The cyber threat confronting the United States is rapidly increasing as the number of actors with the tools and abilities to use computers against the United States or its interests is rising. The country’s vulnerability is escalating as the US economy and critical infrastructures become increasingly reliant on interdependent computer networks and the World Wide Web. Large scale computer attacks on US critical infrastructure and economy would have potentially devastating results.

Cyber threats fall into two distinct categories: threats affecting national security that emerged with Internet technology, such as cyber terrorism, foreign-based computer intrusions and cyber theft of sensitive data; and traditional criminal activity facilitated by computers and the Internet, such as theft of intellectual property, online sexual exploitation of children, and Internet fraud.

Nicholas Cosmo, 37, the owner and president of Agape World, Inc. and Agape Merchant Advance, LLC, was arrested Tuesday night as a result of a federal complaint charging him with mail fraud, according to a report obtained by the Fraud & Corruption Committee of the National Association of Chiefs of Police.

Federal agents executed search warrants at the Agape and AMA offices located in Hauppauge, Maspeth, and Jackson Heights (Queens County), New York, and the government has moved to freeze bank accounts related to Agape, AMA, Cosmo, and others, and has seized $1.5 million thus far. The defendant’s initial appearance occurred yesterday before United States Magistrate Judge E. Thomas Boyle at the U.S. Courthouse, 100 Federal Plaza, Central Islip, New York.

The charges were announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Ronald J. Verrochio, Inspector-in-Charge, New York Division, U.S. Postal Inspection Service, and Joseph M. Demarest, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office.

According to the complaint, the defendant planned and carried out a fraudulent scheme in which he, and others acting at his direction, represented to investors that money they invested in Agape and AMA would be used to provide short-term loans to businesses, that the loans would be secured by borrowers’ assets with 99% security on their investments, and that investors would receive substantial interest returns ranging as high as 48% to 80% per year.

While a small number of interest-generating loans were made to commercial borrowers, bank and trading records reveal that most of the money invested in Agape and AMA was used to pay prior investors, to pay more than $55 million to brokers who recruited the investors, and to fund seven commodities futures trading accounts controlled by Cosmo and through which he lost more than $80 million between October 2003 and October 2008.

The records also indicate that, from January 1, 2006, until November 30, 2008, more than $370 million was deposited into Agape and AMA bank accounts, the vast majority of which was provided by more than 1,500 investors, and that less than $10 million of the $370 million was actually lent to commercial borrowers. As of January 22, 2009, there was approximately $746,000 remaining in the Agape and AMA bank accounts.

By paying investors partial returns -- represented to be profits from interest-generating loans -- Cosmo persuaded current investors to invest additional funds in Agape and AMA, and also encouraged new victims to invest in the two companies. To conceal the fact that the returns paid to investors were really funds provided by new investors, Cosmo falsely inflated profits from some of the commercial loans that were actually made.

For example, he distributed approximately $5.2 million to more than 100 investors, claiming that the money represented the principal and profits related to a single commercial loan. In fact, that particular loan generated less than $45,000 in interest for Agape, and the balance of the $5.2 million return was drawn from funds provided by new victim-investors.

“This defendant, who operated a classic Ponzi scheme to enrich himself and his colleagues at the expense of investors, is now in custody and the government’s investigation is continuing,” stated United States Attorney Campbell. “In these difficult economic times, it bears repeating that if an investment opportunity seems too good to be true – promising unusually high returns and virtually no risk – it is probably not on the level.” Mr. Campbell extended his grateful appreciation to the Postal Inspection Service and the FBI for their assistance.

FBI Assistant Director-in-Charge Demarest stated, “Investors generally understand that there’s a correlation between risk and reward, and high-yield investments offer higher rates of return to compensate investors for greater risk. But Nicholas Cosmo not only understated the risk, he completely misrepresented the underlying investments. When you lie about what you’re selling people, that’s fraud.”

