1 00:00:02,160 --> 00:00:08,100 In this episode of American Greed, a mother and son from Ukraine live like 2 00:00:08,100 --> 00:00:13,240 American royalty of a $50 million fraud perpetrated on U .S. taxpayers. 3 00:00:13,740 --> 00:00:18,740 They had million -dollar homes in Staten Island. They drove $100 ,000 -plus 4 00:00:18,740 --> 00:00:24,000 cars. But when hidden cameras catch them paying kickbacks to Medicare patients, 5 00:00:24,360 --> 00:00:27,780 they learn they can't keep their secret forever. 6 00:00:29,290 --> 00:00:33,610 And when the Department of Justice puts the squeeze on Mommy Dearest, only one 7 00:00:33,610 --> 00:00:34,670 question remains. 8 00:00:35,270 --> 00:00:38,810 It came down to, was a mother going to let her son take the fall for her? 9 00:00:40,530 --> 00:00:44,650 And later, are you interested in the movies? Do you like to make money? 10 00:00:45,230 --> 00:00:50,470 The leaders of a makeshift movie studio use a telemarketing scheme to trick 11 00:00:50,470 --> 00:00:54,210 investors all across the country to buy into the Hollywood dream. 12 00:00:54,570 --> 00:00:57,090 What they're doing, they're selling hope, right? 13 00:00:57,800 --> 00:01:03,340 But despite its fairytale promises, Gigapix Studios isn't equipped to be 14 00:01:03,340 --> 00:01:06,140 anything other than a $21 million bust. 15 00:01:07,120 --> 00:01:09,820 Nobody else there ever produced anything. 16 00:01:10,440 --> 00:01:14,080 Not a movie, not a birthday party, nothing. 17 00:01:31,560 --> 00:01:36,660 In a Russian neighborhood of Brooklyn, New York, a man enters a medical 18 00:01:36,660 --> 00:01:39,100 called Bay Medical Clinic. 19 00:01:43,040 --> 00:01:49,540 Using his Medicare card, he signs in at the front desk and is directed towards 20 00:01:49,540 --> 00:01:51,640 the back to receive physical therapy. 21 00:01:56,160 --> 00:02:00,000 Once his therapy is over, he is directed into a small room. 22 00:02:00,620 --> 00:02:04,560 where a clinic administrator talks fees for services provided. 23 00:02:06,740 --> 00:02:13,480 It seems like a normal transaction 24 00:02:13,480 --> 00:02:18,280 at a health care clinic, but something more sinister is actually happening. 25 00:02:18,860 --> 00:02:22,460 The woman isn't telling the patient how much he owes the clinic. 26 00:02:26,410 --> 00:02:29,750 She's telling the patient how much the clinic owes him. 27 00:02:34,210 --> 00:02:40,870 In March 2007, the U .S. Department of Justice creates the Medicare Fraud 28 00:02:40,870 --> 00:02:41,870 Force. 29 00:02:42,590 --> 00:02:48,070 Combining the resources of the DOJ, Health and Human Services, the FBI, and 30 00:02:48,070 --> 00:02:52,570 state and local law enforcement, it is designed to combat health care fraud 31 00:02:52,570 --> 00:02:54,270 perpetrated throughout the country. 32 00:02:55,020 --> 00:02:59,960 But one place in particular stands out for this multi -billion dollar a year 33 00:02:59,960 --> 00:03:00,960 fraud. 34 00:03:01,200 --> 00:03:02,460 Brooklyn, New York. 35 00:03:03,040 --> 00:03:06,820 At the time, there was more physical therapy being billed for in Brooklyn, 36 00:03:06,820 --> 00:03:08,620 York than anywhere else in the entire country. 37 00:03:09,700 --> 00:03:14,080 And according to Health and Human Services Special Agent in Charge Scott 38 00:03:14,080 --> 00:03:18,740 Lampert, the high rate of billing at one Brooklyn clinic gets their attention. 39 00:03:20,080 --> 00:03:23,740 Brooklyn was high. Bay Medical was high for Brooklyn. It really stood out when 40 00:03:23,740 --> 00:03:24,439 we looked. 41 00:03:24,440 --> 00:03:26,520 Something was wrong at this particular building. 42 00:03:27,980 --> 00:03:33,600 Opened in 2005 in the Russian neighborhood of Brighton Beach, Bay 43 00:03:33,600 --> 00:03:38,860 is a facility for post -Soviet immigrants, run by post -Soviet 44 00:03:39,800 --> 00:03:43,720 And one immigrant in particular rules with an iron fist. 45 00:03:44,840 --> 00:03:50,280 Irina Shelikova, she was the mastermind behind it. She controlled the checkbook, 46 00:03:50,340 --> 00:03:52,120 really controlled where the money went. 47 00:03:52,700 --> 00:03:55,540 She controlled who was hired, who was fired. 48 00:03:56,040 --> 00:03:58,880 She was the boss. She was definitely the boss. 49 00:04:00,720 --> 00:04:06,800 In 1993, the 30 -year -old Shelikova leaves Ukraine with her family and 50 00:04:06,800 --> 00:04:08,100 immigrates to New York. 51 00:04:09,120 --> 00:04:13,440 Ten years later, she begins working at a health clinic on Coney Island. 52 00:04:13,930 --> 00:04:17,829 where she meets its lead physician, Dr. Gustav Drivas. 53 00:04:19,230 --> 00:04:25,790 Two years later, they join forces to open Bay Medical and go from healing to 54 00:04:25,790 --> 00:04:26,790 stealing. 55 00:04:27,150 --> 00:04:31,590 Soon, they're billing Medicare millions of dollars a year for services provided 56 00:04:31,590 --> 00:04:33,990 to mostly elderly patients. 57 00:04:34,570 --> 00:04:40,370 The strike force wants to take a closer look inside, but nearly 20 years after 58 00:04:40,370 --> 00:04:45,200 the disillusion of the Soviet Union, The Iron Curtain is still difficult to 59 00:04:45,200 --> 00:04:50,960 penetrate. We needed undercovers who were from, like, the old Soviet bloc 60 00:04:51,260 --> 00:04:57,080 And we got married up with the Medicaid Fraud Control Unit out of New York and 61 00:04:57,080 --> 00:04:58,100 Mark Morgan. 62 00:04:59,660 --> 00:05:04,760 Mark Morgan immigrates to the United States in the early 90s from the Eastern 63 00:05:04,760 --> 00:05:08,900 European country of Georgia after the dissolution of the Soviet Union. 64 00:05:09,660 --> 00:05:14,840 In 2002, he enters law enforcement training to serve his new country. 65 00:05:18,080 --> 00:05:24,960 Morgan joins the New York Medicaid 66 00:05:24,960 --> 00:05:27,820 Fraud Control Unit to fight for U .S. taxpayers. 67 00:05:28,600 --> 00:05:33,360 And in fact, even before his agency is incorporated into the National Strike 68 00:05:33,360 --> 00:05:39,390 Force in August of 2009, he has neighborhood informants telling him 69 00:05:39,390 --> 00:05:41,330 inner workings of Bay Medical. 70 00:05:42,090 --> 00:05:46,150 Almost everybody knew in the neighborhood what was going on. 71 00:05:47,710 --> 00:05:52,890 According to Morgan, neighborhood news is passed liberally through word of 72 00:05:52,890 --> 00:05:55,930 among residents, and everyone is saying the same thing. 