Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.192 Page 1 of 67 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION UNITED STATES OF AMERICA, Plaintiff, CRIMINAL NO. 12-CR-20153 v. HONORABLE DENISE PAGE HOOD D-1 MICHAEL DEMETRUS GRUNDY, Defendant. / GOVERNMENT’S SENTENCING MEMORANDUM AS TO DEFENDANT MICHAEL DEMETRUS GRUNDY The United States of America submits the following memorandum in connection with the sentencing of Defendant Michael Demetrus Grundy on May 8, 2014. Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.193 Page 2 of 67 TABLE OF CONTENTS INTRODUCTION .....................................................................................................1  I.  Factual Background ..........................................................................................3  a.  HealthChoice............................................................................................3  b.  Defendant Michael Grundy .....................................................................4  c.  The HealthChoice - Advertise Me Scheme .............................................5  d.  The ProCare Plus – Advertise Me Scheme..............................................8  e.  The Medtrix Schemes ............................................................................10  i.  The SBP-HealthNet EMR Program ..................................................11  ii.  Grundy Deceived Robin Cole to Agree to Have ProCare Plus Pay $350,000 for EMR that Did Not Exist. .............................................13  f.  The cover-up ..........................................................................................17  II.  Financial Analysis ...........................................................................................20  a.  Step 1: Funds from Each Scheme Were Deposited Into the Advertise Me and Medtrix Accounts .....................................................................21  b.  Step 2: Substantial Portions of the Funds Were Kicked Back To Michael Grundy .....................................................................................22  ii.  The Green Thumb Method ................................................................22  iii. The Cashier’s Check Method............................................................25  iv.  The Direct Cash Method ...................................................................28  c.  Step 3: Grundy Launders and Spends Criminal Proceeds ....................32  i.  Purchase and Renovation of House on Shrewsbury, Michigan .......34  ii.  Purchase of a 2011 Jeep Wrangler ..................................................35  iii. Purchase of 2011 Ford Mustang ......................................................36  iv.  Caribbean Timeshare .......................................................................38  III.  Application of Sentencing Guidelines ............................................................39  a.  Michael Grundy was a Public Official ..................................................39  b.  Michael Grundy Accepted More than One Bribe or Extortion. ............40  i Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.194 Page 3 of 67 c.  The Value of the Benefit Received was More Than $1,000,000. .........42  d.  Grundy Was a Public Official With High-Level Decision-Making. .....43  e.  Grundy Was An Organizer and Leader of the Criminal Activity..........45  f.  Calculation of Sentencing Guidelines ...................................................46  IV.  Analysis of the factors under 18 U.S.C. § 3553(a) .........................................46  a.  The Nature and Circumstances of Grundy’s Crimes (18 U.S.C. § 3553(a)(1)...............................................................................................46  b.  Grundy’s history and characteristics (18 U.S.C. § 3553(a)(1)) .............48  c.  Seriousness of Grundy’s Crimes, Just Punishment, and Respect for the Law (18 U.S.C. § 3553(a)(2)(A)) ..........................................................52  d.  Deterring the Criminal Conduct of Others (18 U.S.C. § 3553(a)(2)(B))...................................................................54  e.  Protecting the Public from Further Crimes by Grundy (18 U.S.C. § 3553(a)(2)(C)) ........................................................................................56  f.  Sentences Contemplated by the Sentencing Guidelines (18 U.S.C. § 3553(a)(4)(A), (b)(1) & (c))...................................................................56  g.  Avoiding Sentencing Disparities Among Similarly Situated Defendants (18 U.S.C. § 3553(a)(6)) ........................................................................56  V.  Conclusion ......................................................................................................61  ii Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.195 Page 4 of 67 TABLE OF AUTHORITIES Federal Cases  Gall v. United States, 552 U.S. 38 (2007) ...............................................................57 In re Cook, 551 F.3d 542 (6th Cir. 2009) ................................................................50 United States v. Benson, 591 F.3d 491 (6th Cir. 2010) ...........................................56 United States v. Bistline, 665 F.3d 758 (6th Cir. 2012) ...........................................52 United States v. Gorman, 807 F.2d 1299 (6th Cir. 1986)........................................43 United States v. Gort-Didonato, 109 F.3d 318 (6th Cir. 1997) ...............................45 United States v. Gray, 521 F.3d 514 (6th Cir. 2008) ...............................................42 United States v. Griffin, 324 F.3d 330 (5th Cir. 2003) ............................................42 United States v. Kemp, 500 F.3d 257 (3d Cir. 2007) ...............................................43 United States v. Manjate, 327 F. App’x 562 (6th Cir. 2009) ..................................51 United States v. Martin, 455 F.3d 1227 (11th Cir. 2006) ........................................54 United States v. Peppel, 707 F.3d 627 (6th Cir. 2013) ............................... 51, 54, 57 United States v. Soumano, 318 F.3d 135, 137 (2d Cir. 2003) .................................40 United States v. Spano, 411 F.Supp.2d 923 (N.D. Ill. 2006)...................................54 United States v. Watkins, 691 F.3d 841, 845 (6th Cir. 2012) ........................... 43, 44 Federal Statutes  18 U.S.C. § 3553 ......................................................................... 2, 46, 48, 52, 54, 56 State Statutes  M.C.L. § 331.1102 ...................................................................................................39 Regulations  U.S.S.G. § 2C1.1 ................................................................................... 39, 40, 42, 43 USSG, App’x C, Vol. III (Amendment 666) ...........................................................57 Other Authorities  Bribes and Ballots: The Impact of Corruption on Voter Turnout in Democracies, 34 International Political Science Review; Daniel Stockemer, Bernadette LaMontagne & Lyle Scruggs (2013) ...................................................................53 State of the Union Messages of the President (1966) ..............................................53 iii Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.196 Page 5 of 67 INTRODUCTION As a top official within Wayne County government, Defendant Michael Grundy was responsible for developing and maintaining health care programs for low income and indigent residents of the county. He was entrusted with the fiduciary duty of administering a tight budget for the benefit of those vulnerable constituents. Grundy paid no heed to those duties. Within months of assuming his position as Executive Director of HealthChoice in August of 2008, Grundy initiated a kickback scheme that he financed by having longtime friend Keith Griffin form a company called Advertise Me and invoice HealthChoice for advertising at grossly inflated rates – almost 190% over the actual cost of the advertising. Grundy later pressured the owner of a HealthChoice vendor to send company checks totaling over $150,000 to Advertise Me, and conned her into agreeing to have her company pay $560,000 to another company owned by Griffin for a non-existent electronic medical records (EMR) program. Grundy also directed HealthChoice’s accountant to wire $400,000 to Griffin’s phony EMR company, even though the County and HealthChoice already were paying employees to market a legitimate EMR program to HealthChoice providers. Before the schemes were discovered, Grundy received about $700,000 in cash, cashier’s checks and money orders and a one-third interest in a $50,000 1 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.197 Page 6 of 67 Caribbean time share. At the same time that Grundy was raiding HealthChoice’s coffers to allow for this extravagant lifestyle, he was terminating health benefits for indigent and low income residents, and increasing the costs of participating in HealthChoice’s plans. Even still, Grundy has not shown any remorse for the damage he caused, including HealthChoice’s diminished ability to provide needed health care services to the county’s vulnerable constituents. To the contrary, Grundy denies that he owed them any fiduciary duties at all. Grundy’s failure to accept responsibility for the impact of his crimes is shameful. Below, this sentencing memorandum is presented in four parts: (1) the factual background; (2) the financial analysis of Grundy’s corrupt scheme; (3) the sentencing guidelines analysis; and (4) the analysis of the factors set forth under 18 U.S.C. § 3553(a). The factual background will detail the egregious nature of Defendant Michael Grundy’s crimes and abuses of his fiduciary obligations, and the sentencing analysis will demonstrate that Grundy’s properly calculated guideline range is 168 to 210 months of imprisonment. In order to satisfy the aims of § 3553(a), the Court should impose a sentence within that range. 2 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 I. PageID.198 Page 7 of 67 Factual Background a. HealthChoice HealthChoice of Michigan was incorporated by Wayne County under the Municipal Health Facilities Corporation Act, M.C.L. § 331.1101, et. seq. (hereinafter, “MHFCA”). The MHFCA was enacted because “[t]he health and welfare of the people of this state [is] a matter of primary public concern . . . .” M.C.L. § 331.1102. The Act specifies that “the powers granted in this act constitute the performance of essential public purposes and governmental functions of this state and its local governmental units.” Id. The July 1, 1993 Articles of Incorporation of HealthChoice indicate that its purpose is “[t]o advance and promote the health and welfare of the residents of Wayne County by, among other things, promoting access to reasonably-priced health care to qualifying individuals.” (Ex. 1, HealthChoice Articles of Incorporation at Art. 2, ¶ A). In furtherance of that mission, HealthChoice established a managed care program for the uninsured and the underinsured. (Ex. 2, 2009 Auditor General Report at 1). “HealthChoice benefits both the residents of Wayne County that have no health insurance and employers in Wayne County that are unable to provide health care benefits to their employees.” (Id.) As a “ThreeShare Program,” participating employers, participating employees and HealthChoice each pay a third of the costs of the program. (Id.) An employee 3 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.199 Page 8 of 67 wishing to provide coverage for family members must pay an additional premium. (Id.) HealthChoice’s share of the cost is funded by a State of Michigan fund for low income individuals. (Id. at 1-2). Through their 2010 to 2011 Intergovernmental Agreement, Wayne County and HealthChoice agreed to “cooperate and support each other’s efforts to promote health care among, and access for, low income and/indigent residents of Wayne County.” (Ex. 3, Intergovernmental Agreement at 2.) Under the agreement, the Patient Care Management System (PCMS), which is a division of Wayne County