He has "absolutely no respect for the law"- Government asks for maximum sentence for Neosho businessman charged with fraud, money laundering

In a sentencing memorandum filed today in U. S. District Court for the Western District of Missouri, the government asked the judge to give a Neosho businessman charged with fraud and money laundering the maximum sentence under federal sentencing guidelines.

Russell Grundy, 50, former owner of Innovative Objects in Joplin, is scheduled to be sentenced August 27 in Springfield and Assistant U. S. Attorney Patrick Carney, says Grundy should have the book thrown at him to the tune of eight years in prison, not just for the original charges, but additional crimes he committed while free on bond:

This defendant has absolutely no respect for this law or this Court. That complete lack of respect is proven by the defendant’s actions and willingness to commit fraud, after being indicted for 30 counts of fraud related offenses and being allowed to remain free on bond. 

The defendant proved that if he is allowed to remain free, he will lie, steal, cheat and defraud nearly anyone he comes into contact with. 

Thus, in order to best address his lack of respect for the law and his criminal conduct while on pretrial release, a substantial sentence is essential for this defendant.

Grundy pleaded guilty January 30 to involvement in schemes that netted him $26 million.

The crimes were described in the sentencing memorandum.

This defendant was the owner of several companies that specialized in various areas of computer software, hardware and technology development. Specifically, the defendant owned PILR Technology, LLC (PILR), Innovative Objects, LLC (IO), Choice Technologies, LLC (CT), Wyerless, LLC (Wyerless), and Audio Input, LLC (AI).  

Each of these companies came into existence at different times, but by 2012, all five companies
were in operation and owned by the defendant. 

Land O’Lakes/Nutra Blend Licensee Fee Fraud  

Starting in 2008, the defendant, working through his company IO, was contracted by Nutra Blend (NB), a subsidiary company of Land O’Lakes (LOL), to create a software program/package that would allow NB to track, inventory, and coordinate the shipping activities for the company with its customers.  IO created the proprietary software for NB. 

As a result, NB paid IO a substantial amount of money to purpose the software for use by the company.  Records revealed that NB held the royalty rights for the software and if the software was sold to another company, NB would be paid a commission for that sale. In addition to paying for the software, NB also paid IO to provide technical assistance in maintaining the program and repairing any problems that might arise. 

In 2012, LOL and NB received monthly invoices from IO, initiated by the defendant.  These invoices charged LOL and NB for the technical services provided by IO and for what the defendant represented as “third party license fees” that had to be paid by IO to keep NB’s software running.  

The defendant repeatedly told LOL and NB officials that the proprietary software created by IO also utilized computer software that belonged to a third party known as Code-X.  The defendant claimed that the monies paid to IO by LOL and NB for the third party license fees simply passed through their accounts and was remitted to the company Code-X in Australia. 

Between 2012 and 2015, over $1,300,000 in alleged third party license fees were paid by LOL and NB to IO and the defendant. 

In August of 2015, officials with LOL began investigating whether the defendant’s representations that their proprietary software contained the software of a third party and what, if any, license fees had to be paid.  

After investigating the defendant’s claims that the third party license fees listed within the IO invoices were paid to “Code-X,” officials learned that no such company existed in Australia or at all.  

After confronting the defendant, he admitted that he had concocted the company and he continued to invoice LOL and NB for the license fees because he felt he should be paid more for the software
program his company had previous committed.  

Furthermore, during the investigation, law enforcement confirmed that “Code-X” did not exist and no such company existed in either Australia or at all. Ultimately, the defendant made numerous false representations to both LOL and NB, and issued false invoices for license fees, causing LOL and NB to pay for fees and services that they never truly received.  

Based on existing invoices, LOL and NB paid the defendant for non-existent license fees starting January 24, 2012, and ending on August 7, 2015.  The specific dates, amounts and instances of the fake invoice fees being issued by defendant are specifically listed within the indictment.  Each false invoice issued by the defendant through his company IO, resulted in the electronic transfer of monies from the bank accounts of LOL and NB outside the state of Missouri, into the bank accounts of the defendant or his companies, in Joplin, Missouri.  

In total, the defendant defrauded LOL and NB of approximately $1,800,000 in monies by charging the companies for fake licensee fees. 

Miami Nations Enterprise Fraud Scheme  

In April of 2014, the defendant initiated negotiations with Miami Nations Enterprises (MNE), a subsidiary company of the Miami Nations Tribe. The purpose of these negotiations centered on the defendant’s claim that his company, Innovative Objects (IO), needed funding to obtain software, hardware and training that was essential for his company to fulfill the requirements associated with a contract that he had been awarded with Wal-Mart Stores, Inc.  