73 00:05:57,030 --> 00:06:01,330 Patients at Bay Medical are getting kickbacks for allowing the clinic to 74 00:06:01,330 --> 00:06:06,390 Medicare for procedures that either aren't necessary or aren't performed at 75 00:06:06,890 --> 00:06:10,450 If they came in for physical therapy, there was a certain flat rate. 76 00:06:10,670 --> 00:06:14,970 If they complained of dizziness, they can have a dizziness test. 77 00:06:15,370 --> 00:06:19,590 After they came a successive number of times and they built up a number of 78 00:06:19,590 --> 00:06:23,090 claims, then they could come in and they can collect their kickbacks. 79 00:06:24,250 --> 00:06:29,110 Even worse, the procedures often aren't even performed by actual physicians. 80 00:06:30,770 --> 00:06:34,630 Dr. Drevis almost never makes an appearance at his own clinic. 81 00:06:35,790 --> 00:06:42,150 He should have seen each patient that a claim was submitted in his name for. He 82 00:06:42,150 --> 00:06:46,510 should have treated them, evaluated them, and prescribed a proper treatment 83 00:06:46,510 --> 00:06:48,630 for whatever their ailment was. 84 00:06:48,990 --> 00:06:52,790 Instead, he did nothing more than sign his name to medical charts when, in 85 00:06:52,810 --> 00:06:54,250 he never even treated the patients to begin with. 86 00:06:55,470 --> 00:07:00,550 From the beginning, the true queen of the realm is Irina Shalikova. 87 00:07:01,830 --> 00:07:08,540 And under her direction, from March 2005, To July 2010, the clinic 88 00:07:08,540 --> 00:07:11,860 rakes in $50 million of taxpayers' money. 89 00:07:13,560 --> 00:07:15,760 What to do with all that cash? 90 00:07:16,760 --> 00:07:17,760 Ask your son. 91 00:07:19,180 --> 00:07:24,420 When American Greed returns, a Ukrainian immigrant turns himself into an 92 00:07:24,420 --> 00:07:27,660 American playboy at the taxpayers' expense. 93 00:07:28,420 --> 00:07:30,660 He was the biggest jerk you could imagine. 94 00:07:31,000 --> 00:07:34,260 I mean, there are some criminals you might like. This one is not one of them. 95 00:07:46,280 --> 00:07:52,520 In November 2009, investigator Mark Morgan is looking for informants willing 96 00:07:52,520 --> 00:07:58,120 carry hidden cameras into Bay Medical to record the clinic paying kickbacks to 97 00:07:58,120 --> 00:08:02,740 patients. But in a community that largely grew up in the Soviet Union, 98 00:08:02,920 --> 00:08:05,420 recruitment isn't going to be easy. 99 00:08:05,900 --> 00:08:08,940 Back to the Soviet Union, people were afraid to tell the truth. 100 00:08:09,860 --> 00:08:15,060 But there's always one in a million right person to come forward and help 101 00:08:15,060 --> 00:08:16,060 country. 102 00:08:17,130 --> 00:08:22,530 To recruit locals to take cameras into Bay Medical, Morgan encourages them to 103 00:08:22,530 --> 00:08:24,730 pledge allegiance to their new country. 104 00:08:25,090 --> 00:08:29,830 I explain that all of you are receiving many benefits for this country. 105 00:08:30,250 --> 00:08:35,929 If you have contributed anything in your life in the past to this country, we 106 00:08:35,929 --> 00:08:38,049 need your help. All we ask is to tell the truth. 107 00:08:39,330 --> 00:08:40,669 Morgan's plea works. 108 00:08:41,590 --> 00:08:46,250 Two informants agree to take video and audio recording devices into the clinic. 109 00:08:53,610 --> 00:09:00,450 Over a seven -month period, the task force runs 25 undercover operations and 110 00:09:00,450 --> 00:09:04,310 gains an intimate knowledge of Bay Medical's inner workings. 111 00:09:04,690 --> 00:09:09,350 It really kind of painted an exact picture on what was happening in that 112 00:09:09,350 --> 00:09:12,010 and how brazen this fraud scheme really was. 113 00:09:16,830 --> 00:09:20,970 that a judge approves installing a camera inside the clinic's office. 114 00:09:21,290 --> 00:09:24,770 The footage shows exactly what the strike force hopes. 115 00:09:25,510 --> 00:09:30,610 Patient after patient, getting cash kickbacks laid right into their hands. 116 00:09:31,410 --> 00:09:35,830 And on the wall in front of them, a threatening reminder. 117 00:09:45,080 --> 00:09:49,700 And he said that, be careful, those days, even walls have ears. 118 00:09:51,100 --> 00:09:56,520 From the spring to the summer of 2010, we saw no less than 1 ,000 people or so 119 00:09:56,520 --> 00:10:01,060 who came in and received kickbacks over a period of six weeks, which allowed us 120 00:10:01,060 --> 00:10:05,480 to estimate that there was about $500 ,000 that had been given out in 121 00:10:05,480 --> 00:10:06,480 just in that period alone. 122 00:10:07,960 --> 00:10:10,460 Over the five years of the fraud... 123 00:10:10,810 --> 00:10:16,030 The total of kickbacks paid out to mostly poor elderly Medicare patients 124 00:10:16,030 --> 00:10:17,630 be more than $7 million. 125 00:10:19,270 --> 00:10:23,570 I mean, it could be $10 ,000 to $15 ,000 on a given day. I mean, it was so 126 00:10:23,570 --> 00:10:27,310 blatant to the point that at certain times, people paying the kickbacks would 127 00:10:27,310 --> 00:10:31,090 run out of money, and they would have to hide in another room away from the 128 00:10:31,090 --> 00:10:35,310 patients while they called, usually Max, and said, Max, go to the bank. We need 129 00:10:35,310 --> 00:10:36,310 more money. 130 00:10:37,570 --> 00:10:39,810 Max is Irina Shelikova's son. 131 00:10:40,600 --> 00:10:41,600 Max Shelikov. 132 00:10:42,380 --> 00:10:47,280 And when masterminding a fraud, paying kickbacks isn't as simple as cutting 133 00:10:47,280 --> 00:10:48,840 checks to complicit patients. 134 00:10:49,620 --> 00:10:51,760 Steps have to be taken to disguise it. 135 00:10:52,020 --> 00:10:56,720 You can't pay him in checks because how are you going to explain that to, you 136 00:10:56,720 --> 00:10:57,720 know, the IRS? 137 00:10:58,460 --> 00:11:02,100 It's not a deductible business expense, I don't believe. 138 00:11:03,440 --> 00:11:06,200 So this is how we set up our estimation, if you remember. 139 00:11:06,540 --> 00:11:08,760 Eric Kreisman and Caroline Polisi. 140 00:11:09,360 --> 00:11:13,420 represent a client who they say is a victim of Bay Medical's elaborate 141 00:11:13,420 --> 00:11:17,440 conspiracy to launder cash into kickback payments. 142 00:11:17,900 --> 00:11:23,080 My client, Elena Galper, got involved because she was friends with Larissa 143 00:11:23,080 --> 00:11:29,060 Shalabadova. And without my client's knowledge, Ms. Shalabadova opened up 144 00:11:29,060 --> 00:11:32,760 companies and signed my client's name as the president. 