• NYC White Collar Crimes Lately

    Author : May 31, 2018

    Given that New York City is often thought of as the financial capital of the world, it is no surprise that the District Attorney of Manhattan is continuously investigating and prosecuting defendants for various white-collar and financial crimes. The past month has seen no slow-down in these incidents.

    First, on May 3, Pincus David Carlebach pled guilty for embezzling over $1.8 million from various individuals in his capacity as a bankruptcy attorney. He pled guilty to Grand Larceny in the Second Degree and Scheme to Defraud in the First Degree. According to the court records and statements from the district attorney’s office, Mr. Carlebach used the escrow account reserved for his bankruptcy cases as his own personal trust fund. For over two years, he used his Interest on Lawyer Account (IOLA) to pay for personal expenses, including deposits made by bidders in bankruptcy actions and to repay parties who needed reimbursement. He breached his fiduciary duty and committed a significant crime, and faces a maximum sentence of five years in prison. As with many white-collar cases, Mr. Carlebach faces collateral consequences for his plea, including likely disbarment from the legal profession. Currently, his legal license is suspended until further court order.

    Another professional pled guilty to criminal tax fraud in New York City. Michael Shvo, a real estate developer, and his companies were accused of evading payment of at least $1 million in state and local sales taxes. The D.A.’s statement claims that Mr. Shvo created a sham corporation in Montana to avoid various sales and use taxes, including taxes on a Ferrari, between 2010 and 2016. He also purchased fine art, furniture and jewelry. His company misrepresented to various auction houses and galleries that the purchases would be shipped to a location overseas, and therefore no sales tax should be collected. In reality, the items purchased were all sent either to his local office or residences. In addition to the potential for jail time and criminal fines, the D.A.’s office also filed a civil action for the forfeiture of the gains Mr. Shvo made as a result of his conduct. Over $1.5 million assets have already been forfeited, which will be used to satisfy the $3.5 million in taxes, penalties and interest that the defendant has been ordered to pay as part of his guilty plea. This case illustrates how sometimes the punishment for the crime can actually be more expensive than the profits gained from doing it.

    Finally, one more white-collar case illustrates the intersection between cybercrimes and financial crimes – a combination that is becoming more frequent. Sergei Aleynikov was a computer programmer at Goldman Sachs who helped develop the source code for financial trades – a crucial service for financial firms. The programs were strictly confidential and was proprietary information of the firm. Aleynikov eventualy accepted a position with a start-up firm, who had no foundation for high-frequency trading and would be building its software from scratch. On his last day for Goldman, Aleynikov uploaded a large amount of the source code to a remote server, based in Germany. After several trials, dismissals and appeals, the New York Court of Appeals affirmed the lower court’s conclusion that Aleynikov violated a state statute when he wrongfully acquired a portion of code which had economic value. His conviction for stealing the bank’s computer code was upheld. This case makes it clear that appropriating intellectual property without authority or consent is a crime in the state of New York.

    Mr. Aleynikov’s case was watched closely by financial firms who use competitive computer algorithms to make trade in the financial sector. No doubt the court’s decision will make prosecution easier for the state, and defending the conduct more difficult for employees.

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