Indictment of John Paul Gutschlag Sr., GM-Southwest Inc.

CLERK'S OFFICE (J.S. DIST. COLIRTAT ABINGDON, VA

FILED

AF2 - 8 2213J . DUDLEY LERKBK

UR CLE

IN THE UNITED STATES DISTRICT COURTFOR THE W ESTERN DISTRIG OF VIRGINIA

ABINGDON DIVISIONAPRIL 2013 SESSION

UNITED STATES OF AM ERICA SEA L E D

t'. l b c-i l 6Criminal No.

In Violation of: 18 U.S.C. jj 1341, 1343, 1349,1349, 1956, 1962(d)

JOI'lN PAUL GUTSCHLAG, SR.GM -SOUTHW EST, INC.

INDICTM ENT

INTRODUCTION

At all times relevant to this indictment, JOHN PAUL GUTSCHLAG, SR., operated a

business entity known as GM-SOUTHW EST, INC. (hereinafter referred to as :1GMS''), a

Delaware corporation with its principal place of business in Frisco, Texas. GM S was

formerly operated by and later merged with Chrina Corporation. GM S provides services ms

an independent third-party administrator of student health insurance for colleges and

tmiversities across the United States. GM S was formerly owned by JOHN PAUL

GUTSCHLAG, SR. ln or arotmd 2005, he transferred al1 of his stock in GM S to his

children, John Derek Gutschlag and Kelly Gutschlag Hernandez.

2 . Underwriting services for GM S are provided by JOHN PAUL GUTSCHLAG, SR. through

Diversified Student Underwriters, LLC, which is wholly owned by JOHN PAUL

GUTSCHLAG, SR. The business of GM S is located in Frisco, Texas and conducted from a

building and on certain real property that is owned by Pabede, LLC, to which GM S pays a

Case 1:13-cr-00015-JPJ-PMS Document 5 Filed 04/08/13 of 24 Pageid#: 33

monthly rental or lease fee . Pabede, LLC is owned in equal shares by JOHN PAUL

GUTSCHLAG, SR., Jolln Derek Gutschlag and Kelly Hemandez.

3. As a third-party administrator, GM S contracts with sectmdary school systems and

universities to provide student health insurance. T'he health insurance is provided by major

insurance carriers, but the insurance is issued and administered by GM S on the carriers'

behalf As part of its contractual obligation to the schools and the caniers, GM S collects

premiums from the students and uùiversities, pays claims, and provides reports related to

prem ium collection and claim s paym ent both to the schools and the carriers. The caniers, in

tttrn, pay GM S a set commission or fee- usually a percentage of the gross premium

collected for these administrative services. In addition to its commission, GM S is

sometimes paid a bonus by the carriers if the account of an individual school or group of

schools is particularly profitable. Despite the paym ent of the com mission and fees from the

carriers, the schools are considered to be clients of GM S.

4. ln 2003, in response to a Request for Proposal (RFP), GM S signed a contract with Virginia

Polyteclmic lnstitute and State University, hereinafter, Efvirginia Tech,'' to provide health

insurance for its undergraduate and graduate students, as well ms their spouses and minor

children. The contract term was for one year, beginning on or about August 1, 2003, with

an option for up to 10 successive one-year renewals. GM S and Virginia Tech exercised the

renewal option ammally between 2004 and 2010, and thus GM S provided student health

insurance for Virginia Tech until the end of the 2010-201 1 school year (Ju1y 31, 201 1).

5. Between 2003 and 201 1, GM S had contractual relationships with several major insurance

carriers, who sponsored, or assumed the risk on, the Virginia Tech contract. Participating

Virginia Tech undergraduates paid their health instlrance prem ium s diredly to GM S on a

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monthly, quarterly, or annual basis. Virginia Tech subsidized a large portion of the health

insurance premidlms for participating graduate students and mailed the graduate smdent

premiums to a GM S balak account in Roanoke, Virginiw on a regular basis. After conducting

arl accotmting ef the premidlms received, alzd after deducting its commission, GM S delivered

the balance to the caniers.

6. The carriers established and funded bnnk accolmts outside of the state of Virginia, from

which GM S issued and mailed checks to pay student health care claims on the carriers'

behalf.

Under its contract with Virginia Techs GM S was required to provide monthly claims reports

to Virginia Tech showing, nmong other things, enrollment data and expense, broken down by

identified categories of services. On or about February 1 of each renewal year GM S was

required to submit requested premium I<adjustments'' (i.e., increases or decreases) and reports

to Virginia Tech justifying these adjustments. Pursuant to its reporting requirement, GMS

regularly provided data purporting to reflect the premitlms collected and claims paid,

resulting in what it represented to be the actalnl Etloss ratio'' for the Virginia Tech insurance

plans.