Department of Health and Human Services, provided HealthChoice with staff, and management and administrative services. (Id. at 1-3). The agreement required HealthChoice to “develop or maintain health care programs specifically targeting the indigent population of Wayne County.” (Id. at 3). b. Defendant Michael Grundy Defendant Michael Grundy was awarded several leadership roles associated with Wayne County government. From approximately August 2008 until approximately November 2011, he was the Executive Director of HealthChoice and, in that capacity, oversaw all of the HealthChoice programs that were designed for the low income and indigent populations. From approximately July 2008 until approximately November 2011, Grundy was the Division Director of the PCMS and, in that capacity, oversaw the Adult Benefit Waiver Program. Further, from 4 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.200 Page 9 of 67 about November 2010 until about November 2011, he was an Assistant County Executive for the County.1 As the Executive Director of HealthChoice, Grundy had substantial authority over its management. He was entrusted to “sign and execute all bonds, contracts, checks and other obligations in the name of [HealthChoice] when so authorized by the Board of Trustees.” (Ex. 1, Articles of Incorporation at Art. 5, § 6). Additionally, Grundy wielded considerable power over the HealthChoice staff. “All employees shall be under the control and supervision of the Executive Director. The Executive Director shall be empowered to fill all staff positions. Employees may be terminated from employment by the Executive Director, subject to the approval of the Board.” (Ex. 4, HealthChoice Bylaws at Art. III, § 8). c. The HealthChoice - Advertise Me Scheme Grundy initiated a scheme in which HealthChoice would pay Advertise Me inflated prices for advertising, and Grundy would receive kickbacks from the payments. Codefendant Keith Griffin has known Grundy for over 30 years, and the two friends had been in contact steadily since the mid-1990s. (Ex. 5, Griffin 12/20/11 1 Grundy admitted that he held these positions in his plea agreement with the government. 5 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.201 Page 10 of 67 report at 1). In 2009, Grundy told an unemployed Griffin that HealthChoice needed advertising work, so Griffin formed Advertise Me. (Id.) Griffin’s job through Advertise Me was to purchase advertising time from local radio and television outlets for HealthChoice. Shortly after Griffin received his first payment from HealthChoice in April 2009, Grundy told Griffin that he (Grundy) needed $12,000 of the money to pay an outstanding tax bill, leaving Griffin with very little profit. (Id. at 2). Bank records substantiate that Griffin withdrew $3,000 each day on April 15, 16, and 24, of 2009, from an Advertise Me bank account. On the exact same days, Grundy deposited $3,000 into his own personal bank account. (See chart infra at 27). When Grundy demanded payments from Griffin’s second and third checks from HealthChoice, Griffin realized that he was involved in a kickback scheme. (Ex. 5, Griffin 12/20/11 report at 2). Initially, Griffin negotiated with the media companies to obtain better rates than HealthChoice was offered in the past, and the difference between the old and new rates represented Griffin’s profit. (Id.) However, after Griffin received the first couple of payments from HealthChoice, Grundy began dictating how Griffin should negotiate for advertising rates and telling Griffin how much Advertise Me should invoice HealthChoice. (R. 23: Griffin Rule 11 Agreement at 2-3; Ex. 6, 6 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.202 Page 11 of 67 2/15/12 Griffin report at 1; Ex. 7, 9/06/12 Griffin report at 2). Griffin would then email the completed invoices to Grundy. (Ex. 6, 2/15/12 Griffin report at 1). The invoices were grossly inflated so that Griffin could kick back to Grundy a substantial portion of the $1,049,929 in payments HealthChoice made to Advertise Me between April 2009 and September 2011. (Id.; Ex. 8, HealthChoice payments to Advertise Me).2 The industry standard for media buyers is to receive a 15% commission. (Ex. 9, media buyer articles). Rather than using at least $892,000 of the $1,049,920 in payments for media buys – like one would expect in a standard 15% commission – the defendants only used $363,463 for media buys, with the remainder going to the defendants. In other words, the defendants overcharged HealthChoice over half a million dollars on a one million dollar contract. 3 (Ex. 39, Chart of Advertising Purchases). As a result of Grundy soliciting and approving payment on the grossly inflated Advertise Me invoices, HealthChoice’s advertising costs greatly increased. (Ex. 10, 2/29/12 Killeen report at 1; Ex. 17, 2/22/12 Johnson report at 1). Exhibit 8 actually shows a total of $1,079,929, but Special Agent Jeffrey Lubanski of the IRS will testify that one check for $15,000 was voided, and that there is no evidence that a second check for $15,000 was ever deposited into an Advertise Me bank account. 3 One of the attached articles indicates that county officials estimated that the markup was 164%. That figure was based upon a sampling of the media buys (see Ex. 14, Durant memo at 00000359), and turned out to be an underestimate. 7 2 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.203 Page 12 of 67 Advertise Me was the only vendor that received such high payments from HealthChoice, and the only vendor whose checks were picked up or handdelivered, rather than mailed. (Ex. 11, 2/27/12 Grace report at 1). Advertise Me was also unusual because it did not have a contract with HealthChoice that was drafted by the Wayne County Corporation Counsel, and was not approved by the HealthChoice Board. (Ex. 10, 2/29/12 Killeen report at 1). To disguise their illegal kickback scheme, Griffin paid his kickbacks to Grundy in cash, in cashier’s checks and money orders with payees and remitters in the names of people or entities other than Grundy, and by transferring money to an account in the name of Green Thumb Landscaping. (Ex. 5, 12/20/11 Griffin report at 2; Ex. 12, 5/10/12 Griffin report at 1-2; Ex. 13, 8/9/12 Griffin report at 1-2; Ex. 7, 9/6/12 Griffin report at 1). The Indiana-based Griffin gave Grundy the ATM card for the Green Thumb account in order to expedite the delivery of cash to Grundy, and in order to prevent the funds from being traced to Grundy. (Ex. 12, 5/10/12 Griffin report at 1; Ex. 7, 9/6/12 Griffin report at 1). d. The ProCare Plus – Advertise Me Scheme Grundy used his power to harm ProCare Plus to cause that company to pay Adverise Me over $156,000, and Grundy controlled how that money was used after it was paid to Advertise Me. 8 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.204 Page 13 of 67 Robin Cole has been the owner of ProCare Plus since her late husband died in May 2010. (Ex. 15, 10/21/11 Cole report at 1; Ex. 16 11/17/11 Cole report at 6). ProCare Plus is a managed care provider under the HealthChoice and Adult Benefit Waiver (ABW) programs. (Ex. 15, 10/21/11 Cole report at 1; Ex. 16, 11/17/11 Cole report at 1). These Wayne County associated programs constitute100% of ProCare Plus’ business, and Grundy controlled them both during his tenure. So, Grundy had the power to terminate ProCare Plus’ Health Choice and ABW contracts, which would have resulted in the company closing and all of the employees losing their jobs. (Ex. 16, 11/17/11 Cole report at 7). Grundy’s power over ProCare Plus caused the company to be in a precarious position because he was a bully who would disrupt contracts; everyone lived in fear of Grundy. (See, e.g., Ex. 16, 11/17/11 Cole report at 3, 5 & 7; Ex. 17, 2/22/12 Johnson report at 2; Ex. 11, 2/27/12 Grace report at 1-2). Christopher Johnson, a Wayne County employee who worked with Grundy on the ABW program, overheard Grundy speaking harshly to Cole over the telephone several times. (Ex. 17, 2/22/12 Johnson report at 2). It is against this backdrop that Grundy approached Cole and told her to prepare checks to Advertise Me to be used for HealthChoice marketing and political advertising. (Ex. 15, 10/21/11 Cole report at 1; Ex.16, 11/17/11 Cole report at 1). Cole did as Grundy directed. From July 2010 until January 2011, 9 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.205 Page 14 of 67 Cole arranged for Grundy to receive a total of $156,155 in ProCare Plus checks that were paid to the order of Advertise Me. (Ex. 16, 11/17/11 Cole report at 1). Cole will testify that she made those payments to Advertise Me out of fear that Grundy would disrupt ProCare Plus’ contracts if she crossed him. According to Griffin, none of the $156,155 from ProCare Plus went toward advertising. Instead, Griffin used the funds to obtain cashier’s checks for Grundy, designating payees as directed by Grundy to conceal the illegal payments. (Ex. 5, 12/20/11 Griffin report at 2). e. The Medtrix Schemes Grundy conceived other schemes to obtain illegal kickbacks from Griffin through a different company Griffin owned called Medrix, LLC. Grundy came up with these schemes in the midst of extensive efforts by Wayne County and HealthChoice to implement a comprehensive Electronic Medical Records (EMR) program for HealthChoice providers. In 2010, Wayne County installed in its jail an EMR program that it had purchased from Strategic Business Partners (“SBP”), and plans were made to roll that program out to Wayne County as a whole. (Ex. 19, 4/6/12 Yeluripati report at 1-3; Ex. 21, 2/27/12 Hammami report at 1). The SBP EMR program was marketed 10 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.206 Page 15 of 67 as “HealthNet.”4 ( Ex. 20, 4/2/12 Singla report at 1; Ex. 19, 4/6/12 Yeluripati report at 3). At the same time that Grundy was promoting the SBP-HealthNet EMR program to HealthChoice providers, he had ProCare Plus agree to pay $560,000 to Medtrix, purportedly for EMR. Medtrix was a sham – it neither created nor owned any EMR. However, Grundy fooled ProCare Plus personnel into believing that the money they were paying to Medtrix was for the SBP-HealthNet EMR program. Additionally, Grundy had the HealthChoice accountant wire $400,000 to Medtrix, purportedly pursuant to a March 1, 2011 contract by which Medtrix agreed to create and market EMR to HealthChoice providers. The contract was a farce. These Medtrix schemes are detailed below. i. The SBP-HealthNet EMR Program From the beginning, Grundy supported and encouraged the efforts to market the SBP-HealthNet EMR program to HealthChoice doctors. In about April 2010, Grundy and the county’s Chief of Health Operations put on a presentation about the SBP-HealthNet EMR program for HealthChoice providers, but none of the 4 Thus, when the records and reports cited to below refer to EMR associated with SBP, Wayne County or HealthNet, they are all referring to the same program. For clarity, this memo will refer to the “SBP-HealthNet EMR” program. 