As Donald K. Stern nears his seventh year as the U.S. Attorney for Massachusetts, boredom is probably not high on his list of complaints.

The variety of cases that Stern’s office deals with seems to expand every day, ranging from the theft of intellectual property to health care fraud to a growing array of misdeeds committed via computer. According to Stern, who met with Banker & Tradesman for an interview last week, his office is constantly trying to keep ahead of criminal activity as it spins off in new directions.

It’s definitely a challenge, Stern said from his office at the Federal Courthouse in South Boston. Criminals inevitably get better at it and more sophisticated … so it is challenging to keep pace.

Last month, for example, a former Boston police officer admitted to bribery for selling advance copies of a taxi license exam. Last Thursday, a Norwood man acknowledged he had counterfeited thousands of articles of designer clothing. And next week, an executive with Damon Clinical Labs is expected to plead guilty of trying to defraud Medicare of more than $25 million.

Exacerbated by the advent of computer crime, Stern acknowledged it is a far more eclectic environment today than that which he found upon his arrival at the U.S. Attorney’s office in 1993. At the time, the case log was dominated by real estate and banking crimes, residuals from the excesses that dominated those industries in the late 1980s and early 1990s. Although some of those cases are still wending their way through the system, Stern said such fraud no longer consumes the majority of his agency’s attention.

Banking and real estate [fraud] is definitely down compared to a decade ago, Stern said, adding that he has yet to see a significant uptick of such crimes being upgraded to the Internet. That may happen as more loan activity is put online, he said, but thus far, the technology has remained relatively clean. Nonetheless, Stern said he is not naive enough to think that the banking and real estate industries can pass the white-glove test altogether.

When the economy gets good, certain things get masked, he said. Illegal land flips, for example, tend to show up more in down times because the property involved in the scams cannot support the fraudulent mortgages. Despite the slowdown in that arena, Stern vowed that his agency will continue to fight against not only banking and real estate crimes, but white-collar crime in general.

Making sure we are aggressively prosecuting white-collar crime is important, Stern said. It’s important in its own right, and it’s also important so the criminal justice system is even-handed. We need to focus not only on those crimes that are committed with a gun, but also with a pen.

According to Stern, the U.S. Attorney’s office regularly updates its priorities, developing a strategy of what areas to pursue based on input from its own investigators and attorneys, as well as the various agencies that it regularly deals with, such as the Federal Bureau of Investigation, the U.S. Customs Service and the Securities and Exchange Commission. Another factor is funding; Stern said a Congressional effort from the mid-1990s provided additional money to combat health care fraud, for example.

You can’t do any of this without the resources, Stern said. His office certainly has won a number of cases in the health care sector, including a $101 million fine earlier this month against Fresenius Medical Care of North America. The massive levy reflected a trio of criminal conspiracies that the kidney dialysis firm committed in response to cutbacks in Medicare reimbursements.

As that case demonstrated, the motivations for committing white-collar crime can be quite diverse, but Stern said the usual driver is that criminals are simply following the money. For that reason, he predicted there will be a significant increase in pension fraud as the nation’s retirement system balloons with the aging of the Baby Boomers. Stern noted that the system is shifting from one overseen by companies and unions to self-directing pension plans handled by individuals themselves. That could invite abuse by so-called financial advisors and money managers.

Where there are enormous dollars, you are going to find fraud over time, Stern said.  

Watching Bankruptcy Fraud
An area that his office will continue to focus on, Stern said, is bankruptcy fraud, one in which applicants either understate their worth or try to conceal properties and other assets. Assistant U.S. Attorney Mark Balthazard has been especially adept in that initiative, Stern said, winning a number of high-profile cases on behalf of the office. Although he admits the agency cannot investigate every instance, Stern said he believes that monitoring the situation when possible does help retain faith in the system.

It seems to me that we ought to be sending out the message that you don’t get a free ride if you commit bankruptcy fraud, he said.

The publicized attacks against several well-known computer sites earlier this month did not surprise Stern, who has been warning local business leaders to be on the lookout for an increase in hacking incidents. It is a brave new world that he and the agency are trying to come to grips with, Stern said, one in which you [initially] don’t know whether you’re dealing with terrorists or teens.

Even as it prepares for the future, the U.S. Attorney’s Office is still somewhat rooted in the past, given that Stern’s office continues to aggressively pursue convicts who are in arrears on restitution matters. Last year alone, the Financial Litigation Unit recovered more than $5.3 million, $3 million of which came from felons owing criminal fines and the latter civil judgments against professionals such as physicians and dentists who were found guilty of defrauding the U.S. government. Overall, Stern’s office recovered more than $101 million in damages, fines and penalties last year.

The litigation unit’s Justice Enforcement Team has been a lone wolf nationally in trying to enforce restitution orders, many of them emanating from the real estate debacle of the 1980s. Currently, for example, JET is attempting to collect a $5.1 million fine from Bay State felon William W. Lilly, who is now living in Florida with his longtime girlfriend, Valerie Kaan, and their two children.

Given that it is an open investigation, Stern declined comment on the Lilly case, in which the flamboyant developer allowed two banks to fail after providing millions of dollars in fraudulent condominium loans.