145 00:11:34,000 --> 00:11:38,340 Larissa Shalabadova is an associate of Irina Shalakova. 146 00:11:38,750 --> 00:11:43,570 and conspires with Bay Medical to open multiple companies in various people's 147 00:11:43,570 --> 00:11:46,730 names, purporting to be vendors for Bay Medical. 148 00:11:47,490 --> 00:11:52,710 But in reality, the only service these vendors provide is turning Medicare 149 00:11:52,710 --> 00:11:54,350 payments into cash. 150 00:11:54,810 --> 00:11:59,590 So what you need to do is you need to figure out a way to get that cash. 151 00:12:01,120 --> 00:12:03,300 hide the fact that you own that cash. 152 00:12:03,500 --> 00:12:07,660 So what they did was they made checks out to these phony companies that would 153 00:12:07,660 --> 00:12:11,660 normal vendors in the line of a medical clinic. 154 00:12:12,500 --> 00:12:18,120 The phony companies then cash the checks, take a little for themselves, 155 00:12:18,120 --> 00:12:21,940 the rest of the cash back to Bay Medical to pay kickbacks. 156 00:12:22,300 --> 00:12:26,720 So you give them $10 ,000, you'll take... I don't know, a $1 ,000 fee from 157 00:12:26,840 --> 00:12:29,660 for laundering that. And here's your $9 ,000. 158 00:12:29,880 --> 00:12:31,700 Now you have your $9 ,000 in cash. 159 00:12:32,580 --> 00:12:36,540 Kreisman says his client, Yelena Galper, never sees a dime. 160 00:12:37,560 --> 00:12:42,560 According to him, Larissa Shalabadova takes the commissions all for herself. 161 00:12:43,140 --> 00:12:49,400 She would fly to Miami Beach, stay at the Trump International, have a nice 162 00:12:49,400 --> 00:12:53,160 dinner, go anywhere she wanted, buy anything she wanted. 163 00:12:53,840 --> 00:12:56,660 And it's all in Yelena Galper's name. 164 00:12:57,500 --> 00:13:03,680 The business bank card saying Moss Creations Plus, Yelena Galper, our 165 00:13:03,860 --> 00:13:07,600 And whose picture is it? None other than Larissa Shalabadova. 166 00:13:09,100 --> 00:13:14,640 No matter who the actual owners of these companies may be, Max Shalakoff runs 167 00:13:14,640 --> 00:13:18,920 back and forth between more than 20 different shell companies to collect the 168 00:13:18,920 --> 00:13:19,920 laundered cash. 169 00:13:20,680 --> 00:13:23,780 and he has some fast cars to expedite the trip. 170 00:13:24,660 --> 00:13:30,740 Max Shelikov owned no less than five or six cars that were valued individually 171 00:13:30,740 --> 00:13:33,200 at almost $100 ,000 or more apiece. 172 00:13:33,800 --> 00:13:39,100 In a scheme that deals in so much cash, the Department of Justice has a 173 00:13:39,100 --> 00:13:43,940 difficult time determining just how much money Irina Shelikova and her family 174 00:13:43,940 --> 00:13:48,060 take home. But they do know they take it to nice homes. 175 00:13:48,810 --> 00:13:53,790 They had million -dollar homes in Staten Island. They drove $100 ,000 -plus 176 00:13:53,790 --> 00:13:58,350 cars. They bought hundreds of thousands of dollars in other trinkets, expensive 177 00:13:58,350 --> 00:14:00,190 jewelry, Louis Vuitton bags. 178 00:14:01,170 --> 00:14:07,930 Max Shelikoff forfeited a 4 .2 -carat ring that was valued at $165 ,000 179 00:14:07,930 --> 00:14:11,670 that he gave as an engagement ring to his fiancée. 180 00:14:13,130 --> 00:14:14,330 There's no question. 181 00:14:14,630 --> 00:14:17,610 Big money is flowing through Bay Medical's offices. 182 00:14:18,460 --> 00:14:19,600 But it's about to end. 183 00:14:20,160 --> 00:14:23,760 Like the poster says, the walls have ears. 184 00:14:25,340 --> 00:14:29,620 When American Greed returns, the FBI is ready to move. 185 00:14:30,020 --> 00:14:34,180 But Irina Shalakova has ears out there of her own. 186 00:14:34,780 --> 00:14:36,720 There was an arrest warrant sworn out for her. 187 00:14:37,020 --> 00:14:41,080 And she and her son subsequently got on a plane and went to the Ukraine. 188 00:14:54,380 --> 00:15:00,960 On Friday, July 16, 2010, the Medicare Fraud Strike Force raids Bay 189 00:15:00,960 --> 00:15:06,400 Medical. Unfortunately, when they arrive, the queen of the operation, 190 00:15:06,400 --> 00:15:08,540 Shelikova, is not there. 191 00:15:09,440 --> 00:15:16,080 She was recovering from cosmetic surgery, so we did not put her in 192 00:15:16,080 --> 00:15:20,300 that time. She was supposed to turn herself in on Monday, and she never 193 00:15:20,300 --> 00:15:23,100 up. And it turned out she'd gotten on a plane. 194 00:15:23,550 --> 00:15:24,910 and flown to Ukraine. 195 00:15:26,390 --> 00:15:32,150 Max Shelikov is not named in the original complaint, but he can sense how 196 00:15:32,150 --> 00:15:35,490 winds are blowing and follows his mother to Ukraine. 197 00:15:36,650 --> 00:15:42,610 Months later, Max is also indicted. But still, in Ukraine, his and his mother's 198 00:15:42,610 --> 00:15:45,590 arrests seem unlikely, but not impossible. 199 00:15:46,050 --> 00:15:48,690 We wait, and we're patient, and we wait till they travel. 200 00:15:49,900 --> 00:15:54,140 According to Kathy Batt, the FBI has a lot of ears around the world. 201 00:15:54,500 --> 00:16:00,700 And the weekend of November 12, 2011, they hear that Max is traveling to 202 00:16:00,860 --> 00:16:04,860 possibly with intentions of sneaking back into the United States. 203 00:16:05,780 --> 00:16:11,940 And when Max left Ukraine to go to Canada, we knew that he was on that 204 00:16:12,160 --> 00:16:15,020 And we called Canada. We talked to the Mounties. 205 00:16:15,420 --> 00:16:18,460 And we got the Mounties to meet him at the airplane. 206 00:16:19,950 --> 00:16:25,270 The Mounties put Max on a flight to JFK, where Kathy Batt is there to arrest 207 00:16:25,270 --> 00:16:26,270 him. 208 00:16:26,670 --> 00:16:29,010 But Max isn't the real catch. 209 00:16:29,350 --> 00:16:35,270 The big fish is Irina Shelikova, and now law enforcement has the bait to lure 210 00:16:35,270 --> 00:16:36,270 her in. 211 00:16:36,770 --> 00:16:40,950 Max is staring at a possible 15 years in prison if he's convicted. 212 00:16:41,390 --> 00:16:46,130 But the feds will recommend a severely reduced sentence for cooperating. 213 00:16:46,590 --> 00:16:50,870 if he gets his mother to come back to the U .S. to take her medicine. 