11 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.207 Page 16 of 67 attending providers signed up for the program. (Ex. 21, 2/27/12 Hammami report at 1-2; Exh. 18, Hammami-Grundy presentation, select slides). So, in September 2010, Grundy asked HealthChoice’s board to approve a premium increase of 10% to finance the implementation of the EMR program for its providers. (Ex. 22, 9/10 HealthChoice Board meeting minutes at 00000364-00000367; Ex. 23, 6/28/11 Grundy/Belknap emails). The premium increase allowed HealthChoice to offer its providers a rebate for participating in the EMR program, but still no providers signed up for the program. (Ex. 21, 2/27/12 Hammami report at 2). In mid-2011, Manny Singla and Purush Yeluripati, the developers of the SBP-HealthNet EMR software, were brought on to help roll the program out to HealthChoice providers. (Ex. 20, 4/2/12 Singla report at 1; Ex. 19, 4/6/12 Yeluripati report at 3). Additionally, HealthChoice contractually hired Daniel Belknap to market and promote the SBP-HealthNet EMR program to HealthChoice providers. He was required to “enroll all current HealthChoice” providers in the program, and to coordinate recruitment with the health plans, including ProCare Plus. (Ex. 24, 3/29/12 Belknap report at 1-2; Ex. 25, HealthChoice/Belknap Contract at 4 & Appendix A). Promotional materials touted the benefits of HealthNet, and offered that HealthChoice would cover the $4,999 per provider setup costs and pay physicians an additional cash incentive of $4,400 to join the program. (Ex. 24, 3/29/12 12 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.208 Page 17 of 67 Belknap report at 2; Ex. 26, HealthNet promotional materials). HealthChoice providers would have to pay only a $299 monthly maintenance fee to SBP.5 (Id.) Despite all of the resources directed at the SBP-HealthNet EMR project, both in terms of finances and manpower, the program got nowhere and Belknap was fired in August 2011. (Ex. 24, 3/29/12 Belknap report at 3). The following month, Grundy hired Howard Fisher to replace Belknap. (Ex. 27, 11/11/11 Fisher report at 1; Ex. 28, 9/19/11 Grundy-Singla emails). However, events on October 19, 2011 caused Grundy to bring the efforts to market the SBPHealthNet EMR program within HealthChoice to a screeching halt. As described more fully, below, Grundy terminated HealthChoice’s affiliation with the SBPHealthNet EMR program in order to cover up his kickback scheme involving Medtrix LLC, a company his coconspirator Griffin owned. First, however, Grundy’s scheme to deceive Robin Cole to agree to have ProCare Plus pay $560,000 to Medtrix, purportedly for EMR, will be detailed. ii. Grundy Deceived Robin Cole to Agree to Have ProCare Plus Pay $560,000 for EMR that Did Not Exist. In February of 2011, Robin Cole excitedly accepted Grundy’s offer to have the same EMR that was used in the Wayne County Jail installed at ProCare Plus’ 5 Grundy also wanted HealthChoice membership contracts to require that providers participate in the SBP-HealthNet EMR program, but the legal department rejected that plan. (Ex. 20, 4/2/12 Singla report at 2; Ex. 19, 4/6/12 Yeluripati report at 3). 13 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.209 Page 18 of 67 building on East Grand Boulevard; that would boost her planned proposal to the county for that building to be used as an urgent care facility for the jail’s inmates. (Ex. 16, 11/17/11 Cole report at 1-2). Grundy told Cole that the recent $4 per member increase that ProCare Plus would receive under the ABW program could finance the EMR installation into ProCare Plus’ building, and he later sent her a text message with the total cost: a whopping $560,000.00. (Id. at 2-3; Ex. 29, Grundy text message to Cole). Grundy directed Cole to have ProCare Plus wire the payments to Medtrix, LLC. (Id.) When Cole suggested that the county simply deduct from its payments to ProCare Plus the amount that the company would pay to Medtrix, Grundy “simply said, ‘No.’” (Ex. 16, 11/17/11 Cole report at 3). This made Cole suspicious, but she was afraid that Grundy might “get rid” of ProCare Plus if she asked any more questions. (Id.) So, between March 2011 and October 2011, ProCare Plus wired $350,000 to Medtrix in seven $50,000 increments. iii. Medtrix was a Sham that Unraveled on October 19, 2011 In early 2011, Grundy told Griffin that he wanted him to oversee HealthChoice’s EMR project, and Griffin would be paid $1,000 for each of the 400 HealthChoice physicians. (Ex. 5, 12/20/11 Griffin report at 1-3). Grundy said that ProCare Plus would pay for the start-up costs, but that $35,000 of the $50,000 that 14 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.210 Page 19 of 67 ProCare Plus would wire to Medtrix each month would go toward contractors who were performing extensive renovations on a house owned by Grundy. (Id. at 3). Medtrix was a complete sham. It never created or purchased any EMR, and Grundy did not show interest in evaluating possible EMR vendors. (Ex. 5, 12/20/11 Griffin report at 3). Nonetheless, Cole and her IT Director were falsely led to believe that efforts to install HealthNet in the ProCare Plus were related to the hundreds of thousands of dollars they had sent to Medtrix. Edmond Kole-James is ProCare Plus’ IT Director. At Cole’s direction, he worked with Belnap, Singla and Yeluripati to install HealthNet in the ProCare Plus building on East Grand Boulevard. (Ex. 30, 3/6/13 Kole-James report at 1-2). Emails between Grundy and Singla make clear that the plan was to install the SBPHealthNet EMR at that building; none of the emails made reference to Medtrix. (Ex. 28, Grundy-Singla emails). Grundy was still referencing the SBP-HealthNet EMR exclusively during the morning of October 19, 2011, when he sent an email to Singla asking whether he had answered Kole-James lists of questions. Those questions included, “Does Strategic Business Partners (SBP) have EDI Clearing house . . . ;” and “How many templates does Health Net have?” (Ex. 31, 10/19/11, 10:34 a.m. Grundy-Singla email). Nonetheless, at Grundy’s direction, HealthChoice accountant Sharon Mattic wired $400,000 to Medtrix about 10 minutes after Grundy’s email to Singla 15 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.211 Page 20 of 67 that morning. (Ex. 32, 10/19/11 Grundy approval and transfer confirmation email; 1/5/12 Mattic report at 1-2). Grundy told Mattic that the unusually large wire transfer was approved by “the boss,” which Mattic believed to be a reference to the Wayne County executive or his deputy. (Id.). The following day, October 20, 2011, Mattic wrote emails to Grundy and Griffin representing that the $400,000 payment was made pursuant to a March 1, 2011 contract between HealthChoice and Medtrix, but that contract was not even emailed to Griffin until the afternoon of October 19, 2011. (Ex. 32, 10/20/11 Mattic emails; Ex. 33, 10/19/11 Grundy-Griffin email with contract). The purported contract directed Medtrix to “develop and implement the electronic medical records system in approximately 400 [HealthChoice of Michigan] clinics. The Contractor may also participate in the promoting and recruitment of additional clinics to join the HCM electronic medical records project.” (Ex. 33, HealthChoice-Medtrix contract at Appendix A). Medtrix was supposed to “expeditiously” perform those services within the one year term of the March 1, 2011 contract date. (Ex. 33, HealthChoice-Medtrix contract at 5). As Grundy admitted through his guilty plea, the HealthChoice-Medtrix contract was a farce, and Grundy expected to profit from it. (R. 36: Plea Agreement at 3, Pg ID 138; R. 37: TR 6/4/13 at 20, Pg ID 177). 16 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.212 Page 21 of 67 f. The cover-up Grundy was caught by surprise when the FBI served subpoenas on Wayne County in the afternoon of October 19, 2011, only hours after he had the $400,000 wire-transferred to Medtrix.6 So, in an effort make the Medtrix contract appear legitimate and justify the large wire transfer, Grundy contacted Cole that evening and told her that she should begin dealing directly with Griffin (rather than Grundy) regarding the Medtrix payments. (Ex. 16, 11/17/11 Cole report at 5; Ex. 34, 11/11/11 Whitley report at 1). Shortly afterwards, Griffin called Cole, which was the first time that Cole had even heard of Griffin. (Id.) Kole-James was suspicious of Medtrix because it had a “gmail” account and because, when they spoke, Griffin did not know anything about HealthNet. (Ex. 30, 3/6/12 Kole-James report at 2). But, the following day, Grundy told KoleJames that he should meet with Griffin, and that Singla was no longer involved in the EMR program. (Id.) Singla was shocked to learn during a meeting at 9:00 a.m. on October 20, 2011, that Grundy was putting a stop to the HealthNet program, and going with The service of those subpoenas received widespread media coverage. See http://www.freep.com/article/20111019/NEWS02/111019032/Robert-Ficano-FBIsubpoenas-There-nothing-going-come-up-; and http://www.wxyz.com/dpp/news/local_news/investigations/fbi-inside-waynecounty-headquarters-in-downtown-detroit 6 17 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.213 Page 22 of 67 Medtrix instead. (Ex. 35, 11/11/11 Singla report at 1; Ex. 20, 4/2/12 Singla report at 2-3). Grundy falsely claimed to Singla that Medtrix had been selling EMR like “nobody’s business,” and that Medtrix’s rollout was very professional. (Ex. 20, 4/2/12 Singla report at 3). Grundy had no interest in Singla finding out if Medtrix’s EMR was properly certified. (Ex. 35, 11/11/11 Singla report at 1; see also, Ex. 36, 10/20/11 Singla-Grundy text message7). Since Griffin did not know anything about the HealthNet program, Grundy had to get him up to speed. So, in the afternoon of October 20, 2011, Grundy sent Singla an email asking him to “explain in detail the purpose of HealthNet software being proposed to ProCare.” (Ex. 37, 10/20/11 Grundy-Singla emails). About 10 minutes after receiving Singla’s detailed explanation, Grundy forwarded it to Griffin. (Id.) Next, Grundy needed to obtain a copy of the agreement for HealthNet that Singla had arranged with ProCare Plus. At Grundy’s request, Kole-James emailed the agreement on October 21, 2011. The text of Kole-James’ email demonstrates that he was confused into believing that Medtrix was associated with SBP and HealthNet. 7 Singla thought that Grundy had called the company “Matrix.” 18 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.214 Page 23 of 67 Mr. Grundy, As we discussed earlier today I will be meeting with Keith Griffin from Medtrix next week to discuss EMR (Health Net) and address all the pending issues that Pro Care had with Strategic Business Partners agreement. Hopefully it should be a productive meeting and we will be able to move forward with implementation of EMR. I have attached Strategic Business Partners agreement as requested. Have a wonderful weekend. Thanks Edmund Kole-James (Ex.38, 10/21/11 Kole-James & Grundy email). Later that day, Grundy emailed the SBP agreement to Griffin. (Ex. 38, 10/21/11 Grundy & Griffin email). Neither Grundy nor Griffin corrected Kole-James’ mistaken belief that Griffin would be implementing the agreement to provide ProCare Plus with the HealthNet EMR. In reality, Keith Griffin could have never given ProCare Plus the EMR program that it was expecting. Grundy had represented that ProCare Plus would receive the same EMR program that was being used in the Wayne County Jail, i.e., the HealthNet program. But Griffin did not have anything to do with HealthNet. Nor could Griffin have fulfilled the purported contract to create and implement EMR in 400 HealthChoice clinics. That task required multiple individuals with detailed knowledge of EMR. (Ex. 19, 4/6/12 Yeluripati report at 4; Ex. 24, 3/29/12 Belknap report at 2). Indeed, Wayne County and HealthChoice assigned multiple experts and expended considerable resources toward the HealthNet program, and it got virtually nowhere. Michael Grundy knew firsthand that the HealthNet program was a tough sell. Yet, as Grundy well knew, Griffin’s 19 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.215 Page 24 of 67 company, Medtrix, was a sham. It had no employees other than Griffin. And Griffin did not have the technical expertise to create or maintain a complex electronic medical records system. Finally, given the fact that HealthNet was already being offered to the HealthChoice providers for free, Grundy had no justification for directing Cole to pay $560,000 for the implementation of EMR in the East Grand Boulevard Building, and therefore causing ProCare Plus to wire transfer $350,000 to Medtrix until his sham unraveled. II. Financial Analysis The schemes detailed above resulted in the total disbursement of $1,956,480 in illegally obtained funds from HealthChoice and ProCare Plus to Grundy and Griffin. A substantial portion of these funds were illegally kicked back to Grundy. Grundy used the funds to purchase a home, vehicles, a vacation timeshare, and other items. The trail of the fraudulently derived funds is detailed below in three steps: (1) the funds from HealthChoice and ProCare Plus were deposited into Advertise Me and Medtrix accounts; (2) substantial funds were kicked back to Grundy; and (3) Grundy laundered and spent the criminal proceeds. 