Federal authorities arrested three Long Islanders on Wednesday in connection with an alleged $30 million fraudulent mass-mailing scheme they said tricked thousands of people across the United States, many elderly and vulnerable, into paying fees to try to claim big cash prizes that didn’t exist.
Accused scam leader Tully Lovisa, 55, of Huntington Station, and co-defendants Shaun Sullivan, 37, of Merrick, and Lorraine Chalavoutis, 61, of Greenlawn, later entered not-guilty pleas in federal court in Central Islip.
A 12-count indictment accuses the trio of running a direct-mail operation that induced victims to send money to the defendants under the guise that they could collect significant cash winnings if they paid a small fee.
Prosecutors said the fraud kicked off in 2010, after the Federal Trade Commission sued Lovisa for sending deceptive prize-promotion mailings and a federal court in California ordered him to stop all prize-promotion mailings.
Authorities said the scam, which U.S. Attorney for the Eastern District of New York Richard Donoghue called “a cruel hoax” and which postal inspectors investigated, lasted until at least July 2016.
Attorney General Jeff Sessions said in a news release announcing the indictment that the U.S. Department of Justice “will hold perpetrators of elder fraud schemes accountable wherever they are.”
Lovisa ran the direct-mail operation with Sullivan, who both disguised their involvement in the business by using aliases and straw owners – some of whom were Panamanian nationals – to serve as presidents of shell companies, according to federal officials.
Chalavoutis’ role included establishing companies and opening bank accounts in the names of straw owners, and paying for the mailings, the indictment says.
All three defendants face six counts of mail fraud, and one count each of conspiracy to commit mail fraud, conspiracy to commit money laundering, and money laundering. Lovisa also faces a perjury charge, a wire fraud charge and another money laundering count.
Federal prosecutors said the defendants face up to 20 years in prison for mail fraud, wire fraud and conspiracy if convicted.
Magistrate Judge A. Kathleen Tomlinson said Wednesday she would release Lovisa on $5 million bond as soon as prosecutors vetted several people who said they would back the bond. Further conditions of Lovisa’s release will include home confinement and electronic-bracelet monitoring.
Federal prosecutors argued that Lovisa be kept in custody, saying in a bail letter that he posed a risk of flight to Panama or another country “where he could use his undisclosed assets, foreign contacts, and skill at developing complex schemes to defy court orders and to hide.”
The letter added that email evidence showed Lovisa controls “potentially hundreds of millions of dollars.”
Lovisa’s Manhattan attorney, Sanford Talkin, maintained his client’s innocence and disputed the prosecutors’ view of the amount of money involved. He said after expenses his client was left with only “pennies on the dollar profit.”
Tomlinson released Sullivan on $500,000 bond and Chalavoutis on $250,000 bond.
Sullivan’s Brooklyn attorney, Joseph Mure, said his client was “not guilty” and they were reviewing the government’s evidence.
Chalavoutis’ Garden City attorney, Kevin Kearon, said his client “denies any criminal wrongdoing” and would fight the charges “vigorously in court.”
The indictment says the scam worked by telling those who got the mailings to pay a $20 or $25 fee for “processing” or “delivery,” and the mailings included pre-addressed return envelopes for the victims to send payment by cash, check or money order.
But the most any of the victims ever got back was a $1 prize check, according to authorities, who said the defendants used the money they scammed “to enrich themselves.”
The defendants rented private mailboxes in New York to receive return mailings, and an unidentified co-conspirator picked up the mail and delivered it to be processed, which included hiding cash in Lovisa’s office safe, according to the indictment.
Some of the return envelopes had addresses in the Netherlands, and cash victims sent there were forwarded to an unidentified man in East Rockaway, who gave the money to Lovisa and Sullivan, authorities have alleged.
The Federal Trade Commission sued Lovisa in 2010 for sending deceptive prize-promotion mailings and a federal court in California ordered him to halt such actions, federal officials said.
But the indictment also accuses Lovisa of falsely reporting to the FTC that he was no longer doing such mailings, and of laundering money and wire fraud by arranging the sham sale of a Las Vegas house and keeping proceeds he owed the FTC under a federal court order.
According to the federal indictment:
• The defendants mailed official-looking prize-promotion letters to victims, who were often elderly and vulnerable. The mailings – which included names of shell companies and nonexistent job titles such as “prize director” or “payment agent” — misled victims into believing they would receive tens of thousands to millions of dollars if they paid a small fee.
• The mailings appeared to be personally addressed to specially selected consumers when in fact they were sent to thousands of people from mailing lists. They included a two- to three-paragraph “consumer disclosure” that did not correct the false statements within the mailing.
• The prize-promotion mailings directed victims to pay a “processing” or “delivery” fee, usually $20-25. They included pre-addressed return envelopes for victims to send cash, checks or money orders.
• The defendants rented private mailboxes to receive the payments.
• Any time victims sent money, the defendants would put them on a list. They would then send repeated mailings to these customers. They also used co-conspirators known as “list brokers” to rent the list to other direct mailers who sent additional mailings to the victims.