Specifically, during the defendant’s conversations with MNE officials, the defendant advised that he had been conditionally awarded a $3,500,000 contract from Wal-Mart Stores, Inc., to provide information technology services to WalMart.  The defendant advised MNE officials that his company needed funding from MNE so that he could obtain software, hardware, and training for his personnel so that IO would meet the technological standards set by Wal-Mart within the $3,500,000 contract

conditionally awarded to his company.  

The defendant provided MNE with numerous documents, invoices, conditional contract award letters, e-mails and bank statements that supported his claim that Wal-Mart had awarded a $3,500,000 contract to his company to provide information technology services to Wal-Mart. 

As a result of the defendant’s representations that his company had been awarded the $3,500,000 information technology services contract with Wal-Mart, MNE agreed to loan the defendant and IO money to obtain software, hardware and training necessary to meet Wal-Mart’s alleged standards and comply with the terms of the $3,500,000 services contract.  

Furthermore, shortly thereafter, because of the contract with Wal-Mart Stores, Inc., MNE initiated negotiations to assume control of seventy percent (70%) of the defendant’s companies.  

Effectively, the defendant’s companies would be subsumed under a larger umbrella corporation known as GMNE in which MNE would own seventy percent (70%) of all the company, and the defendant would continue to run the businesses and own thirty percent (30%) of the larger company.  

Between the loans extended and the money paid by MNE to purchase a majority share of the defendant’s company, MNE paid in excess of $8,800,000 to the defendant based on the misrepresentations he made regarding the presence of a contract that never existed with Wal-Mart.  

Furthermore, officials from MNE advised that their willingness to provide loans and purchase a majority interest in these companies arose specifically from the defendant’s claim that he had a $3,500,000 contract and relationship with Wal-Mart Stores, Inc. 
 
 In July of 2015, officials with MNE inquired about the contract with Wal-Mart and why no monies had been received in honor of the contract.  In order to cover up the fact that the defendant had no contract between his companies and Wal-Mart, he caused a wire transaction from his personal account to his business account.  

The defendant then fraudulently presented this wire transfer as money being received from Wal-Mart to his company as crucial evidence that he did in fact have a contract with Wal-Mart. As a result, the concerns of MNE were abated for several more months.  

 

After nearly eight months of promises and explanations by the defendant why the $3,500,000 contract had not been honored by Wal-Mart, officials conducted their own investigation.  

On September 27, 2015, the defendant met with MNE officials to discuss their concerns.  During this meeting, the defendant admitted that he concocted the entire Wal-Mart contract.  The defendant admitted that none of his companies has a contract with Wal-Mart, there was no $3,500,000 contract, and he had no business relationship with the retailer.  

It was also discovered that the defendant used the monies obtained from MNE for his own personal expenses, including building a new home in Charleston, South Carolina.  

Ultimately, investigators learned that none of the money lent to the defendant by MNE was used for a contract to provide technology information services to Wal-Mart Stores, Inc.  Furthermore, officials with MNE advised that had they been aware of the defendant’s misrepresentations and that there was no $3,500,000 contract with Wal-Mart, they would never have purchased any portion of the defendant’s companies or lent him millions of dollars as requested to meet the specifications for an information security program that never existed.  

Based on records from the financial institution, as well as the numerous misrepresentations made by the defendant, MNE initiated numerous wire transfers from its bank accounts in the state of Oklahoma, to a bank account controlled by the defendant in Joplin, Missouri, that totaled $8,010,000. 

UMB and the People’s Bank of Seneca Loan Fraud Scheme  

As part of another fraud, the defendant submitted three loan applications and a “change in terms agreement” with UMB Bank.  At the time of these applications and transactions, UMB Bank was a financial institution, whose accounts were insured by the Federal Deposit Insurance Corporation (FDIC). 

On October 17, 2014, the defendant submitted three loan applications with UMB for varying amounts.  Further, on May 17, 2015, the defendant submitted a “Change in Terms Agreement” that effectively allowed him to refinance an existing loan based on the information the defendant provided to the bank.  The total amount of the loans and “change in terms agreement” fraudulently obtained by the defendant was $12,110,000.00. 

During the application process, the defendant made representations to UMB Bank officials in which he claimed to have signed leases with LOL. The defendant claimed that LOL had agreed to a 20-year lease for warehouse space that he wanted to build using the loans he sought from the bank.  Based on lease agreements provided to UMB Bank officials, the defendant claimed future income in the amount of $18,000,000. 