20 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.216 Page 25 of 67 a. Step 1: Funds from Each Scheme Were Deposited Into the Advertise Me and Medtrix Accounts Bank records confirm that funds generated by the schemes were deposited into three bank accounts that served as the primary repositories for the illegal proceeds. Two of the accounts were titled to Advertise Me (Old National Bank Account ending in 469 (AM-ONB #469) and JPMorgan Chase Account ending in 631 (AM-JPMC #631)). The third account was titled to Medtrix LLC (JPMorgan Chase Account ending in 004 (MTX-JPMC #004)). Griffin was the signatory on all three accounts. Collectively, the three accounts received $1,956,480 from HealthChoice and ProCare Plus8: GROSS FRAUD PROCEEDS PAID TO DEFENDANTS Payor – Receiving Account Transfer Date(s) Health Choice to AM-ONB #469 May 2009 to Aug. 2011 Health Choice to AM-JPMC #631 June 2010 to Sep. 2011 Health Choice to MTX-JPMC #004 October 19, 2011 ProCare Plus to AM-JPMC #631 July 2010 to Jan. 2011 ProCare Plus to MTX-JPMC #004 March 2011 to Oct. 2011 Grand Total 8 Amount $481,244 $568,685 $400,000 $156,551 $350,000 $1,956,480 IRS Special Agent Jeffrey Lubanski will testify regarding the financial analysis set forth in this memorandum at the sentencing hearing. 21 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.217 Page 26 of 67 Of the nearly $2 million obtained in the schemes, $300,985.95 was seized by the government from the Medtrix account on November 4, 2011. An additional $363,463.53 was paid by Griffin to various media outlets for commercials that were aired. (Ex. 39, Summary Chart of Media Payments). The remainder, nearly $1.3 million, was illegally shared between Griffin and Grundy, with Grundy receiving a substantial portion. b. Step 2: Substantial Portions of the Funds Were Kicked Back To Michael Grundy Various methods were utilized to illegally kickback funds to Grundy. Each of the methods was designed to leave no trace of the fact that Grundy was receiving the funds. ii. The Green Thumb Method: Grundy used the ATM card for the Green Thumb JPMorgan Chase bank account (GT-JPMC #614) to obtain proceeds from the schemes. During the course of the schemes, no less than $162,152 in criminal proceeds were deposited into to the Green Thumb account. This was done by direct transfer of funds from the Advertise Me and Medtrix accounts, cash deposits into the Green Thumb account, and a transfer from a personal bank account of Keith Griffin at Old National Bank (KG-ONB #222): 22 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.218 Page 27 of 67 TOTAL FUNDS TRANSFERRED TO GREEN THUMB FOR GRUNDY Source of Funds Deposited AM-ONB #469 AM-JPMC #631 MTX-JPMC #004 KG-ONB #222 Cash Deposits Dates of Transfer/Deposit July 2009 to May 2010 July 2010 to Aug. 2011 June 2011 to Oct. 2011 Sept. 2009 to Dec. 2009 Nov. 2009 to July 2010 Grand Total Total Deposited $54,615 $58,037 $29,500 $7,500 $12,500 $162,152 The evidence corroborates Griffin’s statements that Grundy had control of the Green Thumb ATM card during the period in question. $83,380 of the Green Thumb ATM withdrawals were made near Grundy’s home, located at14640 Faust, Detroit, Michigan, and his office, located at 640 Temple Street, Detroit, Michigan: ATM Cash Withdrawals Near Grundy Home/Office ATM Location 18285 Grand River 111 Mack Avenue Distance from home/office (per maps.google.com) .6 miles (from home) .8 miles (from office) Total Withdrawn $31,160 $52,220 Additionally, an ATM video obtained from JPMorgan Chase shows Grundy using ATM machines to withdraw cash from the Green Thumb account on September 17, 2011 and October 22, 2011. The frequency with which Grundy used the Green Thumb ATM card to withdraw large sums of cash from the Green Thumb account was staggering. 23 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.219 Page 28 of 67 Grundy made 272 ATM cash withdrawals from the Green Thumb account between July 2009 and October 2011. (Ex. 40, ATM Withdrawal Summary). He made ATM cash withdrawals from the account 14 times in November 2009 ($6,800 total) and February 2011 ($7,000 total), 15 times in April 2011 ($7,060 total), 22 times in December 2010 ($11,000 total) and 23 times in August 2011 ($11,480). (Id.) The vast majority of the ATM withdrawals were in increments of $500, and he withdrew $800 on 14 occasions. (Id.) Grundy frequently made from two to six separate ATM cash withdrawals on one day, which totaled $1,000 on 28 days,9 $1,500 on 11 days,10 $2,000 on August 17, 2011 and September 14, 2011, $2,500 on July 18, 2011, $2,980 on October 24, 2011 and $3000 on August 29, 2011. In total, Grundy withdrew approximately $119,140 from ATM machines. (Id.)11 Grundy also used the Green Thumb ATM card to make approximately $10,204 in purchases at various vendors. (Ex. 41, Summary of Vendor 9 11/20/09, 12/17/09, 8/2/10, 10/4/10, 11/19/10, 11/22/10, 12/6/10, 12/13/10, 12/20/10, 12/27/10, 1/3/11, 2/14/11, 2/22/11, 3/7/11, 3/14/11, 4/25/11, 6/15/11, 6/20/11, 8/1/11, 8/2/11, 8/4/11, 8/5/11, 8/19/11, 9/15/11, 9/16/11, 9/19/11, 10/20/11 and 10/21/11. 10 11/9/09, 2/16/10, 3/1/10, 7/12/10, 8/16/10, 9/27/10, 2/7/11, 3/28/11, 4/11/11, 5/2/11 and 6/13/11. 11 A small number of transactions shown in the summary chart incorporate fees charged by some ATMs. For example, a transaction on July 27, 2009 is noted as “$252.00.” Grundy would have received $250 of this in cash, with $2 being paid to the bank servicing the ATM used. 24 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.220 Page 29 of 67 Purchases). This included purchases of appliances from ABC Warehouse on July 10, 2010, where Grundy provided his own name and address. (Ex. 42, ABC Warehouse Receipt). The Green Thumb ATM Card was also used at Costco Wholesale in conjunction with the Costco account of Christopher Grundy, the brother of Michael Grundy. (Ex.43, 7/9/12 Costco Report). In total, approximately $129,344 was routed to Grundy by way of the Green Thumb ATM card (cash withdrawals plus purchases). iii. The Cashier’s Check Method: At Grundy’s direction, Griffin also illegally kicked back money to Grundy by purchasing multiple cashier’s checks funded by the Advertise Me and Medtrix accounts.12 In order to disguise his receipt of the corrupt payments, Grundy directed the cashier’s checks were made payable to persons dictated by Grundy, including Grundy’s wife Joni Thrower-Grundy. This payment scheme involved the purchase of the following cashier’s checks totaling $239,420: 12 Keith Griffin also used a personal JPMorgan Chase account ending in 4410 to fund some of these purchases (KG-JPMC #410). Each cashier’s check purchase from KG-JPMC #410 was funded by transfer from the Advertise Me or Medtrix accounts. 25 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.221 Page 30 of 67 CASHIER’S CHECKS DIRECTED BY GRUNDY Source Account GT-JPMC #614 AM-JPMC #631 AM-JPMC #631 KG-JPMC #410 KG-JPMC #410 AM-JPMC #631 AM-JPMC #631 Check Date 5/14/2010 AM-JPMC #631 AM-JPMC #631 AM-JPMC #631 MTX-JPMC #004 MTX-JPMC #004 1/22/2011 MTX-JPMC #004 7/15/2011 KG-JPMC #410 8/17/2011 7/2/2010 8/6/2010 10/28/2010 10/28/2010 11/18/2010 12/11/2010 1/22/2011 1/25/2011 5/23/2011 7/15/2011 Check Stated Payable To Number Remitter 9419002444 Joni Warrant Title Thrower LLL 9245706442 Advertise Joni Thrower Me 9245706802 Advertise Stephen Me Randall 9245707487 Advertise CARF Me Consulting 9245707488 Advertise Club Topaze Me 9472701382 Keith Club Topaze Griffin 9245707872 Advertise Star Me Consulting LLC 9245708216 Advertise CARF Me Consulting 9245708217 Advertise Joni Thrower Me 9472701501 Advertise Club Topaze Me 9145505079 Medtrix CARF LLC Consulting 9245709884 Keith ITEC Griffin Enterprises LLC 9245709885 Keith ITEC Griffin Enterprises LLC 9206912173 Keith ITEC Griffin Enterprises LLC 26 Amount $34,000.00 $15,000.00 $5,000.00 $14,000.00 $14,000.00 $15,000.00 $15,000.00 $9,500.00 $5,500.00 $14,500.00 $15,000.00 $15,000.00 $15,000.00 $15,000.00 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 MTX-JPMC #004 AM-JPMC #631 KG-JPMC #410 AM-ONB #469 AM-ONB #469 9/22/2011 9/24/2011 9/28/2011 9145505809 Keith Griffin 9245710608 Keith Griffin 9245710638 Keith Griffin 10/8/2011 1134909 10/8/2011 1134910 Keith Griffin Keith Griffin PageID.222 Page 31 of 67 Kevin’s Landscaping Anthony Garland ITEC Enterprises LLC Kevin’s Landscaping ITEC Enterprises LLC Grand Total $5,000.00 $1,920.00 $15,000.00 $6,000.00 $10,000.00 239,420.00 Many of the cashier’s checks were cashed by the recipients, who then gave the cash to Grundy. (Ex. 44, 1/12/12 Steven Randall Report at 2; Ex. 45, 4/10/13 Lillia R. Dodson Report at 1). Several of the cashier’s checks were written to ITEC Enterprises LLC, which was a contractor hired by Grundy to renovate a home he purchased on Shrewsberry Avenue in Detroit with his fiancée. Eileen Techner, who owns ITEC, confirmed that she was paid for her work on the Shrewsberry house in the form cashier’s checks that were hand delivered by Griffin. (Ex. 63, 11/2/11 Techner report at 1-2). To conceal the illegal kickback scheme, Griffin also purchased money orders that were delivered to Grundy at his request. Griffin stated, and records confirm, that in February 2011 Griffin purchased two $1,000 postal money orders 27 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.223 Page 32 of 67 in Indiana using the debit card associated with an Advertise Me account (AMJPMC #631). (Ex. 13, 8/9/12 Griffin Report at 1; Ex. 6, 2/15/12 Griffin Report at 3). Griffin stated he delivered the blank money orders to Grundy in Michigan. The money orders were subsequently used by Grundy to pay down the loan on a 2011 Ford Mustang that Grundy purchased in January 2011. (Ex. 46, 12/28/11 & 2/5/12 U.S. Postal Service Reports; Ex. 47, Ally Records at ALLY-00032, ALLY00035 (money order images)). Thus, a total of $241,420 was illegally kicked back to Grundy by way of cashier’s checks and money orders. iv. The Direct Cash Method: To further disguise his illegal kickbacks to Grundy, Griffin made various cash withdrawals from the Advertise Me accounts, totaling $215,010.00, which were delivered to Grundy. (Ex. 48, 4/24/13 Griffin Report). There was also $60,212 in cash withdrawn from the Medtrix account that was delivered to Grundy between May 2011 and October 2011. Griffin’s statements regarding delivering cash to Grundy are corroborated by bank records. First, there are direct correlations between cash withdrawals from the Advertise Me Accounts and the Medtrix Account, and cash deposits into bank accounts controlled by Grundy or Grundy’s fiancée. Deposits were made to Grundy’s personal checking account (MG-PNC #087) and his Grundy Politics 28 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.224 Page 33 of 67 account (GP-PNC #946), as well as an account held by Grundy’s fiancée at JPMorgan Chase bank (JT-JPMC #405). The following is a sample of transactions where money was taken out of bank accounts controlled by Griffin and deposited on the same day, or shortly thereafter, into accounts controlled by Grundy or his fiancée: SAMPLE OF RELATED CASH TRANSACTIONS BENEFITTING GRUNDY Transaction Date (per bank record statement date) 4/15/2009 4/16/2009 4/24/2009 4/27/2009 5/29/2009 6/10/2009 6/11/2009 6/19/2009 7/1/2009 7/2/2009 7/7/2009 7/9/2009 Amount of Cash Withdrawn from repository account Amount of Cash Deposited to Grundy or Thrower held account $3,000 (AM-ONB #469) $3,000 (AM-ONB #469) $3,000 (AM-ONB #469) $2,550 (AM-ONB #469) $2,800 (AM-ONB #469) $1,600 (AM-ONB #469) $4,500 (AM-ONB #469) $4,500 (AM-ONB #469) $5,000 (AM-ONB #469) $3,000 (to MG-PNC #087) $3,500 (AM-ONB #469) 29 $3,000 (to MG-PNC #087) $3,000 (to MG-PNC #087) $2,550 (to MG-PNC #087) $2,500 (to MG-PNC #087) $1,400 (to MG-PNC #087) $3,000 (to MG-PNC #087) $3,500 (to MG-PNC #087) $2,500 (to MG-PNC #087) $1,000 (to MG-PNC #087) $2,500 (to MG-PNC #087) $3,300 (to MG-PNC #087) Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 10/28/2009 10/29/2009 11/2/2009 11/3/2009 8/6/2010 8/23/2010 9/27/2010 9/28/2010 10/4/2010 10/7/2010 7/8/2011 7/11/2011 7/15/2011 7/18/2011 10/11/2011 10/11/2011 Page 34 of 67 $3,500 (AM-ONB #469) $3,000 (AM-ONB #469) $2,600 (AM-JPMC #631) $1,000 (AM-ONB #469) $3,500 (AM-JPMC #631) $5,000 (AM-ONB #469) $5,000 (AM-JPMC #631) $3,500 (to MG-PNC #087) $1,500 (to MG-PNC #087) $1,200 (to MG-PNC #087) $2,500 (to GP-PNC #946) $4,000 (to GP-PNC #946) $1,000 (to MG-PNC #087) $500 (to MG-PNC #087) $3,000 (AM-ONB #469) $4,000 (AM-JPMC #631) 10/12/2010 12/15/2010 PageID.225 $3,500 (AM-JPMC #631) $4,900 (MTXJPMC#004) $10,000 (to MG-PNC #087) $2,000 (to MG-PNC #087) $3,500 (to MG-PNC #087) $4,900 (JT-JPMC #405) $4,000 (MTXJPMC#004) $4,000 (JT-JPMC #405) $2,000 (MTXJPMC#004) $5,000 (MTXJPMC#004) 10/18/2011 10/20/2011 $1,000 (JT-JPMC #405) $5,000 (JT-JPMC #405) 30 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.226 Page 35 of 67 Between April 2009 and September 2011, approximately $161,900 in cash was deposited into Grundy’s personal checking account at PNC bank. (Ex. 49, Summary of Cash Deposits to MG-PNC #087). Between June 2010 and September 2011, approximately $112,820 in cash was deposited into the Grundy Politics account. 