214 00:16:51,190 --> 00:16:56,750 We told Max what our expectation would be, and Max presumably had several 215 00:16:56,750 --> 00:16:59,690 conversations with his mother and convinced her that returning to the 216 00:16:59,690 --> 00:17:02,170 States was the best thing for him. 217 00:17:04,010 --> 00:17:09,530 Shelikova returns to the United States on June 15, 2012, and is arrested like 218 00:17:09,530 --> 00:17:11,630 her son at JFK Airport. 219 00:17:14,260 --> 00:17:20,460 Irina, her son Max, her ex -husband Sergei, and her niece Elina Gorinko all 220 00:17:20,460 --> 00:17:24,660 plead guilty to the fraud, as does one of the masterminds of the money 221 00:17:24,660 --> 00:17:27,700 laundering operation, Larissa Shalabadova. 222 00:17:29,300 --> 00:17:33,300 Others, however, decide to fight it, including Dr. 223 00:17:33,600 --> 00:17:34,680 Gustav Dribas. 224 00:17:35,200 --> 00:17:38,760 He had so much to lose. It didn't pay for him to plead guilty. 225 00:17:38,980 --> 00:17:41,840 He was going to lose his medical license, and he was going to go away. 226 00:17:42,620 --> 00:17:44,880 Anyway, so he rolled the dice. 227 00:17:47,020 --> 00:17:51,420 Others accused of money laundering rolled the dice with him and go to 228 00:17:51,600 --> 00:17:55,520 including Eric Kreisman's client, Yelena Galper. 229 00:17:57,020 --> 00:18:02,200 Despite who is actually on trial, Kreisman says the villain of this fraud 230 00:18:02,200 --> 00:18:03,380 obvious to the jury. 231 00:18:03,940 --> 00:18:09,460 When Max Shelikov takes the stand, the jury's disdain of him is evident. 232 00:18:10,170 --> 00:18:14,730 The first thing, he sold his mother out, right? Number two, he used all of the 233 00:18:14,730 --> 00:18:20,790 money and was a brat. I mean, he lived like he was entitled to this. He didn't, 234 00:18:20,790 --> 00:18:25,870 you know, he became a citizen of this country, and instead of doing something 235 00:18:25,870 --> 00:18:29,110 decent, he actually stole from our government. 236 00:18:29,510 --> 00:18:31,650 It was palpable. The jury hated him. 237 00:18:33,490 --> 00:18:36,710 Dr. Dreeva's performance at trial doesn't come off any better. 238 00:18:38,530 --> 00:18:43,190 According to Kreisman, he doesn't provide any more medical service at 239 00:18:43,190 --> 00:18:44,430 he did at his clinic. 240 00:18:45,650 --> 00:18:50,110 During a break, one of the defendants actually started thinking he was having 241 00:18:50,110 --> 00:18:54,350 some heart problems, heart pain, and maybe he was having a heart attack. 242 00:18:54,630 --> 00:18:59,070 And all of a sudden it was like, is there a doctor in the room? And everyone 243 00:18:59,070 --> 00:19:05,010 looks around and sees Dr. Trevis, and he's basically looking away, he's 244 00:19:05,170 --> 00:19:06,170 you know, not me. 245 00:19:06,640 --> 00:19:10,920 Three of the money laundering defendants who supposedly own shell companies, 246 00:19:11,200 --> 00:19:13,740 including Yelena Galper, are acquitted. 247 00:19:14,160 --> 00:19:16,000 But Drivas isn't so lucky. 248 00:19:16,880 --> 00:19:20,820 He's convicted and sentenced to 12 years and seven months in prison. 249 00:19:22,320 --> 00:19:25,480 Yelena Gorinko is sentenced to three and a half years. 250 00:19:26,740 --> 00:19:32,180 Max pleads guilty to one count of conspiracy to commit health care fraud 251 00:19:32,180 --> 00:19:33,860 count to commit money laundering. 252 00:19:34,380 --> 00:19:38,040 But his sentence could have been much worse. Thanks to his mother's sacrifice, 253 00:19:38,480 --> 00:19:42,760 he is sentenced to only 30 months in prison. He is now free. 254 00:19:43,740 --> 00:19:48,860 Irina, on the other hand, gets hit with 15 years for conspiracy to commit money 255 00:19:48,860 --> 00:19:52,020 laundering. She is scheduled to be released in 2025. 256 00:19:53,880 --> 00:20:00,500 The fall of Bay Medical's $50 million scam on U .S. taxpayers leaves one man 257 00:20:00,500 --> 00:20:03,340 proud to have helped his adopted country. 258 00:20:04,360 --> 00:20:10,300 All this country asks you to be a good citizen, honest, and contribute 259 00:20:10,300 --> 00:20:11,300 to this country. 260 00:20:11,760 --> 00:20:16,120 I feel I contributed back to this country what this country gave to me. 261 00:20:19,080 --> 00:20:25,480 Next on American Greed, a beverage salesman named Chris Blauvelt fancies 262 00:20:25,480 --> 00:20:30,660 a movie mogul, but his dreams may just be another cautionary tale from 263 00:20:30,660 --> 00:20:31,660 Hollywood. 264 00:20:31,870 --> 00:20:32,870 The pitch never changed. 265 00:20:33,110 --> 00:20:34,430 We're going to be the next Pixar. 266 00:20:34,730 --> 00:20:35,790 You're going to be rich. 267 00:20:36,150 --> 00:20:39,150 Meanwhile, Gigapix is struggling to stay afloat. 268 00:20:52,090 --> 00:20:58,890 On March 12, 2012, Chris Blauvelt enters the FBI offices in Los Angeles. 269 00:20:59,440 --> 00:21:05,000 His company, Gigapix Studios, is under investigation for a possible $21 million 270 00:21:05,000 --> 00:21:08,800 fraud perpetrated on investors throughout the country. 271 00:21:09,120 --> 00:21:12,760 And Blauvelt wants to set the record straight with the FBI. 272 00:21:13,440 --> 00:21:19,840 But in a surprise twist, Blauvelt doesn't act like he's defending a fraud, 273 00:21:19,840 --> 00:21:21,020 uncovering one. 274 00:21:21,540 --> 00:21:24,940 I think that there's a possibility that there's enough evidence or enough 275 00:21:24,940 --> 00:21:27,660 problems here that if you... 276 00:21:28,090 --> 00:21:30,930 could go through and do a forensic accounting of what's happened with the 277 00:21:30,930 --> 00:21:32,990 company, I think you'll find things that are pretty interesting. 278 00:21:34,730 --> 00:21:39,470 Gigapix has been raising money from investors claiming to be the next big 279 00:21:39,470 --> 00:21:40,470 studio. 280 00:21:40,890 --> 00:21:44,270 But after 10 years, it has almost nothing to show. 281 00:21:45,570 --> 00:21:47,330 The FBI wants answers. 282 00:21:47,630 --> 00:21:50,290 And according to Blauvelt, so does he. 283 00:21:51,050 --> 00:21:54,310 That's why I figured I'd come in and meet with you. And whatever I'm guilty 284 00:21:54,310 --> 00:21:55,790 I'm guilty of. But let's see. 285 00:21:59,600 --> 00:22:05,520 Perhaps Blaubelt suggests it's not a matter of fraud, just poor bookkeeping. 286 00:22:09,700 --> 00:22:16,500 Chris Blaubelt may not know 287 00:22:16,500 --> 00:22:20,360 anything about accounting, but it could be argued that he doesn't know anything 288 00:22:20,360 --> 00:22:21,700 about filmmaking either. 