Postal Inspector-in-Charge Verrochio stated, “Operators of Ponzi schemes tell investors they can’t lose, when in fact most never win. The defendant in this case lured his clients with promises of high returns on their investments, but in the end his pyramid of deception came crumbling down but not before losing millions of dollars, their dollars! As long as Americans are victimized by those who use the U.S. Mail to defraud, Postal Inspectors will be on their trail.

If convicted, Cosmo faces up to 20 years in prison on the mail fraud charge. He also faces a fine of up to the greater of $250,000, or twice the pecuniary gain or loss. The government’s case is being prosecuted by Assistant United States Attorneys Grace M. Cucchissi and Vincent Lipari.

The former vice president of reinsurance of American International Group Inc. (AIG), was sentenced yesterday to four years in prison for his role in a fraudulent scheme to manipulate AIG's financial statements, according to a Department of Justice report obtained by the National Association of Chiefs of Police's Fraud & Corruption Committee.

Christian M. Milton, 61, of Wynnewood, Pa., who served as vice president of reinsurance at AIG from approximately 1982 to March 2005, was convicted by a federal jury on Feb. 25, 2008, on charges of conspiracy, securities fraud, false statements to the U.S. Securities and Exchange Commission (SEC) and mail fraud. In addition to the prison term, Milton was sentenced by U.S. District Judge Christopher F. Droney to two years of supervised release following his release from prison and a $200,000 fine. Milton was ordered to surrender himself to federal authorities in 60 days.

Evidence presented at trial proved that Milton and his co-defendants, Ronald E. Ferguson, Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand, all former General Reinsurance Corporation (Gen Re) executive officers, engaged in a scheme to falsely inflate AIG's reported loss reserves, a key indicator of financial health to insurance industry analysts and investors. According to trial evidence, the fraud was carried out through the use of two sham reinsurance transactions between subsidiaries of AIG and Gen Re in response to analysts' criticism of a $59 million decrease in AIG's loss reserves for the third quarter of 2000.

The two sham transactions, evidence showed, increased AIG's loss reserves by $250 million in the fourth quarter of 2000 and $250 million in the first quarter of 2001, masking a declining trend in loss reserves in the face of premium growth. Evidence showed that AIG restated the transactions at issue in filings with the SEC in May 2005. Evidence presented at trial established that when the investigation was disclosed to investors by AIG and through various media outlets between Feb. 14 and March 14, 2005, shares of AIG stock dropped from $73.12 to $61.92.

All five defendants were convicted on all counts presented against them in the 16-count superseding indictment. Subsequently, on Oct. 31, 2008, Judge Droney found that AIG's shareholders lost between $544 million and $597 million as a consequence of the defendants' fraudulent scheme.

According to evidence at trial, each of the defendants knew that the true purpose of the transactions was to permit AIG to falsely report increasing loss reserves in its statements to analysts, investors and in its SEC filings. The defendants structured a sham reinsurance transaction, according to trial evidence, and created a phony paper trail to make it appear as though Gen Re had solicited reinsurance from AIG when the evidence demonstrated that the parties knew AIG wanted the transaction to manipulate its financial statements. Additionally, evidence presented at trial proved that the defendants entered into a secret side deal whereby AIG would never have to pay any losses under the contracts; AIG would return to Gen Re the $10 million in premiums Gen Re paid to AIG and AIG paid Gen Re a $5 million fee for entering into the transaction.

The case was prosecuted by Principal Deputy Chief Paul E. Pelletier and Assistant Chief Adam Safwat of the Criminal Division's Fraud Section as well as Assistant U.S. Attorneys Eric J. Glover of the District of Connecticut and Ray Patricco of the Eastern District of Virginia. Additional assistance was provided by Paralegal Specialists Sarah Marberg of the Fraud Section, and Amy Konarski of the District of Connecticut. The ongoing investigation is being conducted by the U.S. Postal Inspection Service.

