WEST ORANGE, NJ - On Sept. 5, the United States District Attorney's Office in Maryland indicted West Orange resident Jonathan E. Rosenberg, 44, and Richard Shusterman, 65, of Highland Beach, Florida "on charges of conspiracy and wire fraud, in connection with a scheme to defraud equity investors and asset-based lenders in medical accounts receivable of more than $275 million." The indictment, returned on Sept. 4, was unsealed Thursday after the arrest of the defendants.
In addition, Robert Feldman, 65, of Beach Haven, and Douglas A. Kuber, age 53, of Livingston, were also unsealed today. They pleaded guilty to conspiracy to commit wire fraud on Sept. 3, 2013 and Oct.11, 2012.
“The indictment alleges that the defendants designed a complex Ponzi scheme that defrauded investors of more than $275 million,” said U.S. Attorney Rod J. Rosenstein. The 10-count indictment alleges that Shusterman was a shareholder and president of International Portfolio Inc. (IPI); Feldman was part owner of IPI and was also the president of United Consulting Inc.; Shusterman and Feldman represented that IPI was a company that had experience in the field of medical accounts receivable, including "purchase, valuation, collection, and resale." The FBi alleges that starting on June 21, 2006, Shusterman and Feldman, through United Consulting and IPI, engaged in buying and selling consumer debt, including medical debt portfolios.
Jonathan E. Rosenberg and Douglas A. Kuber operated Account Receivable Services LLC (ARS). They invested in medical accounts receivable purchased from IPI using funds borrowed from investors interested in asset-based lending. Rosenberg was also president of two other companies that recruited investors for medical accounts receivable portfolios purchased from IPI.
The FBI further alleges that from "December 2006 through June 2008, IPI paid more than $25 million to purchase over $4.1 billion in medical accounts receivable, comprising more than 3,872,514 past due patient accounts that the hospitals and other entities selling the accounts had been unsuccessful in collecting. Beginning in June 2007, Shusterman, Rosenberg, Feldman, and Kuber began promoting an investment model to individual investors and investment fund managers."
All conspirators allegedly agreed that Shusterman, through IPI, would package accounts receivable from IPI’s inventory into debt portfolios with specified total outstanding account balances. These portfolios would then be offered for sale to investors. In addition, Shusterman and IPI would manage the collection efforts for each debt portfolio IPI sold.
The indictment also claims that Shusterman, Rosenberg, Kuber and Feldman lied to clients by making misrepresentations and omissions regarding purchase prices, collection results, and resale values of IPI medical debt portfolios to persuade investors to invest in the portfolios.
The FBI also alleges that the indictee "negotiated and agreed upon two different purchase prices for each IPI debt portfolio that hedge funds and other investors financed on behalf of ARS." They set higher purchase prices for the IPI debt portfolios ARS financed through hedge funds and other investors. IPI would kickback the loan proceeds in excess of the true purchase prices to Rosenberg and Kuber. The defendants allegedly called the kickbacks a "refund for any unqualified accounts in the portfolio" e.g.when a debtor was deceased or bankrupt. The indictment alleges that between June 2007 and March 2009, Shusterman paid Kuber and Rosenberg kickbacks totaling approximately $8.3 million.
Shusterman, Rosenberg, Feldman, and Kuber also lied about the actual amount of collections and rates of liquidation of IPI debt portfolios in an effort to entice more shareholder participation. The FBI indicated noted that "In fact, because IPI debt portfolios did not generate sufficient collections to meet the minimum debt service payments due to the investors, Shusterman, Rosenberg, Feldman, and Kuber allegedly caused IPI to wire money disguised as “direct payments” to ARS entities to fund interest payments owed to hedge funds and other investors who loaned money for the acquisition of IPI debt portfolios."
From July 2008 and March 2010, the defendants created false and misleading collection reports stating that a total of approximately $56 million in “direct payments” were collected during the liquidation of IPI debt accounts, in order to deceive hedge funds such as Platinum Partners and other investors. In February 2010, Shusterman, Rosenberg, Feldman, and Kuber tried to convince Eton Park Capital Management to invest by portraying four portfolios financed by Platinum as receiving approximately $28.7 million in collections, though the total net was only approximately $2 million.
In a final attempt to convince investors to continue with IPI, and cover up the real lower-than-projected collection figures, Shusterman, Rosenberg, Feldman and Kuber illegally repurchased and resold investors’ IPI debt portfolios at "artificially inflated prices that neither corresponded to a particular debt portfolio’s actual collection results, nor to an asking price from a purchaser in the debt-buying industry."
The FBI also alleged that the four defendants misrepresented the nature of the IPI debt portfolios to investors, claiming they were comprised of medical accounts receivable that they had purchased from hospitals and medical providers after those institutions had "exhausted their efforts to collect from their debtor patients." The indictment alleges that Shusterman and Feldman purposefully sold IPI debt portfolios to investors that IPI had already sold to and repurchased from a different investor, and sometimes multiple investors.
The FBI indictment seeks the forfeiture of $278,105,193, the alleged proceeds of the scheme.
The FBI releases further note that "Shusterman and Rosenberg each face a maximum sentence of 20 years in prison for the conspiracy and for each of nine counts of wire fraud. Shusterman was arrested in Baltimore and is scheduled to have his initial appearance in U.S. District Court in Baltimore today at 3:30 p.m. Rosenberg was arrested in Newark, New Jersey, and is expected to have his initial appearance in U.S. District Court there today."
Robert Feldman and Douglas Kuber pleaded guilty to conspiracy to commit wire fraud. They will face a maximum sentence of 20 years in prison. Feldman is scheduled for sentencing on Dec. 3, 2013, and Kuber has not yet received a sentencing date.