289 00:22:22,580 --> 00:22:25,260 When he opens Gigapix Studios in 2002, 290 00:22:26,080 --> 00:22:30,380 The 46 -year -old career salesman has worked in industries from beverage 291 00:22:30,380 --> 00:22:35,540 dispensers to telecommunications, but he has almost no experience in the 292 00:22:35,540 --> 00:22:36,540 entertainment business. 293 00:22:37,500 --> 00:22:42,400 But like the young actor getting off the bus in Hollywood, he has a dream. 294 00:22:43,540 --> 00:22:47,100 His whole idea was he wanted to produce animated movies. 295 00:22:47,720 --> 00:22:50,220 Which, in theory, it's a great idea. 296 00:22:50,640 --> 00:22:54,320 It sounds like a wholesome idea. The problem he came into was the way in 297 00:22:54,320 --> 00:22:56,760 he was going about pursuing that idea and raising money for it. 298 00:22:58,460 --> 00:23:02,580 Chris Blauvelt appears to think he can create the next great movie studio 299 00:23:02,580 --> 00:23:08,500 utilizing the age -old and eternally annoying method of telemarketing. 300 00:23:09,140 --> 00:23:13,840 He moves GigaPix into a 32 ,000 -square -foot facility in Chatsworth, 301 00:23:13,940 --> 00:23:14,940 California. 302 00:23:15,680 --> 00:23:19,200 Presumably, the facility will be home to the next great studio. 303 00:23:20,400 --> 00:23:25,020 But in reality, it's little more than a call center for telemarketers to go 304 00:23:25,020 --> 00:23:26,400 after potential investors. 305 00:23:27,680 --> 00:23:31,400 Are you interested in the movies? And if someone says yes, do you like to make 306 00:23:31,400 --> 00:23:35,940 money? Yes, I've got a great opportunity for you. We've got a chance here, a 307 00:23:35,940 --> 00:23:38,740 really good chance to make a tremendous amount of money. 308 00:23:39,300 --> 00:23:40,300 Are you interested? 309 00:23:41,100 --> 00:23:45,260 The money was being raised as an ownership interest in Gigapix. So these 310 00:23:45,260 --> 00:23:49,280 investors would kind of get a shiny sheet of paper basically saying that now 311 00:23:49,280 --> 00:23:50,700 own a piece of Gigapix. 312 00:23:52,460 --> 00:23:56,100 The pitch raises enough money to keep the company plugging along. 313 00:23:58,620 --> 00:24:04,520 But after years of promises, Gigapix has practically no product to sell. 314 00:24:05,000 --> 00:24:06,900 They had absolutely nothing to show. 315 00:24:07,450 --> 00:24:11,050 They had a very nice studio. They had some very high -tech equipment at the 316 00:24:11,050 --> 00:24:13,510 time. And they had a large workforce. 317 00:24:14,210 --> 00:24:19,170 But they had never been able to return maybe pennies to the investors that had 318 00:24:19,170 --> 00:24:20,170 put in before them. 319 00:24:21,590 --> 00:24:26,990 According to the FBI, it appears that may have been Blauvelt's plan from the 320 00:24:26,990 --> 00:24:28,350 beginning at Gigabix. 321 00:24:28,890 --> 00:24:30,370 It was wrought with fraud. 322 00:24:31,430 --> 00:24:35,690 They lied, either direct lies about what was going on. 323 00:24:36,140 --> 00:24:39,860 things that they were working on, how successful they had been, the fact that 324 00:24:39,860 --> 00:24:46,160 things were in production, or they omitted to tell them things, such as 325 00:24:46,160 --> 00:24:51,400 paying 15 % to 25 % commissions plus overhead plus other sales expenses. 326 00:24:51,760 --> 00:24:56,320 They forgot to mention that this was their first rodeo. They had never done 327 00:24:56,320 --> 00:24:57,320 before. 328 00:24:58,300 --> 00:25:01,100 But then a strange thing happens in 2006. 329 00:25:02,600 --> 00:25:07,280 It appears legitimacy walks in the door in the form of a seasoned Hollywood 330 00:25:07,280 --> 00:25:09,580 producer, David Pritchard. 331 00:25:10,380 --> 00:25:15,340 Mr. Pritchard had won five Emmys for various projects he'd worked on 332 00:25:15,440 --> 00:25:19,240 I believe it included The Simpsons, King of the Hill, some other projects. 333 00:25:20,600 --> 00:25:25,900 When Pritchard joins Gigapix, all of a sudden it seems like this boiler room 334 00:25:25,900 --> 00:25:27,560 might become an actual movie studio. 335 00:25:28,700 --> 00:25:30,960 He even makes a promotional video. 336 00:25:31,580 --> 00:25:33,700 touting Gigapix's bright future. 337 00:25:34,180 --> 00:25:37,900 I believe we can not only execute the films that we have in our development 338 00:25:37,900 --> 00:25:41,380 slate, we can execute them and have them become successful. 339 00:25:42,740 --> 00:25:46,520 So it's a big deal to blob out. He touted the fact that now we have 340 00:25:46,520 --> 00:25:48,220 working at our company. Now we're legitimate. 341 00:25:50,100 --> 00:25:51,940 Legitimate is a strong word. 342 00:25:52,860 --> 00:25:57,280 Unfortunately, Pritchard's arrival only gives Gigapix another tale to tell 343 00:25:57,280 --> 00:25:59,480 investors to take their money. 344 00:26:01,320 --> 00:26:02,740 when American Greed returns. 345 00:26:03,320 --> 00:26:08,060 It looks like Gigapix is about to make its first actual foray into filmmaking. 346 00:26:08,520 --> 00:26:12,720 But a bad break leaves that scene on the cutting room floor. 347 00:26:13,280 --> 00:26:19,060 It was a complete 180 reversal that absolutely sucker -punched Gigapix, and 348 00:26:19,060 --> 00:26:20,520 sure sent all of this reeling. 349 00:26:20,980 --> 00:26:24,500 Entertainment fraud has become an epidemic in Southern California. 350 00:26:24,820 --> 00:26:29,560 Learn about it at cnbcprime .com slash American Greed. 351 00:26:31,340 --> 00:26:32,340 Feeling greedy? 352 00:26:32,640 --> 00:26:35,080 Want your share of behind -the -scenes dirt? 353 00:26:35,600 --> 00:26:38,440 Follow us at AmericanGreedTV on Twitter. 354 00:26:39,060 --> 00:26:40,280 We'll be right back. 355 00:26:49,360 --> 00:26:54,400 Five -time Emmy Award winner David Pritchard joins Gigapix in 2006. 356 00:26:55,420 --> 00:26:59,280 It's a shot in the arm for a company that has been promising quality 357 00:26:59,280 --> 00:27:01,740 for years, but has yet to deliver. 358 00:27:02,060 --> 00:27:07,400 This is a studio that is capable of producing really serious, smart, 359 00:27:07,400 --> 00:27:11,940 film. You can look forward to the next couple of years as being the years where 360 00:27:11,940 --> 00:27:15,380 you actually start to get the rewards of your investment early on. 361 00:27:17,380 --> 00:27:20,060 Telemarketers now have a whole new story to sell. 362 00:27:20,700 --> 00:27:25,020 They supplement their phone calls with full information packets that provide 363 00:27:25,020 --> 00:27:29,880 even more outrageous misrepresentations about investing with gigapix. 