United States Attorney
Southern District of New York
November 10, 2010
Dean of Brooklyn School Found Guilty in Manhattan Federal Court For $4 Million Extortion Scheme
PREET BHARARA, the United States Attorney for the Southern District of New York, announced today that MILTON BALKANY, Dean of the Bais Yaakov day school in Borough Park, Brooklyn, was found guilty in Manhattan federal court of extortion, blackmail, wire fraud, and false statements charges stemming from his $4 million scheme to extort a Connecticut-based hedge fund (the "Hedge Fund") into paying millions of dollars to Bais Yaakov and to another school on behalf of BALKANY. The defendant was found guilty by a federal jury following a seven-day trial before U.S. District Judge DENISE L. COTE.
According to the criminal Complaint, the Indictment and the evidence presented at trial:
From December 2009 to February 2010, BALKANY claimed to be the spiritual advisor to, in communication with, and in control of, an individual who was incarcerated at a federal prison in Otisville, New York (the "Inmate"). According to BALKANY, the Inmate advised BALKANY that in 2004 and 2005, the Hedge Fund obtained material, non-public information (the "Inside Information") and used the purported Inside Information to profit from trading in at least six stocks. BALKANY told lawyers from the Hedge Fund that representatives from the Federal Bureau of Investigation ("FBI") and the U.S. Attorney's Office for the Southern District of New York ("USAO")(collectively, the "Government Officials") were purportedly aware that the Inmate was in possession of the Inside Information, and that, as of December 2009, the Government Officials were anxious to speak with the Inmate.
In truth and in fact, however, the Government Officials never contacted the Inmate about the purported Inside Information. Instead, BALKANY himself contacted the USAO in January 2010 by telephone, and had conversations during which he attempted to induce the USAO to make contact with the Inmate. During the same conversations with the USAO, BALKANY made false statements and concealed material information from the Government.
BALKANY separately advised attorneys for the Hedge Fund that he was in frequent contact with the Inmate, and that the Inmate would follow BALKANY's instructions as to what he should and should not tell the Government Officials. BALKANY also told lawyers for the Hedge Fund that he would instruct the Inmate not to tell the Government Officials about the Hedge Fund's purported illegal trading if the Hedge Fund made certain payments to BALKANY, specifically, $2 million to Bais Yaakov, and $2 million to another school as a "loan." BALKANY stated, for example, "In regard to your concern and your company . . . you can go to sleep at night completely comfortable, without any worry. Thatâ€™s what I can tell you." Through numerous telephone calls and meetings, BALKANY pressured the Hedge Fund into paying the money, by falsely claiming that the Government was about to approach the Inmate for the Inmate's cooperation. BALKANY further threatened that if the Hedge Fund did not pay, BALKANY would attempt to help the Inmate reduce his prison sentence by permitting him to speak to the Government Officials.
On February 18, 2010, as part of a law enforcement operation, BALKANY received two checks from the Hedge Fund totaling $3.25 million. At the time he received these checks, BALKANY advised a representative of the Hedge Fund that the Inmate would not discuss the Hedge Fund with the Government Officials at a meeting between the Inmate and the USAO that BALKANY claimed was scheduled for tomorrow. In truth and in fact, however, no such meeting was scheduled to occur.
BALKANY was found guilty of extortion, blackmail, wire fraud, and making false statements. He faces a maximum sentence of 20 years in prison on the wire fraud count, two years in prison on the extortion count, one year in prison on the blackmail count, and five years in prison on the false statement count. On the wire fraud, extortion, and false statement counts, he also faces a fine of the greater of $250,000 or twice the gross gain or gross loss from the offense, and on the blackmail count a fine of the greater of $100,000 or twice the gross gain or gross loss from the offense.
BALKANY, 64, of Brooklyn, New York, is scheduled to be sentenced on February 18, 2011, at 10:00 a.m. before Judge COTE.
Mr. BHARARA praised the work of the Criminal Investigators of the U.S. Attorney's Office for the Southern District of New York.
This case was brought in coordination with President BARACK OBAMA's Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President OBAMA established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
Assistant U.S. Attorneys MARC P. BERGER and JESSE M. FURMAN are in charge of the prosecution.