A.G. Schneiderman Announces 20 Indicted In Prostitution-Based Money Laundering Bust Spanning The Tri-State Area

A.G. Schneiderman Announces 20 Indicted In Prostitution-Based Money Laundering Bust Spanning The Tri-State Area

NEW YORK – Taking action to break up a tri-state, prostitution-based money laundering operation, Attorney General Eric T. Schneiderman and NYPD Commissioner Raymond W. Kelly today announced the unsealing of a 180-count indictment charging 19 individuals and one corporation with enterprise corruption and a variety of underlying crimes, including money laundering, falsifying business records, narcotics sales and prostitution. During the course of the arrests and execution of search warrants earlier today, investigators found two women who were the victims of human trafficking by two of the ringleaders of the operation. Investigators from the Attorney General’s office and the NYPD rescued the two trafficking victims from locations in Manhattan and, in coordination with Sanctuary for Families, brought them to a safe haven. The investigation is ongoing.

Through the use of electronic surveillance, physical surveillance and the review and analysis of a voluminous number of bank records and tax related documents, in conjunction with other investigative tools and during a 16-month investigation, the Attorney General’s investigation identified an advertising agency, Somad Enterprises, Inc., which created, monitored, facilitated and employed online (on Backpage.com, for example) and print (in the Village Voice, for example) advertisements and cable television commercials to knowingly and systematically promote prostitution for its clients' large- and small-scale prostitution businesses – or pimps for which Somad and its employees, as well as the prostitution business clients, profited handsomely.

“This investigation led to the arrests of multiple individuals who were part of a criminal enterprise that made millions of dollars by profiting off the exploitation of women,” Attorney General Schneiderman said. “With law enforcement partners like Police Commissioner Kelly and the investigators at the NYPD and our other law enforcement partners we will continue to root out criminal networks like this prostitution and narcotics ring. The message we are sending is clear: these crimes will not be tolerated in the State of New York.”

Commissioner Kelly said, “All anyone has to do is open a copy of the Village Voice to get a good sense of how classified advertising and prostitution go hand in hand, particularly in the prostituting of Asian women. Our focus remains the profiteers and johns engaged in promoting prostitution – not the women exploited by them.”

Homeland Security Investigations Special Agent in Charge in New York James T. Hayes Jr.said, “The arrests today end an alleged conspiracy to use legitimate businesses to disguise a prostitution and narcotics distribution ring. Working cooperatively with our local law enforcement partners, HSI will continue to dismantle organizations that negatively impact our communities and endanger the welfare of our citizens.”

Superintendent of the New York State PoliceJoseph D'Amicosaid, “The culmination of this investigation would not have been possible without the dedication, hard work and expertise of our partners in law enforcement at the Attorney General's Organized Crime Task Force and the New York City Police Department.These arrests are the result of the investigators and officers working together to gather intelligence, track leads, and act on those leads. The New York State Police will continue to work with our partners in law enforcement to take these criminals off our streets and keep our citizens safe.”

This case is the result of a 16-month joint investigation by the Attorney General's Organized Crime Task Force and the New York City Police Department that uncovered the illegal operations headed by Somad Enterprises, Inc., an ad agency was run out of an office in midtown Manhattan, at 150 W. 25th St., Suite 1202, and remote locations in Queens, New Jersey, Pennsylvania, and the Philippines.

Somad's lucrative enterprise partners were large-scale prostitution managersYing Li, Wei Qu, Jian Hui Nu, Woosub Kim, Jay King and No Mi Kwon, and their employees, some of whom provided cocaine in addition to sex for sale.This enterprise utilized numerous shell corporations created with false information and which were used to process millions of dollars in credit card transactions which hid the true nature of the charges by claiming the corporations services were for cleaning, acupuncture, antiques, and party planning rather than for sex and/or drugs.

Each prostitution prong of the enterprise utilized the income derived from their illegal prostitution and drug related businesses to pay Somad for their advertising services, effectively laundering money through Somad, disguising the origin of the proceeds as legitimate advertisement payments. These payments to Somad were used to both pay Somad employees who ran the advertising business and to place additional ads which promoted their prostitution businesses. According to a review of Somad's financial documents, between January 1, 2010 and October 2012, prostitution businesses paid in excess of $3 million in advertising to promote their prostitution business.

The prostitution groups relied on Somad’s well-established relationships with media to secure discounts for the criminal enterprise's clients. The prostitution managers controlled the flow of money from johns, bookers, drivers, house mothers and Somad.

The investigation started with an OCTF focus on "backpage" advertising, its origins and patterns.OCTF recognized a pattern of advertising coming from Somad and followed the money trail. The investigation uncovered prostitution and drug enterprises in what started off as a money laundering investigation.The investigation included multiple wiretaps.