364 00:27:30,440 --> 00:27:34,300 As you can see, it's very colorful. It's very shiny. It's to grab their 365 00:27:34,300 --> 00:27:35,840 attention. Again, it's all about height. 366 00:27:36,060 --> 00:27:39,480 Mr. Pritchard is one of the most recognized and influential names in the 367 00:27:39,480 --> 00:27:40,640 animation industry worldwide. 368 00:27:41,440 --> 00:27:43,780 Look at these pretty pictures. Look at this projection. 369 00:27:44,340 --> 00:27:46,920 You know, look at what Shrek made. Look what... 370 00:27:47,160 --> 00:27:50,580 all these other Pixar and Jungworks and all these other animated films made. 371 00:27:50,680 --> 00:27:51,920 This is what we're going to do. 372 00:27:52,920 --> 00:27:58,560 Eventually, Gigapix has pockets of investors all across the country in 373 00:27:58,560 --> 00:28:03,260 thousands of miles away from Hollywood, in distance and in spirit. 374 00:28:06,520 --> 00:28:09,020 Places like Sheridan, Wyoming. 375 00:28:10,720 --> 00:28:15,000 Penny McClurg lives just outside Sheridan in her childhood home. 376 00:28:15,500 --> 00:28:20,580 A former police officer in Anchorage, Alaska, she returns home after injury 377 00:28:20,580 --> 00:28:22,180 forces her to retire. 378 00:28:22,620 --> 00:28:26,780 The reason I had to quit, because I got in a really bad fight. 379 00:28:27,320 --> 00:28:33,380 This guy had killed his daughter, and he was beating up his wife when I 380 00:28:33,380 --> 00:28:35,100 arrived at the scene. 381 00:28:36,280 --> 00:28:40,840 It's a dangerous situation for the 22 -year law enforcement veteran. 382 00:28:42,440 --> 00:28:46,260 He was huge, 6 '8", 283 pounds. 383 00:28:47,560 --> 00:28:49,680 He was so high on drugs. 384 00:28:50,440 --> 00:28:55,220 And I broke his arm in two places, and he never felt a thing. 385 00:28:56,220 --> 00:29:01,320 When backup and paramedics arrived, the subdued killer isn't the only one who 386 00:29:01,320 --> 00:29:02,340 needs medical attention. 387 00:29:03,320 --> 00:29:07,220 And the doctor said, Penny, we need to look at your shoulder. 388 00:29:08,780 --> 00:29:10,260 I said, I'm fine. 389 00:29:11,130 --> 00:29:12,330 He said, no, you're not. 390 00:29:13,250 --> 00:29:17,770 The injury ends her police career, and she returns to Wyoming. 391 00:29:18,450 --> 00:29:21,590 She earns a pension from the Anchorage Police Department. 392 00:29:21,970 --> 00:29:27,750 But in 2007, her brother goes through a divorce and needs financial help. Some 393 00:29:27,750 --> 00:29:30,810 friends nearby tell her about Gigapix. 394 00:29:31,450 --> 00:29:36,290 They invested over $100 ,000 in this company. 395 00:29:36,750 --> 00:29:39,470 And I'm going, if they've done this, 396 00:29:40,750 --> 00:29:43,990 then certainly it's legitimate. 397 00:29:44,690 --> 00:29:47,450 I thought this would be a good thing. 398 00:29:48,930 --> 00:29:55,550 At first, she invests $5 ,000, but over the next few years comes to invest 399 00:29:55,550 --> 00:29:56,770 $50 ,000. 400 00:29:57,090 --> 00:30:00,510 She even tells more friends in the area about the opportunity. 401 00:30:01,690 --> 00:30:06,970 All of a sudden, a handful of people in rural Wyoming are now Hollywood 402 00:30:06,970 --> 00:30:07,970 filmmakers. 403 00:30:08,460 --> 00:30:11,320 It's the same story all across the country. 404 00:30:11,900 --> 00:30:16,200 They were retired school teachers, retired army veterans. 405 00:30:16,620 --> 00:30:18,940 Some folks were labor union members. 406 00:30:19,280 --> 00:30:23,240 And they were sold on the fact that they thought that by investing in these 407 00:30:23,240 --> 00:30:25,520 animated movies, they'd be a part of Hollywood. 408 00:30:26,540 --> 00:30:32,260 And despite all of Gigapix's deceptive practices, it looks like Pritchard might 409 00:30:32,260 --> 00:30:34,240 actually make their dreams come true. 410 00:30:37,160 --> 00:30:43,580 In 2008, Pritchard hires producer Kip Conweiser to produce a series of 411 00:30:43,580 --> 00:30:45,460 first real feature films. 412 00:30:46,860 --> 00:30:52,380 David's dream for Gigapix, and what I was there to execute, was to take family 413 00:30:52,380 --> 00:30:56,900 pictures that were as if they were written by kids, for kids, made by kids. 414 00:30:57,760 --> 00:30:59,640 Think The Hangover for kids. 415 00:31:00,330 --> 00:31:04,310 Kids get themselves into trouble. Kids have to take responsibility and get 416 00:31:04,310 --> 00:31:05,370 themselves out of trouble. 417 00:31:05,570 --> 00:31:07,610 And it's hysterical all along the way. 418 00:31:08,770 --> 00:31:14,070 Kahnweiser has won multiple Emmys and film festival awards of his own. And 419 00:31:14,070 --> 00:31:18,330 according to him, the reason he comes to Gigapix is David Pritchard. 420 00:31:18,690 --> 00:31:23,550 There are very few people that I can work for who understand the whole 421 00:31:23,550 --> 00:31:27,250 from concept to delivery respectfully as well as I do. 422 00:31:27,730 --> 00:31:29,550 He's one of those few people. 423 00:31:30,260 --> 00:31:34,100 We're going to turn over, hopefully, two films a year that we're going to be 424 00:31:34,100 --> 00:31:35,820 able to produce and put into distribution. 425 00:31:36,120 --> 00:31:41,720 And the first one of those is Field Trip Blackbeard, and it's an action comedy. 426 00:31:41,780 --> 00:31:45,800 It's really funny, and it should be in the theaters in the first quarter of 427 00:31:45,800 --> 00:31:46,800 2010. 428 00:31:47,640 --> 00:31:52,000 Blackbeard is the first movie of what we intended to be five movies produced in 429 00:31:52,000 --> 00:31:56,560 Iowa, or produced wherever, but it became Iowa because of the tax 430 00:31:57,710 --> 00:32:03,070 Iowa is offering a 50 % tax credit for the entertainment industry to work in 431 00:32:03,070 --> 00:32:04,070 state. 432 00:32:04,950 --> 00:32:08,310 Conweiser never works with Gigapix's telemarketing center. 433 00:32:08,510 --> 00:32:12,490 He gets financing for the film the way films often do. 434 00:32:12,710 --> 00:32:18,030 He uses the tax credit to secure financing from multiple established 435 00:32:18,030 --> 00:32:19,030 institutions. 