Source: U.S. Department of Justice

While most of the focus of federal law enforcement today is on counterterrorism, federal police agencies must still contend with more traditional anti-crime operations including emerging organized crime gangs.

Criminal enterprises represent a near and long-term threat to our nation. The criminal activities of these enterprises are increasing in scope and magnitude as they network with each other to expand operations worldwide. The geopolitical and technological changes of the last decade have allowed these enterprises to flourish globally, and their impact on the United States is expected to increase over the next five years.

Organized crime groups from Russia and other former members of the Soviet Union are engaged in racketeering activity, and are deeply involved in large scale white collar crime. They are skilled in the use of monetary systems to funnel and conceal the proceeds of their criminal activity, employing state-of-the-art encryption to safeguard their communication networks against traditional forms of detection.

Asian criminal enterprises are composed of U.S.-born citizens and immigrants. They are multi-crime organizations that, like other ethnically-based criminal enterprises, often victimize their own ethnic immigrant communities.

These communities are typically hesitant to report victimization to authorities. As the immigration of Russian, former Soviet Union, and Asian populations into the United States increases in the next five years, so too will related ethnic organized crime. 

La Cosa Nostra and Italian organized crime enterprises still pose a significant threat and will continue to influence the political and economic structure of the United States through engagement in racketeering-related activity. Alien smuggling and human trafficking will also continue to pose significant threats to the national security, as transnational criminal enterprises expand their activities in this area for economic profit.

In addition, the ability to facilitate the entry of illegal aliens into the United States could potentially be used to increase the membership of some of these criminal enterprises such as La Mala Salvatrucha or MS-13.

An emerging crime problem is Balkan criminal enterprises, specifically Albanian transnational organizations or clans. They are rapidly expanding their criminal activities to include loan sharking, weapons trafficking, alien smuggling, stock market manipulation, human trafficking, and drug trafficking. Additionally, these clans are forming partnerships with La Cosa Nostra, or LCN, crime families, as well as challenging traditional organized crime enterprises for territory.

Major theft rings account for billions of dollars in losses suffered by our nation's businesses, with corresponding price increases passed on to the US consumer. Loss prevention and asset protection are top priorities for corporate America as increasingly sophisticated and highly organized criminal enterprises engage in cargo theft, high tech theft, vehicle theft, jewelry and gem theft, organized retail theft, art and cultural antiquity theft, and other major theft activity.

Drug trafficking remains a significant problem. The impact of illegal drug abuse is estimated to be over $160 billion in U.S. economic losses each year, including costs associated with health care, violent crime, and lost productivity. Colombian criminal enterprises are the largest source of cocaine in the world, and are also major heroin suppliers to the U.S. market.

Mexican criminal enterprises manufacture and supply much of the methamphetamine available in the United States, and transport the majority of cocaine and heroin into our nation. The ability of Mexican enterprises to corrupt public officials in Mexico and the United States has enhanced their capability to transport and distribute these illicit drugs.

Caribbean-based criminal enterprises specialize in the transportation and smuggling of drugs into Puerto Rico and the U.S. mainland. Over the next five years, South American and Mexican drug trafficking organizations will continue to maintain their dominance, and Caribbean-based groups will provide alternate importation routes.

A rise in homicides from 1999 through 2006, and continued incidence of other violent crimes have been attributed to the resurgence of violent gangs in major metropolitan areas, such as Chicago, Los Angeles, and New York, which average approximately 600 homicides per year. Within hours after celebrating the New Year, the city of Newark, NJ, experienced six homicides, all deemed gang-related.

Over the next five years, the Federal Bureau of Investigation must continue to focus the resources of Safe Streets Task Forces to combat those violent street gangs having major impact in our communities. This will necessitate use of RICO (Racketeering Influence and Criminal Organization Act).

Sources: National Association of Chiefs of Police, US Department of Justice, Federal Bureau of Investigation, Drug Enforcement Administration