13 (Ex. 50, Summary Exhibit of Cash Deposits to GP-PNC #946). This included deposits that Griffin himself made at a PNC branch in Indiana. (Ex. 13, 8/9/12 Griffin Report at 1-2). As further detailed in Step 3 below, Grundy gave his fiancée large sums of money to deposit into her own bank accounts. (Ex. 51, 10/26/12, Thrower-Grundy Report at 4-5). In sum, Grundy received substantial amounts of kickbacks through the three methods discussed above -- at least $699,657.14 Notably, this estimate does not include the value of the Caribbean timeshare that Grundy purchased with Griffin in September 2011, and does not include the portion he intended to receive from the $400,000 he had wire-transferred to Medtrix on October 19, 2011; Grundy would have received more if the conspiracies had not been discovered shortly thereafter. 13 For the cash deposit calculations involving MG-PNC #087 and GP-PNC #946, the government excluded any cash deposits below $500 and any deposits that were not in whole amounts (i.e., such as “$1,087.84”). 14 This is the combined total of the Green Thumb ATM method ($129,344), the cashier’s check/money order method ($241,420), and the direct cash method from Advertise Me ($215,010), and Medtrix ($60,212). 31 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.227 Page 36 of 67 c. Step 3: Grundy Launders and Spends Criminal Proceeds Grundy had the temerity to use his fiancée (and now wife) Thrower-Grundy to launder approximately $120,000 in criminal proceeds through her own personal accounts, one of which she shared with her mother (JT-JPMC #405). (Ex. 52, chart of Thrower-Grundy’s ATM/Cash Deposits between 8/12/10 and 11/22/11). The vast majority of the cash deposits were made by Grundy’s fiancée at the ATM ($109,080). (Id.). Grundy’s fiancée confirmed that the majority of the cash deposited into her accounts came from Grundy, but she claims she did not know the cash was attributable to any crimes. (Ex 51, 10/26/12 Thrower Report at 4). The funds deposited into Grundy’s fiancée’s account were subsequently used to pay an American Express (AMEX) credit card account that she held. Grundy’s fiancée and Grundy used the card to amass $124,173.42 in purchases in 2011 alone. During the same time period, Grundy’s fiancée deposited $93,440 in cash into her account. (Ex. 52, Thrower-Grundy Cash Deposits). IRS Special Agent Jeffrey Lubanski will testify that Grundy’s fiancée used her account (JTJPMC #405) to pay $120,599.61 toward the AMEX bill in 2011. Grundy’s fiancée stated the AMEX card was used for purchases related to their house on Shrewsbury and for personal shopping. (Ex. 51, 10/26/12 ThrowerGrundy Report at 4-5). Grundy also used the AMEX account to purchase “hair plugs” costing $10,024.70 before their wedding. (Id. at 4). AMEX records reveal 32 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.228 Page 37 of 67 the following “top 20” vendors received a total of $89,355.41 from Grundy and Grundy’s fiancee in 2011: AMEX TOP 20 vendor charges for 2011 (2011 totals for each) Vendor 2011 Totals The Tile Shop/Flooring Sales $ 14,597.12 Bosley Medical (bmg) $ 10,024.70 Blue Sky Tours Inc $ 7,590.00 Delta Airlines $ 6,529.13 H L Claeys and Co. H, Warren, MI $ 6,268.61 Sargent Appliance Macomb $ 5,000.00 Safeco Insurance Co. $ 4,954.02 Greenstone Livernois $ 3,950.72 ABC Warehouse $ 3,759.39 Gallery Guichard/Fine Art Painting $ 3,650.00 Cresnie and Offen, Birmingham $ 3,518.00 Louis Vuitton $ 3,135.33 Bridal Couture Of $ 2,504.25 Comcast of Detroit $ 2,451.47 Taylor Building & Su $ 2,387.54 American Airlines $ 2,148.60 Zingereman's Bakehouse $ 1,830.00 Action Impact $ 1,720.53 Detroit Regional/Fefer to Receipt $ 1,700.00 Marco Antonio Phs/Photographic Studio $ 1,636.00 Total $ 89,355.41 33 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.229 Page 38 of 67 The following are more of Grundy’s notable purchases with criminal proceeds. i. Purchase and Renovation of House on Shrewsbury, Michigan: Grundy’s largest purchase was a home on Shrewsbury in Detroit on May 18, 2010. (Ex. 53, Deed). At Grundy’s direction, Griffin purchased a cashier’s check in the amount of $34,000, and listed Grundy’s fiancée as the remitter. (Ex. 66, Cashier’s Check to Warranty Title). Agent Lubanski will testify that Griffin used funds from an Advertise Me account to buy that cashier’s check. He will also testify that thousands of dollars traceable to direct or laundered proceeds were paid to ITEC Enterprises to renovate the home. CRIMINAL FUNDS PAID TO HOME RENOVATION Source Account GP-PNC #946 MG-PNC #087 GP-PNC #946 GP-PNC #946 GP-PNC #946 JT-JPMC #405 MG-PNC #087 MG-PNC #087 Check Date 1/24/20 11 3/22/20 11 3/23/20 11 3/27/20 11 5/28/20 11 6/2/201 1 6/15/20 11 6/16/20 11 Check Remitter Payable Number To 207122 Michael ITEC Grundy Enterprises 200373 Michael ITEC Grundy Enterprises 200194 Grundy ITEC Politics Enterprises 1010 Grundy ITEC Politics Enterprises 1015 Grundy ITEC Politics Enterprises 2932 Joni ITEC Thrower Enterprises 250168 Michael ITEC Grundy Enterprises 255149 Michael ITEC Grundy Enterprises 34 Amount $5,000.00 $5,000.00 $2,500.00 $12,500.00 $21,000.00 $8,000.00 $1,150.00 $10,000.00 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 MG-PNC #087 MG-PNC #087 GP-PNC #946 MTX-JPMC #004 MTX-JPMC #004 GP-PNC #946 MG-PNC #087 KG-JPMC #410 KG-JPMC #410 AM-ONB #469 6/22/20 11 7/6/201 1 7/7/201 1 7/15/20 11 7/15/20 11 7/18/20 11 8/12/20 11 8/17/20 11 9/28/20 11 10/8/20 11 255168 255230 1014 9245709 884 9245709 885 250087 254875 9206912 173 9245710 638 1134910 Michael Grundy Michael Grundy Grundy Politics Keith Griffin Keith Griffin Grundy Politics Michael Grundy Keith Griffin Keith Griffin Keith Griffin PageID.230 ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises ITEC Enterprises Total Page 39 of 67 $522.00 $10,000.00 $5,000.00 $15,000.00 $15,000.00 $1,495.00 $4,942.70 $15,000.00 $15,000.00 $10,000.00 $157,109.70 ii. Purchase of a 2011 Jeep Wrangler: On December 18, 2010, Grundy’s fiancée purchased a 2011 Jeep Wrangler for Grundy and financed $31,895.00 of that purchase through a loan from Ally Financial. (Ex. 47, Ally Records at 000038 – 000040). Grundy asked his fiancée to put the Jeep in her name, ostensibly because she had better credit, and told her that Griffin would repay her. (Ex. 51, 10/26/12 Thrower Report at 7). At Grundy’s direction, on January 22, 2011, Griffin used funds from an Advertise Me account to buy a cashier’s check made payable to Grundy’s fiancée in the amount 35 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.231 Page 40 of 67 of $5,500. (Ex. 54; Cashier’s check and bank record). A few days later, Grundy’s fiancée deposited the check into her account and made a $5,514.58 payment toward the loan. (Ex. 55, JT-JPMC #405 Bank Record at 1260-1261). iii. Purchase of 2011 Ford Mustang: Grundy used almost $8,000.00 of criminally derived proceeds that had been laundered through his Grundy Politics account to pay toward the purchase of a 2011 Ford Mustang Convertible on January 28, 2011 (Ex. 56, Avis Ford Records).15 The chart below shows Grundy’s accumulation of criminally derived cash from January 3, 2011 until January 18, 2011. Date 1/3/2011 1/3/2011 1/4/2011 1/5/2011 1/10/2011 1/10/2011 1/11/2011 1/12/2011 Cash Withdrawn $500.00 $500.00 $3600.00 $500.00 $500.00 Cash Deposited $3,000.00 $500.00 $500.00 1/13/2011 1/13/2011 $3000.00 $500.00 1/14/2011 $500.00 Source/Account ATM -111 Mack Ave, Detroit ATM -111 Mack Ave, Detroit AM-ONB #469 ATM -611 Woodward, Detroit ATM -111 Mack Ave, Detroit GP-PNC #946 ATM -111 Mack Ave, Detroit ATM -18285 Grand River Ave, Detroit AM-JPMC #631 ATM -18285 Grand River Ave, Detroit ATM -111 Mack Ave, Detroit The rest of the $42,470.71 purchase price was paid for with a $2,500 rebate and financing. 36 15 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 1/18/2011 1/18/2011 $1000.00 $500.00 1/18/2011 1/24/2011 $400.00 $5,010.00 PageID.232 Page 41 of 67 AM-JPMC #631 ATM -26363 Woodward Ave, Huntington Woods, MI ATM -111 Mack Ave, Detroit GP-PNC #946 (Ex. 67, cash analysis; Ex. 58, GP PNC Statement at 34). During that time period, Grundy withdrew $4,900.00 in cash from the Green Thumb account and Griffin withdrew $7,600 from his Advertise Me accounts. According to Griffin, the withdrawals of $1,000 or more were generally for Grundy’s benefit. (Ex. 68, 4/24/13 Griffin report). Therefore, about $12,500 total of cash had been withdrawn by Grundy and Griffin on Grundy’s behalf during that time period. On January 10, 2011, Griffin deposited $3,000.00 of the amount that he had withdrawn on Grundy’s behalf into the Grundy Politics account at a PNC Bank branch in Carmel, Indiana. Then, on January 24, 2011, Grundy deposited $5,010.00, and then withdrew an equal amount of cash the same day. (Ex. 58, GP PNC Statement at 34). To purchase the Mustang on January 28, 2011, Grundy used a Grundy Politics debit/check card to make a payment of $2,993.27, and used $4,999.00 in the form of United States Postal Money Orders. (Ex. 58, GP PNC Statement at 35 37 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.233 Page 42 of 67 & 37; Ex. 46, 12/28/11 U.S. Postal Service Report at 2; Ex. 56, Avis Ford Records).16 iv. Caribbean Timeshare: During a trip to Miami in September 2011, Griffin, Grundy and Randey Fisher (Grundy’s assistant)17 signed a purchase agreement for the rights to a villa in the Dominican Republic for $50,000. (Ex. 61, Ex. 59, 9/4/11 Sale & Purchase Agreement; 5/18/12 Griffin Report; Ex. 6, 2/15/12 Griffin Report at 2). On the day of the purchase, September 4, 2011, Griffin used the debit card associated with his personal checking account to place a deposit of $5,000 on the villa. (Ex. 60, Medtrix & Griffin Chase Bank Statements at 398). That same day, Griffin wired $5,000 from the Medtrix account to his personal checking account. (Id. at 397). On September 6, 2011, Griffin wire transferred $45,000 from the Medtrix account to the vendor selling the rights to the villa. (Id. at 319). As stated previously, Grundy later directed Griffin to purchase an additional $2,000 in money orders, funded by criminal proceeds, to pay down the loan for Grundy’s Mustang. 17 Fisher moved from Wisconsin to the Detroit area because he was dating the sister of Grundy’s fiancée. In his capacity as Executive Director of Health Choice, Grundy hired Fisher to be his assistant. Fisher was paid $40,000 to $42,000 by HealthChoice, and his duties included driving Grundy around during and after work and supervising the construction of Grundy’s house on Shrewberry. (Ex. 62, 1/31/12 Fisher report 1; Ex. 63, 11/2/11 Techner report at 1-2). 