436 00:32:19,630 --> 00:32:25,550 According to Conweiser, the tax credit helps Gigapix and helps Iowa. We are 437 00:32:25,550 --> 00:32:27,410 building a ship, a pirate ship. 438 00:32:27,710 --> 00:32:32,430 In the South Ridge Mall, which was a decrepit area of Iowa, beaten up, that 439 00:32:32,430 --> 00:32:36,630 were revitalizing with our movie, literally, providing jobs and people 440 00:32:36,630 --> 00:32:40,450 back and schools, all kinds of things happening because we're making 441 00:32:40,450 --> 00:32:41,450 there. 442 00:32:41,690 --> 00:32:44,290 They are even featured in the local news. 443 00:32:45,230 --> 00:32:48,410 Built in a boat in the middle of Iowa, how often do you get the opportunity to 444 00:32:48,410 --> 00:32:49,410 do something like that? 445 00:32:49,680 --> 00:32:53,900 I mean, our goal is to build an industry here and to build our company here. And 446 00:32:53,900 --> 00:32:57,200 we want to build the company here because there's a tax incentive here 447 00:32:57,200 --> 00:33:00,120 allows us to do that with a lot more flexibility. 448 00:33:01,760 --> 00:33:07,060 Unfortunately for Blackbeard, that flexibility is shackled when Iowa 449 00:33:07,060 --> 00:33:08,820 dissolves the tax credit. 450 00:33:09,160 --> 00:33:10,700 We were two weeks from shooting. 451 00:33:11,320 --> 00:33:14,640 In prep, the last two weeks are the most expensive weeks. 452 00:33:15,420 --> 00:33:18,480 You've made 100 % of your commitments to all of your crew. 453 00:33:18,990 --> 00:33:21,910 and about 85 % of your commitments to your cast. 454 00:33:22,190 --> 00:33:25,970 You've also made about 90 % of your commitments to your vendors. 455 00:33:26,370 --> 00:33:32,090 At that time, I think that the LLC was exposed with probably a million and a 456 00:33:32,090 --> 00:33:33,270 half dollars of commitments. 457 00:33:34,390 --> 00:33:39,170 According to Kahnweiser, it puts Gigapix in an irreparable situation. 458 00:33:41,550 --> 00:33:47,370 He leaves Gigapix, and Blackbeard is abandoned at a huge loss. 459 00:33:50,440 --> 00:33:53,900 Production, total production expenses were approximately... FBI Special Agent 460 00:33:53,900 --> 00:33:59,200 Adam Storder acknowledges that the decision in Iowa is damaging to Gigapix. 461 00:33:59,460 --> 00:34:02,820 But he believes they have no one to blame but themselves. 462 00:34:03,600 --> 00:34:08,540 If they were reputable and they were able to self -sustain prior to that, 463 00:34:08,540 --> 00:34:09,780 wouldn't have been in that same situation. 464 00:34:10,219 --> 00:34:16,080 They had misappropriated millions upon millions of investor dollars prior to 465 00:34:16,080 --> 00:34:17,480 that fiasco ever occurring. 466 00:34:18,429 --> 00:34:23,909 For years, according to Assistant U .S. Attorney Byron McLean, Gigapix has been 467 00:34:23,909 --> 00:34:27,989 using investors' money for things other than what they promise investors. 468 00:34:28,730 --> 00:34:32,570 So the first place where the money went to was that it cost money to raise 469 00:34:32,570 --> 00:34:37,370 money, but these investors weren't told that. But Gigapix spent probably 40 % of 470 00:34:37,370 --> 00:34:40,210 the money alone just trying to raise money from investors. 471 00:34:40,870 --> 00:34:44,750 It got used up in sales commissions. It got used up to pay for the sales 472 00:34:44,750 --> 00:34:47,469 offices, the phone services that they have. 473 00:34:47,900 --> 00:34:52,300 Ridiculous amounts of money was being used for things other than production. 474 00:34:52,760 --> 00:34:58,700 Blauvelt and Pritchard used investor money to pay for over $600 ,000 of 475 00:34:58,700 --> 00:35:03,740 expenses, trips, jewelry, luxury hotels. 476 00:35:05,160 --> 00:35:11,300 Blauvelt was paying for massages, which were costing upwards of $1 ,000, as well 477 00:35:11,300 --> 00:35:14,620 as the salaries they paid themselves, which totaled about $2 million. 478 00:35:15,600 --> 00:35:21,240 According to law enforcement, Gigapix's fraud puts them in the bind in Iowa in 479 00:35:21,240 --> 00:35:22,240 the first place. 480 00:35:22,340 --> 00:35:26,700 And to get out of the bind, they resort to a familiar Hollywood money grab. 481 00:35:27,940 --> 00:35:28,940 The sequel. 482 00:35:30,240 --> 00:35:33,040 The solution to the fraud was more fraud. 483 00:35:34,020 --> 00:35:35,620 When American Greed returns, 484 00:35:36,840 --> 00:35:39,840 Chris Blaubelt wants to talk to the FBI. 485 00:35:40,760 --> 00:35:44,770 But much to their surprise, Blauvelt goes off script. 486 00:35:45,310 --> 00:35:49,150 I feel like I'm being set up to take a responsibility for something I didn't 487 00:35:49,150 --> 00:35:50,310 necessarily handle or do. 488 00:36:03,530 --> 00:36:10,030 In 2009, Gigapix is in serious financial trouble, and it seems to be a strain on 489 00:36:10,030 --> 00:36:15,150 the relationship between CEO Chris Blauvelt and President David Pritchard. 490 00:36:15,690 --> 00:36:20,330 And many of the problems appear to stem from Blauvelt's professionalism at the 491 00:36:20,330 --> 00:36:26,970 office. He seemed to be completely on another agenda and had no idea how to 492 00:36:26,970 --> 00:36:27,970 a movie. 493 00:36:28,230 --> 00:36:29,230 None. 494 00:36:29,530 --> 00:36:32,670 And honestly, in my estimation, no idea how to run a business. 495 00:36:33,600 --> 00:36:37,480 Other employees tell law enforcement similar tales. 496 00:36:37,920 --> 00:36:42,380 There were stories of the fact that he was smoking marijuana in the office and 497 00:36:42,380 --> 00:36:46,180 that it could be smelled throughout the office, that he had a lot of girlfriends 498 00:36:46,180 --> 00:36:48,200 in and out of the office. 499 00:36:48,820 --> 00:36:54,320 He would go to the bars with other salespeople in the middle of the day. 500 00:36:54,320 --> 00:36:56,840 would go to strip clubs, things like that. 501 00:36:57,080 --> 00:37:01,440 It was not a typical work environment, to say the least. 502 00:37:02,570 --> 00:37:07,370 But the real point of contention for Pritchard seems to be the call center. 503 00:37:07,710 --> 00:37:12,270 He actually wanted to move the production piece of the company to a 504 00:37:12,270 --> 00:37:15,470 location, separate from the sales, because he didn't want to deal with, you 505 00:37:15,470 --> 00:37:18,810 know, the salespeople, because he kind of knew that what they were saying was 506 00:37:18,810 --> 00:37:19,609 not true. 507 00:37:19,610 --> 00:37:22,390 The problem is that Pritchard didn't do anything about it. 508 00:37:24,270 --> 00:37:27,810 In fact, Pritchard takes full advantage of the call center. 