8. As it is generally understood in the insurance industry, a tGloss ratio'' is the relationship

between the total amount of claims paid by the instlrance company and the total amount of

prem ium collected from the instzred. A loss ratio is calculated by dividing the total claim s

paid by the total premium--either the gross premium (i.e., the totalamount of premium

collected) or net premium (i.e., the total amount of premium collected minus administrative

and operating expenses). A loss ratio of 1:l (or 100%) means that the claims paid equal the

total premium. A loss ratio of 1:2 (or 50%) means that the claims paid are one half of the

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total premium.

carriers and GM S in determining whether an instlrance plan is adequately funded and,

The loss ratio is a material factor and is relied upon by each school, the

relatedly, whether (arld by how much) premiums to be paid by the school alad the students

sheuld be adjusted.

THE SCHEM E AND ARTIFICE TO DEFRAUD

9. At some time prior to 2003, GM S hired JL and established an oftke in Daleville, Virginia,

for the primary purpose of administering the account and selvicing the health care claims of

the insured students at Virginia Tech. JL was the primary contact with Virginia Tech and

was responsible for reporting certain information to Virginia Tech as required by the

contract, including the premiums collected and the claims paid. Despite his position, JL did

not have direct access to claims or premillms data. Rather, that data was maintained on the

GM S computer at GM S'S office in Texas and was only accessible by the hierarchy of GM S,

including JOHN PAUL GUTSCHLAG, SR. and his administrative assistant, CB.

10. At som e tim e prior to January 2005, JOHN PAUL GUTSCHLAG, SR. and GM S together

with others whose identities at'e known and unknown to the Grand Jury, devised a scheme to

defraud colleges and universities, as well as students enrolled in those colleges and

universities, with whom they had contractual obligations to procure student health instzrance

by providing false and fraudulent claims reports and other misrepresentations designed to

increase the income of GM S and to personally enrich JOHN PAUL GUTSCHLAG, SR. and

his confederates.

1 1. As a part of their Educiary duties to the universities, JOHN PAUL GUTSCHLAG, SR. and

GM S were obligated to report claims infonnation to their client tmiversities, including

Virginia Tech, and to the insurance carriers.

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JOHN PAUL GUTSCHLAG, SR. and GM S accurately reported the actual paid claims

numbers to the instlrance caniers. The actual paid claims numbers were not, however,

reported to Virginia Tech. Rather, as described herein, JOHN PAUL GUTSCHLAG, SR.,

and agents and employees of GMS acting on his behalf modifed the actual paid claims

numbers to produce an artificially intlated number.

13. Dtlring the term of the contract with Virginia Tech, CB and JL, acting as agents and

employees of GM S and at the direction of and on behalf of JOHN PAUL GUTSCHLAG,

SR., were integrally involved with compiling and reporting premium and claims information

and resultant loss ratios to Virginia Tech. The GM S / Virginia Tech reporting process

generally occurred as follows: JL would contact CB, either by email or fax, and obtain

information from the GM S computer system documenting the actual claims paid and

premiums collected. JL, with the knowledge and approval of JOHN PAUL GUTSCHLAG,

SR., would use what will be refen'ed to herein as a tçclaim s moditier'' to alter the claim s

numbers to produce an inflated dollar amount which overstated the claims paid. JL would,

again with the knowledge and approval of JOHN PAUL GUTSCHLAG, SR., prepare

aggregate reports for Virginia Tech which would typically contain false and intlated claim s

numbers and associated loss ratios produced by altering the actual paid claims ntlmbers by

using the Gtclaims m odifier.'' Once JOHN PAUL GUTSCHLAG, SR. had directed and

approved the modification and methodology used to produce the inflated paid claims

numbers and loss ratios, CB would input the inflated data into a chart or spreadsheet and

email or fax that document back to JL, who would subsequently present the intlated paid

claims numbers and loss ratios to officials at Virginia Tech as justification for quoted

premium am ounts. JOHN PAUL GUTSCHLAG, SR. and GM S knew or should have known

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that Virginia Tech would rely upon GM S to provide tnlthful information conceming the

claims paid and premiums collected. JOHN PAUL GUTSCHLAG, SR. and GM S further

knew or should have known that Virginia Tech would rçly upon the intlated paid claims

numbers and skewed loss ratios to renew their contract with GM S and to pay higher

premiums than they would have paid if they had klzown the actual paid claims numbers.

Because GM S regularly created and reported false and intlated paid claim s ntlmbers and loss

ratios to Virginia Tech, the university, its undergraduates, and graduate smdents incurred

significantly higher premium costs over the life of the contract. The infhted claims numbers

and loss ratios had the collateral effect of discouraging competitors of GM S f'rom submitting

competing bids to obtain the Virginia Tech health insurance business.