38 16 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.234 Page 43 of 67 Thus, the $50,000 purchase was illegally financed entirely by the Medtrix account; although Grundy and his assistant were listed as purchasers with equal rights to the timeshare, neither paid a penny toward its purchase. III. Application of Sentencing Guidelines a. Michael Grundy was a Public Official Pursuant to U.S.S.G. § 2C1.1(a)(1), the base offense level for a “public official” who has accepted bribes is 14. Section 2C1.1(a), n.1, indicates: ‘[P]ublic official’ shall be construed broadly and includes … (C) An officer or employee or person acting for or on behalf of a state or local government, or any department, agency, or branch of government thereof, in any official function, under or by authority of such department, agency, or branch of government, or a juror in a state or local trial. Under this broad definition, there is no question that Grundy was a “public official.” As its executive director, Grundy was an “employee or person” who acted on behalf of HealthChoice. Further, HealthChoice was enacted pursuant to the Municipal Health Facilities Corporation, which specified that “the powers granted in this act constitute the performance of essential public purposes and governmental functions of this state and its local governmental units.” M.C.L. § 331.1102. Grundy’s argument that he was not a “public official” is wholly without merit. 39 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.235 Page 44 of 67 b. Michael Grundy Accepted More than One Bribe or Extortion. U.S.S.G.§ 2C1.1 (b)(1) requires the offense level to be increased by 2 levels “[i]f the offense involved more than one bribe or extortion.” However, “related payments that, in essence, constitute a single incident of bribery or extortion (e.g., a number of installment payments for a single action) are to be treated as a single bribe or extortion, even if charged in separate counts.” § 2C1.1, n. 2. The Second Circuit has developed a three factor test to determine whether multiple payments constitute a single bribe: (1) [W]hether the payments were made to influence a single action, (2) whether the pattern and amount of payments bear the hallmarks of installment payments because they constitute partial payments of a fixed final sum, and (3) whether the method for making each payment remains the same. United States v. Soumano, 318 F.3d 135, 137 (2d Cir. 2003) (citations and internal quotation marks omitted.) Applying the first factor, the payments that Grundy received were made in order to influence multiple actions. Griffin kicked back funds in order to influence Grundy to provide the funding to Advertise Me and Medtrix; the payments were to influence actions relating to two different companies that were owned by Griffin. Relatedly, Grundy extorted Robin Cole into having ProCare Plus provide checks to Advertise Me, and wire funds to Medtrix. These payments from ProCare Plus 40 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.236 Page 45 of 67 were intended to keep Grundy from terminating ProCare’s contracts under the HealthChoice and ABW programs. With respect to the second factor, the only part of the schemes that bore the hallmarks of installment payments toward a fixed final sum was ProCare Plus’ $50,000 per month payments to Medtrix, toward a fixed sum of $560,000. HealthChoice’s payments to Advertise Me were ongoing with no end in sight, as were Griffin’s kickbacks to Grundy. Additionally, Grundy did not give Cole a fixed amount that ProCare Plus would pay Advertise Me; Grundy would tell Cole how much to include in a check, and Cole would arrange for a check in that amount to be prepared. Finally, applying the third factor, the methods of payment varied widely. Grundy accepted cash and money orders, had cashier’s checks written out to recipients of his choosing, withdrew cash that had been transferred to the Green Thumb account, caused ProCare plus to write checks to Advertise Me, and caused ProCare Plus and HealthChoice to wire-transfer funds to Medtrix. Under the facts of this case, Grundy should receive a two point increase to his offense level because his offenses involved more than one bribe or extortion. 41 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.237 Page 46 of 67 c. The Value of the Benefit Received was More Than $1,000,000. Grundy should receive an additional sixteen points pursuant to § 2C1.1(b)(2) and U.S.S.G. § 2B1.1, because the value of “the benefit received in return” for the kickbacks easily exceeded $1,000,000. The “value of the ‘benefit received or to be received’ means the net value of such benefit.” U.S.S.G. § 2C1.1(b)(2), n. 3. The net improper benefit is determined by deducting direct costs from the gross benefit received. United States v. Gray, 521 F.3d 514, 543 (6th Cir. 2008)(“Courts must subtract direct costs from the gross value of the contract to determine the net improper benefit.”); United States v. Griffin, 324 F.3d 330, 366 (5th Cir. 2003)(“We have stated that these examples make clear that ‘direct costs should be deducted from the gross value of the contract.’). The Court is instructed to “not deduct the value of the bribe itself in computing the value of the benefit received.” § 2C1.1(b)(2), n. 3. As detailed in the financial section, Advertise Me and Medtrix received $1,956,480 in gross fraud proceeds, and Griffin paid $363,463.53 for advertising. (Ex. 39, Summary Chart of Payments). Thus, the net improper benefit received by Griffin and Grundy was $1,593,016.47. Grundy has alleged that the large amounts of cash, cashier’s checks and money orders that Griffin showered upon him were loans. Even if that were 42 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.238 Page 47 of 67 believable (it is not), the analysis under Section 2C1.1 would not change. When it comes to bribery schemes, loans are considered things of value. See United States v. Gorman, 807 F.2d 1299, 1305 (6th Cir. 1986)(“These loans would, therefore, qualify as things of value under the broad subjective definition set forth under Section 201(g).”); United States v. Kemp, 500 F.3d 257, 285 (3d Cir. 2007)(“[W]e conclude that loans, so long as they are granted in exchange for an official act, may drive a bribery prosecution.”). d. Grundy Was a Public Official With High-Level DecisionMaking. Grundy should receive an additional four points to his offense level because he was a public official in a high-level decision making position. U.S.S.G. § 2C1.1(b)(3). A high-level decision making position is “characterized by a direct authority to make decisions for, or on behalf of, a government department, agency, or other government entity, or by a substantial influence over the decision-making process.” § 2C1.1, cmt. n. 4(A). Examples of a high-level decision maker include an agency administrator. §2C1.1, cmt. n. 4(B). In United States v. Watkins, 691 F.3d 841, 845 (6th Cir. 2012), a § 2C1.1(b)(3) enhancement was properly applied to a supervisor of securitysystems contracts for a school district. The supervisor had “substantial influence over the decision-making process” because he was responsible for narrowing down 43 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.239 Page 48 of 67 and recommending vendors, he could stop payment on invoices, and a supervisor relied on his expertise and input when making decisions. Id. In this case, the facts more readily indicate that Grundy was a high-level decision-making public official than in Watkins. HealthChoice’s Articles of Incorporation and Bylaws entrusted him with the power to sign and execute all contracts and checks. (Ex. 1, Articles of Incorporation at Art. 5, § 6). He used that power to approve over $1,000,000 in invoices to Advertise Me, and to have HealthChoice wire transfer $400,000 to Medtrix. Further, Grundy exercised control and supervision over all HealthChoice staff, and hired and fired employees. For example, he hired Mya Grace and fired Dan Belknap. (Ex. 11, Grace 2/27/12 report at 1; Ex. 24, 3/29/12 Belknap report at 3). In addition to being the Executive Director of HealthChoice, Grundy oversaw the Adult Benefit Waiver Program and was an Assistant County Executive. Grundy had the power to terminate contracts under the HealthChoice and ABW programs. (Ex. 16, 11/17/11 Cole report at 3, 5 & 7; Ex. 17, 2/22/12 Johnson report at 2). Grundy held direct authority to make decisions for HealthChoice and the ABW program, and had substantial influence over the decision-making process within the County as a whole. He was, therefore, a high-level decision maker, and the four point enhancement under § 2C1.1(b)(3) should be applied. 44 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.240 Page 49 of 67 e. Grundy Was An Organizer and Leader of the Criminal Activity. U.S.S.G. § 3B1.1(c) provides that “[i]f the defendant was an organizer, leader, manager, or supervisor in any criminal activity other than described in (a) or (b), increase by 2 levels.” “Where the defendant exerts control over at least one participant in a supervisory, managerial, leadership, or organizational capacity, a sentence enhancement is required under § 3B1.1.” United States v. Gort-Didonato, 109 F.3d 318, 321 (6th Cir. 1997). Grundy exerted control over Griffin from the beginning of their conspiracy. Grundy controlled how much Griffin invoiced HealthChoice, and how much of it would be kicked back to Grundy. He directed Griffin to buy money orders and cashier’s checks, and specified the amounts and the recipients. Grundy dictated how the funds that ProCare Plus sent to Advertise Me would be distributed, and that he (Grundy) would receive $35,000 of every $50,000 that ProCare Plus sent Medtrix. Finally, Grundy provided the sham contract between HealthChoice and Medtrix, and organized the wire transfer of the $400,000. Grundy held all of the power, being the only conspirator who could cause funds from HealthChoice and ProCare Plus to flow to Griffin’s companies. There should be no question that Grundy was the organizer and leader of the conspiracy at issue. 45 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.241 Page 50 of 67 f. Calculation of Sentencing Guidelines Based upon the above analysis, the government calculates Grundy to have an offense level of 35, and a guideline range of 168 to 210 months. The probation department agrees. (PSR at ¶ 65). IV. Analysis of the factors under 18 U.S.C. § 3553 (a) a. The Nature and Circumstances of Grundy’s Crimes (18 U.S.C. § 3553 (a)(1)). Grundy’s sentence should reflect the serious violations of his fiduciary obligations. Instead of honorably fulfilling his fiduciary obligations to the low income and impoverished residents of Wayne County, Grundy greedily plotted to bilk HealthChoice and ProCare Plus for his own personal enrichment. His deceptive and abusive conduct tarnished HealthChoice’s image in the community, and its relationship with vendors and contractors. (Ex. 64: 9/16/13 HealthChoice victim statement at 3). Most troublingly, Grundy’s fraudulent conduct directly diminished HealthChoice’s ability to carry out its mission. (Id.) For example, in July of 2011, Grundy convinced the HealthChoice Board to terminate the subsidy it provided to its 2000 BasiCare participants and 3000 DentalAssist participants, forcing those indigent members to either pay 100% of the costs of the subsidies or drop out of the programs. (Id. at 2; Ex. 65, 7/11/13 46 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.242 Page 51 of 67 HealthChoice Board minutes at 1347-1349). In lobbying for the termination of those “great programs,” he told board members that it was “crunch time” and that continuing the subsidies would contribute to instability of the other programs. (Ex. 65, 7/11/13 HealthChoice Board minutes at 1348-1349). He also raised the costs for HealthChoice members, pushing through a 10% increase in HealthChoice premiums to support an EMR project. (Ex. 22, 9/23/10 HealthChoice Board meeting minutes at 00000364-00000367). While slashing programs and raising costs for members, Grundy was approving grossly inflated Advertise Me invoices in order to receive illegal kickbacks for himself, and he used the phony Medtrix contract to steal another $400,000 from HealthChoice’s strained coffers in October 2011. In essence, Grundy stole from the poor to bankroll his luxury lifestyle. According to a victim statement submitted by HealthChoice: The funds that Mr. Grundy misappropriated could have been