509 00:37:28,460 --> 00:37:33,080 Gigapix starts reaching out to more investors to invest in an animated film 510 00:37:33,080 --> 00:37:37,340 based on The Wizard of Oz called Oz 3D. 511 00:37:38,160 --> 00:37:40,620 You would go through the same thing. I'm an associate producer. 512 00:37:41,580 --> 00:37:43,560 Have you ever watched The Wizard of Oz? 513 00:37:44,060 --> 00:37:47,340 This is your grandkids' version of The Wizard of Oz. 514 00:37:47,620 --> 00:37:52,660 So we've really focused a lot of our assets and a lot of our attention on 515 00:37:52,660 --> 00:37:54,000 building a kids' business. 516 00:37:54,680 --> 00:37:57,880 And The Wizard of Oz is a really core part of that. 517 00:37:59,340 --> 00:38:05,420 But once again, the cash raised by Gigapix doesn't go towards getting a 518 00:38:05,420 --> 00:38:06,420 the silver screen. 519 00:38:06,900 --> 00:38:11,200 65 % of the funds were supposed to be used for actual production and release 520 00:38:11,200 --> 00:38:15,300 costs to get that film out in the theaters so it can make a return for 521 00:38:15,300 --> 00:38:16,300 investors. 522 00:38:17,220 --> 00:38:21,660 What actually ended up happening, and when we reviewed the financials, It 523 00:38:21,660 --> 00:38:27,460 65%. It wasn't 50%. It was like 5%. The money that was coming in, they were 524 00:38:27,460 --> 00:38:32,080 using to pay off these past contracts and the money that was owed, the debt 525 00:38:32,080 --> 00:38:35,200 they owed, instead of actually to make the Oz 3D movie. 526 00:38:37,120 --> 00:38:41,780 It's possible Pritchard is trying to help Gigapix repay its debts to stay 527 00:38:41,780 --> 00:38:45,600 viable. But he is lying to investors to make it happen. 528 00:38:46,960 --> 00:38:48,060 The pitch never changed. 529 00:38:48,260 --> 00:38:50,660 This was a great company, great opportunity. 530 00:38:51,120 --> 00:38:52,480 We're going to be the next Pixar. 531 00:38:52,840 --> 00:38:53,840 You're going to be rich. 532 00:38:54,160 --> 00:38:58,680 He would write investors, letters to investors that had misrepresentations in 533 00:38:58,680 --> 00:39:02,740 them. Gigabit Studios is set to become a publicly traded company. 534 00:39:03,920 --> 00:39:05,640 That was not true. That was a lie. 535 00:39:06,620 --> 00:39:08,100 Oz 3D is in production. 536 00:39:08,540 --> 00:39:11,020 That is not true. Again, that is another lie. 537 00:39:11,660 --> 00:39:16,330 He also controlled the financials. and he was aware and authorized the movement 538 00:39:16,330 --> 00:39:18,790 of Oz3D funds into Gigapix Studios. 539 00:39:19,090 --> 00:39:22,870 He controlled those funds. He was part of that fraud. 540 00:39:23,090 --> 00:39:25,990 When you're talking with investors, are you going through the risk factors with 541 00:39:25,990 --> 00:39:31,370 them? The FBI starts looking into Gigapix while investigating other 542 00:39:31,370 --> 00:39:34,570 studios using telemarketing to defraud investors. 543 00:39:35,630 --> 00:39:40,730 When Blauvelt hears about their interest, he decides to get out in front 544 00:39:41,260 --> 00:39:43,320 I really had no choice but to come to you. 545 00:39:44,060 --> 00:39:47,200 Really, the only way to do it is to go through the banks and find out how much 546 00:39:47,200 --> 00:39:49,180 money came in and how all the money was spent. 547 00:39:49,980 --> 00:39:52,000 And I think, well, let the chips fall where they may have. 548 00:39:53,080 --> 00:39:55,500 The chips don't fall in his favor. 549 00:39:56,300 --> 00:39:59,320 On June 5, 2014, he's arrested. 550 00:40:01,020 --> 00:40:03,180 David Pritchard is arrested the same day. 551 00:40:04,040 --> 00:40:08,960 When he speaks to FBI Special Agent Eric Podosek, he professes his innocence. 552 00:40:09,820 --> 00:40:14,440 But when the facts are laid out, Podasek says that Pritchard comes to understand 553 00:40:14,440 --> 00:40:16,320 the gravity of his situation. 554 00:40:16,900 --> 00:40:22,780 I asked him if his investors would have liked to have known that 5 % of the 555 00:40:22,780 --> 00:40:27,360 money raised for Oz 3D was going to be used for production before they 556 00:40:28,060 --> 00:40:32,740 And he agreed that he should have told that to his investors. I asked him if he 557 00:40:32,740 --> 00:40:36,340 disclosed the true state of the company after Iowa. 558 00:40:36,680 --> 00:40:38,440 And he replied that... 559 00:40:38,680 --> 00:40:41,640 You know, he didn't, and he probably should have. 560 00:40:42,520 --> 00:40:49,460 And then when I asked him if he committed fraud, he 561 00:40:49,460 --> 00:40:55,640 didn't give me a yes or no answer, but he just looked down, and he told me, I 562 00:40:55,640 --> 00:40:56,640 get it. 563 00:40:56,800 --> 00:40:57,800 I fucked up. 564 00:40:59,900 --> 00:41:04,000 Nevertheless, both Blauvelt and Pritchard decide to take the case to 565 00:41:05,870 --> 00:41:11,750 A jury finds each of them guilty on 12 counts, including mail fraud and wire 566 00:41:11,750 --> 00:41:17,330 fraud. The court sentences Blauvel to eight years in federal prison and 567 00:41:17,330 --> 00:41:18,450 Pritchard to five. 568 00:41:20,110 --> 00:41:24,390 Despite the convictions, some things can never be recovered. 569 00:41:26,090 --> 00:41:32,990 Here's $6 ,000, $10 ,000, $5 ,000. 570 00:41:34,990 --> 00:41:35,990 What a mess. 571 00:41:37,190 --> 00:41:43,130 I'd like to push him up against the wall and hit him, you know, for 572 00:41:43,130 --> 00:41:45,710 doing this. 573 00:41:48,490 --> 00:41:49,590 What a scam. 574 00:41:51,870 --> 00:41:54,930 Penny McClurg's investment wasn't just for her. 575 00:41:55,290 --> 00:41:57,370 It was to support her brother as well. 576 00:41:58,450 --> 00:42:02,130 When he finds out the money is gone, he takes his own life. 577 00:42:03,820 --> 00:42:06,640 McClurg can't bring herself to talk about it. 578 00:42:09,340 --> 00:42:10,340 Time out. 579 00:42:12,020 --> 00:42:18,420 As the curtain falls on the Gigapix story, victims like Penny McClurg learn 580 00:42:18,420 --> 00:42:22,740 hard way that greed can cost far more than just money. 581 00:42:23,600 --> 00:42:27,640 People say that white -collar crime, the impact isn't as significant as violent 582 00:42:27,640 --> 00:42:31,720 crime. But in some circumstances, you know, they... 583 00:42:32,360 --> 00:42:35,540 The victims experienced equally tragic outcomes.