Amazon’s lawsuit in the Eastern District of Virginia alleges fraud

Comment

Nearly two years after Amazon filed a lawsuit accusing former employees and business partners of corrupting multiple real estate transactions, federal prosecutors urged both parties to agree to suspend the litigation. They told Amazon they were better at investigating fraud than the company ever could be. Then they warned the fraud defendants that if they continued to defend themselves in the civil case, they likely to be prosecuted.

It was an unusual threat in an unusual dispute, involving the massive and complex network of data centers in Northern Virginia that Amazon has spent billions of dollars building and using to host cloud computing services. The company, which says it accounts for about one-fifth of personal property taxes paid in Fairfax, Loudoun and Prince William counties, alleges that part of this lucrative business was marred by collusion between a property developer and its own employees.

But such cases of fraud are difficult to prove, and this one was particularly troubled. When prosecutors in the Eastern District of Virginia made the appeal, on the brink of depositions, the case had already led to the removal of a federal judge and an FBI agent on ethical grounds.

Court records offer insight into an ongoing government-led investigation and parallel civil lawsuit. Things started as civil cases often do, with a tip. In fact, two.

The first went directly to Amazon founder Jeff Bezos. (Bezos owns The Washington Post.)

“I never thought of myself as a rat,” Danny Mulcahy wrote in the late 2019 email, now reproduced in court records. “But…it’s disheartening when people are rewarded so grossly for unscrupulous behavior. »

He was a former employee of a commercial real estate company in Colorado called Northstar, which had contracted to build and manage several data centers for Amazon in Loudoun and Prince William. Mulcahy claimed that Amazon employees received bribes as part of these deals.

He later said his suspicions were raised by the amount of money paid into a trust for the benefit of an Amazon employee’s brother. Those same payments were noted by Northstar COO Tim Lorman, who a month later raised the issue with the investment firm funding the Amazon deal.

Amazon alleges in court documents that its investigation found that Northstar funneled money to two Amazon employees, Casey Kirschner and Carl Nelson, through Kirschner’s brother Christian, and that the employees and Northstar had profited from separate real estate transactions with Amazon.

“The evidence that has come to light … is overwhelming and leaves no doubt that defendants violated federal RICO law and engaged in multiple acts of wire fraud, honest services fraud, money laundering and other unlawful acts over a period of years,” Amazon’s attorneys alleged in their latest complaint.

In February 2020, Amazon’s attorneys had contacted the U.S. Attorney’s Office for the Eastern District of Virginia, according to court records. Amazon filed a lawsuit in the same court in late April, weeks after the FBI raided the homes of suspected fraudsters. The Justice Department this spring seized the defendants’ funds by civil forfeiture. Nelson had to hand over over $800,000; Northstar chief executive Brian Watson and his company have been ordered to put $25 million in receivership. (Because he didn’t, citing lack of funds, a receiver now controls his assets.)

The accused fired back, claiming that Amazon was dreaming up a criminal scheme from complicated real estate transactions that had been reviewed by an attorney. Amazon accused this attorney of facilitating the fraud, which he denied.

Watson filed his own lawsuit in Delaware, claiming flimsy allegations are being used to exclude him from a lucrative partnership. His attorney, Stan Garnett, said the case against him was “based on innuendo and misunderstanding” and that Watson had no knowledge of or involvement in the money paid to an Amazon employee.

Casey Kirschner and Nelson claim that all agreements were extensively negotiated and scrutinized by people above their level, and what Amazon considers criminal is at worst a disagreement over the terms of a non-compete agreement. .

“I did my best for the company,” Nelson said. “I continue to believe that the truth will prevail. »

Amazon did not specify the damages, citing confidentiality.

Lawyers representing Amazon consulted with the Justice Department more than 75 times over the case, according to court records, but charges have yet to be filed.

Thomas M. DiBiagio, a former US attorney from the state of Maryland, said these types of fraud cases “are difficult to prove” because “they require strong and substantial evidence of criminal intent.”

It is not uncommon for criminal prosecutors to request a pause in civil lawsuits to allow their own work to take priority. But the Jan. 24 call began with a request from Assistant U.S. Attorney Jamar Walker that nothing be recorded. Then, fellow attorney Matt Burke addressed the litigants directly. Two people who heard the call described it to The Washington Post. They spoke on condition of anonymity to discuss ongoing litigation.

Burke told Amazon on the call to “get out of our way”, promising that the government would “fail this” despite the “awful” press about the company. He made the analogy of chasing people who rob drug dealers.

Then he said that if the defendants were “really innocent…we’ll find out,” but “if you choose not to accept a reprieve, you’ll get what you deserve.”

Defendants would then be “forced to make an impossible choice” between refusing to answer questions in the civil case or lying under oath, Burke said during the appeal. If they chose the latter, he said he would charge them with perjury or obstruction, “whether or not you have committed another crime.”

Lawyers for the defendants viewed the statement as a veiled threat and an unsubtle suggestion that their clients could not testify honestly. After reporting these concerns to supervisors at the prosecutor’s office Desk, according to those involved, the government returned most of the seized funds and Burke ceased working on the case. It followed a federal judge who recused himself after learning his family owned Amazon stock and an FBI agent accused of breaching attorney-client privilege during a search.

Since the call, in depositions, Mulcahy and Lorman said they had no hard evidence of fraud.

“I said…that’s how I think things happened.” I didn’t say with any sort of empirical authority that these – all these things happened,” Mulcahy said in March.

Amazon attorneys who had said in repeated affidavits that they “could testify competently” to their “personal knowledge” of the fraud retracted the statements and said they “erroneously included language of form” – the lawyers had no first-hand knowledge, only what they had learned from others. A magistrate in April called it a “big mistake” and a “sloppy lawyer” but allowed Amazon to submit new documents.

The criminal investigation and civil trial are ongoing. The defendants are now pushing for a settlement conference or trial date, saying Amazon likely spent more on attorneys’ fees than it has to earn. Amazon dismissed these proposals as ploys to “run out of time” when transmitting information and “push a non-fraud narrative that is irreconcilable with the record.”

The U.S. Attorney’s Office for the Eastern District of Virginia declined to comment on the case, as did Amazon’s attorneys.

Devlin Barrett and Teo Armus contributed to this report.

Leave a Comment