Guilty Plea in $50 Million Fraud Scheme
Deepal Wannakuwatte, 63, of Sacramento, California, pleaded guilty to one count of wire fraud in furtherance of a long-running and large-scale fraud scheme, announced U.S. Attorney Benjamin B. Wagner of the Eastern District of California, Special Agent in Charge Monica M. Miller of the FBI's Sacramento Field Office, Jose M. Martinez Special Agent in Charge for the IRS-Criminal Investigation (IRS-CI), and Wade V. Walters Special Agent in Charge of the Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG).
Under the terms of his plea agreement, the government will recommend that U.S. District Judge Troy L. Nunley of the Eastern District of California sentence Wannakuwatte to 20 years in prison, the maximum punishment allowable for the offense to which he pleaded guilty. In addition, the agreement requires Wannakuwatte to forfeit multiple properties, vehicles, business interests, and bank accounts to be used to provide restitution to victims. Wannakuwatte is scheduled to be sentenced by Judge Nunley on July 24, 2014.
According to the plea agreement, from 2002 to 2014, Wannakuwatte convinced more than 100 victims, including individuals, corporate entities, and financial institutions, to invest in a number of business opportunities by making misrepresentations regarding the financial worth of himself and his companies. Wannakuwatte represented to victims that his companies, IMG and Relyaid, were involved in the international manufacture, shipment, and distribution of latex gloves. He falsely claimed that these companies did tens of millions of dollars in business with federal agencies every year, most notably the Department of Veterans Affairs (VA). By 2013, Wannakuwatte claimed to have more than $125 million in VA contracts alone. In fact, as Wannakuwatte admitted today, those claims were false. Indeed, while he did have a contract with the VA, it was worth up to only $25,000 a year.
In all, he ultimately obtained well over $150 million from his victims. Wannakuwatte used much of the money he obtained to pay himself and his family, make lulling payments to participants in his fraudulent investment schemes, and pay outstanding debts unrelated to his false representations.
"Mr. Wannakuwatte's guilty plea brings to an end to one of the longest running, most extensive, and most damaging fraud schemes our region ever has seen," said U.S. Attorney Wagner. "Together with the FBI and the IRS, our office moved swiftly to ensure that he be held accountable, and we also took all steps possible to return remaining funds to his victims. The very substantial sentence that he is likely to receive should send a clear message that my office will continue to prosecute financial crimes like this one vigorously."
"Wannakuwatte's financial empire collapsed because it was based on fraud and deceit. Unfortunately, he left a trail of victims-individuals, businesses, government agencies, venture funds, and other lenders-who suffered significant losses," said Special Agent in Charge Monica M. Miller of the Sacramento FBI. "The FBI is committed to working with our agency partners to aggressively pursue those who betray the trust of the public for personal gain."
"This was not your average Ponzi scheme," said Jos M. Martnez, Special Agent in Charge, IRS-Criminal Investigation. "The fraud involved hundreds of millions of dollars and more than 100 victims including individuals, corporate entities and financial institutions. The defendant conned investors through the use of false documents, inflated tax returns, and convincing lies. IRS-CI will continue to work closely with our law enforcement partners to aggressively pursue fraud schemes such as these."
"The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG) is pleased to have joined the Department of Justice and our law enforcement colleagues in conducting this investigation," stated FDIC OIG Special Agent in Charge Wade V. Walters. "We are especially concerned when individuals like Mr. Wannakuwatte defraud our nation's financial institutions. We are firmly committed to joint efforts such as this one in the interest of ensuring integrity in individual institutions and the financial system as a whole."
Wannakuwatte used a variety of false and fraudulent means to back up his claims of financial success. He regularly provided investors with inflated financial statements and false corporate ledgers from IMG and Relyaid that falsely showed tens of millions of dollars in accounts receivable from the VA and tens of millions of dollars in glove inventory. He also provided his victims with his personal and corporate tax returns. On those returns, he overstated his annual income and the annual income for IMG, and he paid taxes on the overstated income. He used these returns to establish his financial credibility with financial institutions and individual investors.
On at least two occasions, Wannakuwatte set up fake conference calls between himself, a victim, and a person whom he directed to act as a VA representative. The conference calls were made on behalf of victims to verify the value of the VA contracts and the relationship Wannakuwatte claimed to have with the VA.
Wannakuwatte's plea agreement contains multiple provisions designed to return as much investor money as possible. He must disclose the existence of any assets or property that he obtained as the result of his scheme and forfeit his interest in 16 properties, including his residence, vacation homes, and commercial properties; four vehicles, multiple bank accounts; insurance policies; business interests; and any tax refunds to which he may be entitled. In addition, Wannakuwatte agreed to file for personal bankruptcy and to file bankruptcy petitions on behalf of any business in which he may have an interest. These filings must be done by the end of the month and should give creditor victims a forum to pursue claims against him.
This case is the product of an investigation by the FBI, the IRS-Criminal Investigation, and the FDIC OIG. Assistant U.S. Attorneys Michael Beckwith and Kevin Khasigian are prosecuting the case.