use their licenses to form the entities. Kickbacks were paid to runners to recruit patients and to others who participated in the scheme. The proceeds from this activity were laundered through check-cashing entities and shell companies.

Finally, Mr. Zemlyansky’s organization operated high-stakes illegal poker games in Brooklyn. Tens of thousands of dollars per game in profits were generated. A jury convicted Mr. Zemlyansky of racketeering conspiracy, securities fraud, mail fraud and wire fraud after a four week trial. The date for sentencing has not been set.

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