used to provide additional subsidies to the indigent, low income, seniors, young adults, and temporary workers in Wayne County. In addition, those funds would have allowed HealthChoice the opportunity to expand current programs and/or develop other programs that could be offered to the same individuals. (Ex. 64: 9/16/13 HealthChoice victim statement at 3). Grundy’s guideline range accounts for the net value of the improper benefit. However, under § 3553 (a)(1), the Court can and should consider the harm to 47 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.243 Page 52 of 67 HealthChoice’s reputation and mission as further support for a substantial sentence. b. Grundy’s history and characteristics (18 U.S.C. § 3553 (a)(1)) Grundy’s history and characteristics also support a substantial prison sentence. Grundy selfishly bilked HealthChoice and ProCare Plus so that he could have a constant stream of thousands of dollars of cash on-hand; to purchase and renovate a house; and to purchase cars, appliances, a Caribbean time share, hair plugs and more. While enjoying these unearned riches, he reduced the availability of health benefits for Wayne County’s indigent and low income residents, and increased the costs of participating in HealthChoice’s plans. When assessing Grundy’s history and characteristics, the Court should consider the deplorable nature of these crimes. Additionally, the Court should consider the evidence that Grundy would deceive and use his own fiancée (now his wife) for his money laundering activities. Grundy misled his fiancée into believing that, in addition to his salary from Wayne County, he earned money from a consulting business and from a thriving landscaping business that he and Griffin owned. (Ex. 41, 10/29/12 ThrowerGrundy report at 2-4). Grundy told his fiancée that he “preferred to deal in cash,” so she did not question the more than $100,000 in cash that Grundy gave to her to 48 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.244 Page 53 of 67 deposit in her own bank account and then pay her American Express bill. (Id. at 45). Grundy also falsely claimed to his fiancée that he was paying for the house they purchased with money from a retirement account. (Id. at 3 & 7). She did not learn until after Grundy was indicted that a $34,000 cashier’s check in which she was listed as the remitter was used to pay for the house, and that the check was purchased from an Advertise Me account. (Id. at 7; Ex. 66). Grundy’s fiancée did not know that she was helping Grundy buy a car with laundered fraud proceeds when she cashed checks from Advertise Me in which she was listed as the payee. (Ex. 41, 10/29/12 Thrower report at 7.) Grundy’s extensive use of his own fiancée to further his money laundering exposed to her potential criminal liability, and threatened to destroy her career and reputation as an attorney. Fortunately, she has avoided the worst of these possibilities, but the Court should consider the fact that Grundy knowingly exposed his fiancée to those potential consequences as being indicative of his low character. Deceitful conduct relating to HealthChoice that is not captured in the indictment is of additional relevance. Without the HealthChoice Board’s knowledge or approval, Grundy received a company credit card, which he used to purchase iPads, unaccounted for desktop computers, meals, gasoline, Kaplan Law 49 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.245 Page 54 of 67 materials and travel expenses unrelated to HealthChoice business. (Ex. 64: 9/16/13 HealthChoice victim statement at 2). Also without board approval, Grundy paid $200,000 for a contract to develop a new database system, but the system is inoperable and will require an additional $100,000 to correct. (Id.) Without board approval, Grundy hired a dozen “contractual workers” who were actually employees under IRS rules, and therefore placed HealthChoice in a precarious position. (Id.) Grundy operated HealthChoice as his own fiefdom and in a manner that he had to know would harm HealthChoice’s ability to provide needed health care for the low income, indigent and other vulnerable populations of Wayne County. According to a victim statement submitted by HealthChoice: HealthChoice has struggled over the last few years regarding funding issues necessary to support many of its programs. Mr. Grundy was aware of these funding issues yet continued to engage in these behaviors, which have, compounded the financial situation and impacted the viability of some of HealthChoice’s programs. His total disregard for the organization and its mission makes his actions even more inexcusable. (Id.) Yet, Grundy has shown no remorse for the damage he has caused. Lack of remorse is a proper consideration for this Court. See In re Cook, 551 F.3d 542, 551 (6th Cir. 2009)(“It is well established that a defendant’s remorse-or lack thereof-is an appropriate consideration in meting out punishment.”); United States 50 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.246 Page 55 of 67 v. Manjate, 327 F. App’x 562, 573 (6th Cir. 2009)(considerations such as lack of remorse come squarely within the ambit of § 3553(a) factors). Grundy has failed to acknowledge the damage that he caused, and has even denied that he was a public official with fiduciary obligations to any public body or the citizens of any political entity. Grundy’s crimes were already a blow to a corruption-fatigued community; his denial that he even owed obligations to the public will exacerbate that damage. The Court should consider Grundy’s lack of remorse and apathy toward his public responsibilities, and should impose a substantial sentence. Grundy’s positive accomplishments during his tenure at Wayne County and HealthChoice do not justify granting him a downward variance. The Sixth Circuit cautions sentencing courts against placing too much weight on factors like a defendant’s status in the community, chosen profession or professional qualifications. “Nothing in the record establishes unique circumstances other than his chosen profession and status in the community, both of which are decidedly inappropriate to form the basis of such a large downward variance.” United States v. Peppel, 707 F.3d 627, 640-41 (6th Cir. 2013). Similarly, Grundy’s loss of standing and public humiliation do not justify leniency. Were it otherwise, these sorts of consequences—particularly ones related to a defendant’s humiliation before his community, neighbors, and friends—would tend to support shorter sentences in cases with defendants from privileged backgrounds, who might have more to 51 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.247 Page 56 of 67 lose along these lines. And we do not believe criminals with privileged backgrounds are more entitled to leniency than those who have nothing left to lose. United States v. Bistline, 665 F.3d 758, 766-67 (6th Cir. 2012)(citation and internal quotation marks omitted). Of further note, Grundy was being paid more than $120,000 per year to serve the public, but HealthChoice received something that it did not bargain for: damage to its reputation and financial stability. Under these circumstances, Grundy should not receive leniency as a result of the work-related accomplishments for which he was amply paid. c. Seriousness of Grundy’s Crimes, Just Punishment, and Respect for the Law (18 U.S.C. § 3553 (a)(2)(A)) A substantial prison sentence is necessary to reflect the seriousness of Grundy’s crimes, to provide just punishment for those crimes and to promote respect for the law. Public corruption such as that perpetuated by Grundy is a serious crime that harms our democracy. During President Theodore Roosevelt’s State of the Union Address on December 7, 1903, he emphasized the profound damage that public corruption inflicts upon the government and its people. There can be no crime more serious than bribery. Other offenses violate one law while corruption strikes at the foundation of all law. Under our form of Government all authority is vested in the people and by them delegated to those who represent them in official 52 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.248 Page 57 of 67 capacity. There can be no offense heavier than that of him in whom such a sacred trust has been reposed, who sells it for his own gain and enrichment . . . . He is as wicked as the murderer, for the murderer may only take one life against the law, while the corrupt official and the man who corrupts the official alike aim at the assassination of the commonwealth itself. 2 State of the Union Messages of the Presidents 2081 (1966).18 Public corruption undermines the democratic process by increasing cynicism and voter apathy, and diminishing civic engagement.19 The government does not mean to overstate Grundy’s contribution to the cynicism and voter apathy that plagues the Detroit metropolitan area. At the same time, the effects that these types of crimes have on our democratic process should not be minimized. Moreover, Grundy’s corruption was uncommonly egregious, both in terms of the level of deceit and the amount of public money that he converted into a personal slush fund. The Court should find that a substantial sentence is necessary not only to sufficiently punish Grundy, but to promote respect for law. 18 This speech is available at: http://millercenter.org/president/speeches/detail/3775 Daniel Stockemer, Bernadette LaMontagne & Lyle Scruggs, Bribes and Ballots: The Impact of Corruption on Voter Turnout in Democracies, 34 International Political Science Review 74-77, 83-84 (2013). 53 19 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.249 Page 58 of 67 d. Deterring the Criminal Conduct of Others (18 U.S.C. § 3553 (a)(2)(B)) Imposing a significant prison sentence for Grundy also serves the important purpose of deterring future public officials in this district and beyond from engaging in similar misconduct. See 18 U.S.C. § 3553 (a)(2)(B). General deterrence has its greatest impact in white-collar cases, like this one, because these crimes are committed in a more rational and calculated manner than sudden crimes of passion or opportunity. United States v. Peppel, 707 F.3d 627, 637 (6th Cir. 2013)(quoting United States v. Martin, 455 F.3d 1227, 1240 (11th Cir. 2006)). As a federal judge in Chicago stated: We need not resign ourselves to the fact that corruption exists in government. Unlike some criminal justice issues, the crime of public corruption can be deterred by significant penalties that hold all offenders properly accountable. The only way to protect the public from the ongoing problem of public corruption and to promote respect for the rule of law is to impose strict penalties on all defendants who engage in such conduct, many of whom have specialized legal training or experiences. Public corruption demoralizes and unfairly stigmatizes the dedicated work of honest public servants. It undermines the essential confidence in our democracy and must be deterred if our country and district is ever to achieve the point where the rule of law applies to all --- not only to the average citizen, but to all elected and appointed officials. United States v. Spano, 411 F.Supp.2d 923, 940 (N.D. Ill. 2006). Unfortunately, the prosecutions and resulting penalties in past public corruption cases in this region have not been sufficient. They clearly did not 54 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.250 Page 59 of 67 dissuade Grundy from converting HealthChoice to his personal fiefdom, and diverting funds intended for vulnerable citizens to his slush fund. Nor did the prosecution of other high-profile corruption cases convince Grundy to operate within the law. For many years now, the citizens of this region have endured corrupt governance as though it were an inevitable cost of living here. The perception that “everybody does it” is misplaced and unfairly maligns the majority of public officials who serve honorably. Nonetheless, that misperception leads too many public officials to conclude that enriching themselves at the expense of their constituents is no big deal. After all, “[i]t is simply irrational for any single public official to be the only honest person in an unfair game that will not change.” Stockemer, supra n 24, at 76. For that reason, those inclined to follow the example of other corrupt public officials need to know that there are severe consequences for violating the public trust. A substantial sentence in this case will demonstrate to them and to the citizens of the region that corruption will be seriously addressed and deterred when discovered. 