Once again, the defendant’s representations were entirely false. While the defendant had, in fact, signed lease agreements from LOL for warehouse space, he grossly exaggerated the amount of money to be paid per month by LOL.  

Furthermore, there was not one lease agreement, there were two lease agreements.  One lease agreement was for three years at an amount far less than that claimed by the defendant, and the other lease was a “month-to-month” lease agreement at an even smaller amount.  

The defendant misled UMB Bank by providing documents that led them to believe he had $18,000,000 in revenue that would be received over the next 20 years. In reality, the defendant’s leases only
guaranteed income in the amount of $540,000. 

 Bank records and evaluations revealed that UMB officials relied directly on the defendant’s revenue projections when agreeing to fund the defendant’s loan applications and “change in terms” agreement.  

Ultimately, UMB would not have authorized the loan had the defendant provided truthful information in his loan application process.

 
In addition to the defendant’s presentation of a fake rental lease agreement to UMB Bank, he also applied for and received a loan in the amount of $1,850,000 from the People’s Bank of Seneca.  The People’s Bank of Seneca was an FDIC insured financial institution at the time the defendant applied for this loan.  

Within his loan application, the defendant made representations to bank officials that he owned computer hardware worth more than $1,100,000.  The defendant advised that this property would be used as collateral to secure the loan he was seeking from the People’s Bank of Seneca.  

As proof of his ownership, the defendant presented the bank with a document purporting purchase and ownership of the property from a company listed as “Greenstar Products.” The defendant never purchased these items and the invoice from “Greenstar Products,” was fraudulently created by the
defendant in order to validate his false claim that he had purchased the items and the equipment was worth what he falsely claimed it was worth.

Because of the defendant’s fraudulent misrepresentations made during another scheme to defraud MNE, agents immediately recognized that the defendant had used a similar company name to mislead MNE when he perpetrated that separate fraud.  

Both federal agents and bank officials researched the business name provided by the defendant.  Agents determined that the business does not exist and the document provided by the defendant to the People’s Bank of Seneca was faked and designed specifically to corroborate his lies that misled bank officials.  

Officials with the People’s Bank of Seneca advised that had they known that the defendant was submitting false information and documents in his loan application, the loan would have been immediately declined. 

Money Laundering Schemes 

Specifically, on the dates noted within the indictment, the defendant knowingly received monies in excess of $10,000 from LOL and MNE through wire transfers after the defendant had issued fraudulent invoices and knowingly made false statements to induce payment from both victims.  

As a result of the aforementioned incidents of wire fraud, the defendant then caused a wire transfer of monies in amounts that exceeded $10,000 that were in turn used to purchase personal luxury items, build an extravagant office building, and otherwise build personal property both in Missouri and South Carolina. 

The transfer of monies between the two financial institutions, as well as his many purchases for personal purposes, initiated by the defendant, involved proceeds of a criminal offense, that being
wire fraud, and traveled across state boundaries in interstate commerce after first originating in Joplin, Missouri, within the Western District of Missouri.
 
Pretrial Release Conduct by the Defendant 

After being indicted for 30 felony offenses that arose from the fraudulent criminal conduct described above, the defendant was granted bond over the objections of the Government.  

During his pretrial release, the defendant committed two additional known financial frauds.

   
The first fraud scheme involved the defendant defrauding William Reyes. The defendant entered into a contract with Mr. Reyes to pay $24,500 for the creation of a mobile application. The application to be created was a business search and sale platform that could be used online.  Mr. Reyes paid the defendant $13,230 up front.  

Over the next several months, Mr. Reyes asked for the completion of the application, but the defendant never provided any proof that the program was completed.  Mr. Reyes asked for a refund of his initial payment but the defendant failed to repay any money to Mr. Reyes.  

 
As a result of this incident, the Government moved to have the defendant’s bond revoked and had a hearing before the Magistrate Judge.  The above information was provided through testimony to the Court.  

While the Court chose not to revoke the defendant’s bond, Chief Magistrate Judge David Rush did specifically state that he believed the defendant defrauded Mr. Reyes and if he were Mr. Reyes, he would want to see the defendant prosecuted for this offense.

 
The second fraud occurred shortly after the revocation hearing before the Magistrate Judge.  In this instance, the defendant again made false statements on loan documents to Palmetto State Bank in South Carolina in an attempt to fraudulently obtain yet another loan. The defendant vastly overstated his assets and income in order to obtain a loan.  

But for the diligent efforts of bank officials, the defendant’s fraud and false documents would have resulted in losses that would have amounted to $75,000.00. Thus, even after being indicted of several counts of making false statements on a loan application, and being on bond for the same, the defendant repeats the same crime in his new community in South Carolina.