In addition, to the criminal enterprise defendants three “johns” have been separately arrested to date. They include David Mendelowitz, a former guidance counselor and Dean of Students at the prestigious Scarsdale High School. According to a criminal complaint, Mendelowitz paid for the services of prostituted women and for crack cocaine. He was arrested and chargedin with numerous counts of Patronizinga Prostitute,Possession of a Controlled Substance and Hindering Prosecution, a class E felony. During the time span of his alleged criminal conduct, Mendelowitz was involved in many student programs, including Scarsdale High School's Drug and Alcohol Task Force.

The Attorney General's indictment, which was unsealed today in Queens County Supreme Court, charges 19 people and the corporate defendant with enterprise corruption as well as a variety of other crimes including, money laundering, falsifying business records, promoting prostitution, A-II felony narcotics possession and B felony narcotics sales. They each face up to 8 and 1/3 to 25 years in prison.

The indictment charged the following individuals and corporation with different crimes in relation to their involvement in the prostitution-based money laundering enterprise, including:

  2. MILAGROS KATZ, 50, Jersey City, NJ
  3. CHRISTOPHER FAIRBAIRN, 24, Forest Hills, NY
  4. SEAN BAGDONAS, 37, Lake Ariel, PA
  5. VICTOR CONCEPCION a/k/a TORIO, 45,Caivta, Rizal, Philippines
  6. ARLENE MEYERS, 67, Hendersonville, NC
  7. YING LIa/k/a LILY, 48, Bayside, NY
  8. JAY KING, 52, Whitestone, NY
  9. WOO YANG a/k/a AHJUCI, 6o, Oakland Gardens, NY
  10. WEI QU a/k/a WILLIAM, a/k/a ANDY, 51, Flushing, NY
  11. JIAN HUI NIU a/k/a JAMES a/k/a BILL, 40, Flushing, NY
  12.  XIAO JING QIAO a/k/a JOY, 25, Brooklyn, NY
  13. WOOSUB KIM, 46, Fresh Meadows, NY
  14. SUN T. FINK, 61, Flushing, NY
  15. NO MI KWON a/k/a SARAH, 49, Palisades Park, NJ
  16. FANNIE HUBBARD a/k/a ALEX, 23, of Yonkers, NY
  17. MELANIE REYES, 27, Jamaica, NY
  18. SHI IN KANG a/k/a "OLDER MISS KANG", 58, Flushing, NY
  20. JACOB KIM, a/k/a "SARAH'S DRIVER"36, Flushing, NY

The criminal operation included:

·         SOMAD Enterprises, Inc.– The advertising agency that created, monitored, facilitated and employed online and print advertisements from which Somad employees and prostitution business clients profited. The agency created customized prostitution advertisements including photos and text for use in various online and print publications.The money came into Somad for the prostitution ads and was then covered up by false documents and passed off as "clean money." SOMAD passed itself off as a legitimate advertising agency.

·         Prostitution businesses- An arm of the criminal enterprise made up of managers, bookers, drivers, and prostitutes.Some of the groups also offered cocaine for sale through the prostitutes, who would transport it to the johns at out-call locations.The prostitution businesses would also open merchant accounts at various financial institutions so they could accept credit card payments. To open the merchant accounts at financial institutions, the prostitution businesses would file documents that falsely described the business as acupuncture, cleaning services, antiques, party planning, or other legitimate business ventures.

·         Bookers - These employees of the prostitution businesses answered calls and made arrangements for johns to meet with prostitutes for either in-call or out-call services.For in-call, they would provide location information. For out-call, prostitution group drivers would transport the prostitutes to a location designated by the john.

·         Drivers- Would transport prostitutes to out-call locations to meet with johns.

From January 1, 2010 to May 31, 2012, Somad was paid approximately $3,221,000 for more than 35,000 prostitution-based advertisements to be placed with a variety of media outlets.

The charges are the result of a joint investigation by the New York State Attorney General’s Organized Crime Task Force and the New York City Police Department’s Organized Crime Control Bureau Vice Enforcement Major Case Team, with the assistance of the New York State Police, New York State Department of Taxation and Finance, U.S. Homeland Security and the Westchester County District Attorney's Office.

Attorney General Schneiderman thanked these agencies for their partnership in the investigation.

The investigation was directed by OCTF Senior Investigator Kerry Buttner under the supervision of OCTF Supervising Investigators Paul Grzegorski and Arthur Schwartz and Downstate OCTF Deputy Chief Christopher Vasta, all under the supervision of Chief Dominick Zarrella of the Investigations Bureau, and New York Police Department Detective William Perez, under the supervision of Sergeant Sunghoon Kim and Lieutenant Michael Costello of the Vice Enforcement Major Case Team and overall supervision ofDeputy Inspector Anthony Favale and Organized Crime Control Chief Anthony Izzo.

The case is being prosecuted by OCTF Assistant Deputy Attorneys General Brandi Kligman and Diego Hernandez, under the supervision of Deputy Attorney General Peri Alyse Kadanoff, and under the overall supervision of Executive Deputy Attorney General for Criminal Justice Kelly Donovan.

The charges against the defendants are merely accusations and the defendants are presumed innocent until and unless proven guilty in a court of law.