55 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.251 Page 60 of 67 e. Protecting the Public from Further Crimes by Grundy (18 U.S.C. § 3553 (a)(2)(C)) As a result of the instant conviction, Grundy is unlikely to be rewarded positions of trust similar to those he held within Wayne County. Nonetheless, Grundy has shown a proclivity and talent for corrupt self-dealing, and he has shown no remorse or appreciation regarding the gravity of his crimes. His lack of contrition gives no confidence that he will not commit new crimes if given the liberty to do so. f. Sentences Contemplated by the Sentencing Guidelines (18 U.S.C. § 3553 (a)(4)(A), (b)(1) & (c)) As detailed in Part II of this memorandum, the correctly calculated guideline range is 168 to 210 months. g. Avoiding Sentencing Disparities Among Similarly Situated Defendants (18 U.S.C. § 3553 (a)(6)) Section 3553(a)(6) instructs courts to consider “the need to avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct.” That subsection “is concerned with national disparities among the many defendants with similar criminal backgrounds convicted of similar criminal conduct.” United States v. Benson, 591 F.3d 491, 505 (6th Cir. 2010). A court’s careful review of the guideline range “necessarily [gives] 56 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.252 Page 61 of 67 significant weight and consideration to the need to avoid unwarranted disparities.” Gall v. United States, 552 U.S. 38, 54 (2007). And indeed, one of the “central reasons” for adopting the sentencing guidelines in the first place “was to ensure stiffer penalties for white-collar crimes and to eliminate disparities between whitecollar sentences and sentences for other crimes.” United States v. Peppel, 707 F.3d 627, 638-39 (6th Cir. 2013). That national consensus for stiffer white-collar penalties has intensified in public corruption cases. In November 2004, the Sentencing Commission even amended the guidelines to increase the punishment for corrupt public officials. The Commission explained that “public corruption offenses previously did not receive punishment commensurate with the gravity of such offenses,” especially when compared with other white-collar crimes. USSG, App’x C, Vol. III, at 82 (Amendment 666). The Commission thus increased the base offense level for public officials because “offenders who abuse their positions of public trust are inherently more culpable than those who seek to corrupt them, and their offenses present a somewhat greater threat to the integrity of governmental process.” Id. Since then, federal courts have increasingly handed out substantial sentences in public corruption cases where state and local elected officials have inflicted serious damage on the community. For example, the defendants below received sentences ranging from 14 to 28 years: 57 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.253 Page 62 of 67  Kwame Kilpatrick, No. 10-CR-20403. In March of 2013, Former Detroit Mayor Kwame Kilpatrick and his best friend, Bobby Ferguson, were convicted of racketeering, extortion and bribery, and Kilpatrick was convicted of mail and wire fraud. Kilpatrick pocketed approximately $840,000 in corrupt personal benefits. His crimes included creating a “payto-play” system for the provision of city goods and services which compromised vast swaths of city government, including the water and sewer system, the convention center, the pension system, casino developments and recreation centers; extorting city contractors to improperly steer tens of millions of dollars of city contracts to Ferguson or companies associated with him; and using funds from a non-profit for private trips, spa treatments, golf clubs and other personal purposes, while those funds were intended to improve Detroit neighborhoods and the lives of city youth. The court found that Kilpatrick was responsible for a net improper benefit of $4,484,423, and sentenced him to 336 months (28 years).  James C. Dimora and Frank P. Russo, Nos. 10-CR-387 and 10-CR-384 (N.D. Ohio); appeal by Dimora pending, No. 12-4004 (6th Cir.). In 2011, former Cuyahoga County Commissioner Jimmy Dimora was convicted of racketeering and bribery-related crimes for accepting items of value in return for helping contractors obtain county contracts, grants, and loans, and helping others secure county employment and salary raises. He was sentenced to 336 months (28 years) in prison based on his receipt of $451,000 in personal benefits. In a related case, former Cuyahoga County Auditor Frank Russo—who pleaded guilty to accepting more than $1 million in return for $21.4 million in county real estate appraisal contracts, as well as other bribery schemes involving jobs and salary increases—received a prison sentence of 262 months (almost 22 years). He is awaiting a hearing on a Rule 35 motion to reduce his sentence based on his testimony in the Dimora trial and others.  Mark Ciavarella and Michael Conahan, No. 09-CR-00272 (M.D. Pa.), aff’d, United States v. Ciavarella, 716 F.3d 705 (3d Cir. 2013). In 2009, Ciavarella and Conahan, both judges with the Luzerne County Court of Common Pleas, were charged with racketeering for accepting a total of $2.8 million from the owners of several juvenile detention centers in return for 58 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.254 Page 63 of 67 the judges’ support in the construction and operation of the facilities, as well as for the judges’ failure to disclose their conflicts of interest when placing juvenile offenders at the facilities. Ciaveralla was convicted at trial and sentenced to 336 months (28 years) in prison. Conahan pleaded guilty and was sentenced to 210 months (17.5 years) in prison.  Donald W. Hill, No. 3-07-CR-289-M (N.D. Tex.), aff’d, United States v. Reagan, et al., 725 F.3d 471 (5th Cir. 2013). In 2009, Hill, a Dallas City Councilman, was convicted of bribery and extortion for helping provide public financing, zoning clearance, and political support to affordable housing developers in exchange for the developers’ employment of Hill’s associates and appointees as consultants. The evidence at sentencing showed that Hill’s associates received about $270,000 in fees and other benefits through the scheme, and that losses totaled about $4.8 million, but there was little if any evidence that Hill himself received money from the scheme. Despite his lack of personal enrichment, Hill was sentenced to 216 months (18 years) in prison.  Jonathan Bolar, No. 09-CR-00138 (E.D. La.), aff’d, United States v. Bolar, No. 10-30879, 483 Fed. Appx. 876, 2012 WL 1994728 (5th Cir. 2012). In 2010, Bolar, a Gretna, Louisiana city councilman, was convicted of extortion for pressuring people to hire his construction firm or give him campaign donations in return for his support in various land-use matters. Although Bolar extorted a total of only $122,000, the trial court applied an upward variance from the guideline range of 121-151 months because of Bolar’s “pervasive extortion,” as well as his obstructive conduct. The resulting 204-month (17 year) prison sentence was affirmed by the Fifth Circuit.  Larry P. Langford, No. 08-CR-00245 (N.D. Ala.), aff’d, United States v. Langford, 647 F.3d 1309 (11th Cir. 2011). Langford, the president of the Jefferson County Commission and later the mayor of Birmingham, Alabama, was convicted in 2009 of accepting bribes for steering county bond work to an investment banking firm in exchange for $240,000 in cash, 59 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.255 Page 64 of 67 clothing, and jewelry. Langford was sentenced to 180 months (15 years) in prison based on a net benefit to the investment banking firm of $5.5 million. The corrupted bond deals later contributed to Jefferson County’s $4 billion bankruptcy filing, the largest municipal bankruptcy in U.S. history before the $18 billion filing by the city of Detroit.  Rod R. Blagojevich, No. 08-CR-888-1 (N.D. Ill.), appeal pending, No. 113853 (7th Cir.). Blagojevich, the former governor of Illinois, was found guilty of a bribery and extortion conspiracy for attempting to trade an appointment to the U.S. Senate and state funding for a hospital and a horse race track, in exchange for $1.6 million in campaign contributions or a private sector job for him. Only one of Blagojevich’s extortion attempts actually succeeded, resulting in $25,000 in campaign contributions. In 2011, he was sentenced to 168 months (14 years) in prison.  George L. Grace, Sr., No. 10-CR-143-SMH-SCR (M.D. La.); appeal pending, No. 12-30926 (5th Cir.). In 2012, Grace, the former Mayor of St. Gabriel, Louisiana, a suburban town of about 10,000 residents outside Baton Rouge, was convicted of racketeering and bribery-related crimes for accepting and soliciting items of value in return for helping businessmen obtain contracts, grants, permits and government property. Grace, who received only $20,000 in bribe payments, was sentenced to 264 months (22 years) in prison. The severity of the damage caused by Grundy’s corruption equals or surpasses many of these convicted public officials, and his range of 168 to 210 months (14 to 17.5 years) is on the lower end of the sentences imposed. As a result of his wire fraud and extortion schemes, Grundy received kickbacks of about $700,000 and a one-third share in a $50,000 Caribbean time share, and he intended to receive a kickback from the $400,000 that was wired to Medtrix. Furthermore, 60 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.256 Page 65 of 67 the $1,593,016.47 net improper benefit was misappropriated at the expense of Wayne County’s vulnerable constituents. Grundy’s crimes are consistent in severity with the public officials who have received sentences ranging from 14 to 28 years under the guidelines in effect since 2004, and the Court should sentence him within his guideline range of 14 to 17.5 in order to avoid unwarranted disparities with other defendants. V. Conclusion Michael Grundy had education and opportunities, but he made the choice to abuse his considerable power in a manner that caused significant quantifiable and non-quantifiable harm. Given the serious nature and circumstances of Grundy’s crimes, the corrupt and deceptive manner in which he carried out his crimes, the seriousness of his offenses, the need to deter others from similarly abusing their power, and the aim to avoid unwarranted sentence disparities among public officials who have inflicted serious damage on the community, the government 61 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.257 Page 66 of 67 respectfully requests that the Court impose a sentence with the guideline range of 168 to 210 months. Date: April 7, 2014 Respectfully submitted, BARBARA L. MCQUADE United States Attorney s/Elizabeth A. Stafford Elizabeth A. Stafford (P48866) Assistant United States Attorney 211 W. Fort St., Suite 2001 Detroit, Michigan 48226 Phone: (313) 226-9692 elizabeth.stafford@usdoj.gov s/Gjon Juncaj Gjon Juncaj (P63256) Assistant United States Attorney 211 W. Fort St., Suite 2001 Detroit, Michigan 48226 Phone: (313) 226-9623 gjon.juncaj@usdoj.gov 62 Case 2:12-cr-20153-DPH-LJM ECF No. 40 filed 04/07/14 PageID.258 Page 67 of 67 CERTIFICATE OF SERVICE I hereby certify that on April 7, 2014 , I electronically filed the foregoing document with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following: William Swor, Esq. 645 Griswold Street, Suite 3060 Detroit, MI 48226 s/Elizabeth A. Stafford Elizabeth A. Stafford (P48866) Assistant United States Attorney 211 W. Fort St., Suite 2001 Detroit, Michigan 48226 Phone: (313) 226-9692 elizabeth.stafford@usdoj.gov 63