14. The practice of using and approving the use of a itclaims modifier'' and other schemes and

artifces to inflate the nmount of the actual paid claims to skew the loss ratio was part of a

pattern or practice im plemented and executed by JOHN PAUL GUTSCHLAG, SR. and

GM S to defraud client schools by collecting premillms to which GM S was not entitled,

depriving the schools of information they would need to allow the schools to contract with

other TPA'S or to otherwise bargain for lower rates.

The intent and effect of JOHN PAUL GUTSCHLAG, SR.'s false and fraudulent reports, was

twofold. First, JOHN PAUL GUTSCHLAG, SR. knew or should have known that Virginia

Tech would rely upon GM S to provide tnlthful information conceming claims paid and

premiums collected. He further knew or should have known that Virginia Tech would rely

upon the false, fraudulent and inflated claim s num bers contained in the reports and

erroneously assum e that the loss ratio was very high. As a result, GM S could demand and

expect Virginia Tech to pay a higher prem ium for the next ensuing contract year. Second,

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the false, fraudulent and intlated claims nllmbers would discolzrage GM S'S competitor third

party administrators from bidding on the Virginia Tech contract by making it appear that the

Virginia Tech contract was perform ing poorly.

In or arotmd July 2010, the Hsk manager for Virginia Tech retired and he was replaced by

ED. In or around October 2010, ED compared the smdent enrollment to the amount of

premblm reportedly collected by GM S from the enrollees. Based upon her comparison, it

appeared that the premium figures were underreported, and ED questioned the accuracy of

the reports provided to Virginia Tech by GM S.

Begilming on a date not known to the grand jury but not later than on or about October 8,

2010, CB, with the knowledge of and at the direction of JOHN PAUL GUTSCHLAG, SR.,

exchanged emails with Jt, in Virginia and provided JL with spreadsheets containing claims

ntlmbers that had been inflated using a ççclaims modifer'' program devised and implemented

with the knowledge of JOHN PAUL GUTSCHLAG, SR. This information wms provided to

Virginia Tech on or about October 12, 2010. JOHN PAUL GUTSCHLAG, SR. knew and

intended that this false and fraudulent information would be presented to Virginia Tech to

support the claims numbers provided by GM S to Virginia Tech in the preceding years of the

contract and allow the fraud to continue.

18. At some time prior to January 2011, Virginia Tech advised GM S that it would not extend or

renew their contract to provide health insurance services for the 201 1-2012 school year, but

would instead issue a new RFP to solicit bids from GM S and others. The RFP that was

published by Virginia Tech in January 201 1 included loss ratios that were based in pa14 on

the false, fraudulent and inflated claims num bers that had been provided to Virginia Tech by

GM S during prior contract years.

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19. On a date not known to the grand jury, but before March 22, 201 1, JL advised JOHN PAUL

GUTSCHLAG, SR. that he would not submit the GM S response to the Virginia Tech RFP

because it was based in part upon false, fraudulent and intlated claims ntlmbers that had been

provided to Virginia Tech by GM S.

20. By letter dated March 22, 201 1, JOHN PAUL GUTSCHLAG, SR. and others acting at his

diredion and on his behalf, submitted a bid in response to the Virginia Tech RFP. Prior to

the submission of the bid, JOHN PAUL GUTSCHLAG, SR. made no effort to inform

Virginia Tech that during the prior years of the contract'.

a. false, fraudulent and inflated claim s nllmbers were used to calculate the loss

ratio;

b. the claims numbers reported to Virginia Tech did not reflect the actual claims

paid;

the actual claims numbers were tçmodified'' using a moditier progrnm devised

and/or approved by JOHN PAUL GUTSCHLAG,SR. and were artitkially

intlated so that the resultant loss ratio was skewed to a much higher percentage;

and

d. the actual nmotmt of claims paid by GM S on behalf of the insured students and

the school was significantly lower than the amount reported to Virginia Tech.

From the 2003-04 through the 2009-2010 academic years, GM S overstated the amount of

the claims paid on behalf of Virginia Tech by over $9 million.

22. From the 2003-04 through the 2009-2010 academ ic years, GM S overstated the loss ratio

incurred by Virginia Tech as follows:

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Academic Year Loss Ratio Reported Acm al Loss Ratio

2003-2004 93% 62%

2004-2005 95% 66%

2005-2006 83% . 38%

2006-2007 85% 45%

2007-2008 74% 30%

2008-2009 73% 33%

2009-2010 81% 45%

23. ln furtherance of the scheme and artifice to defraud, JOHN PAUL GUTSCHLAG, SR. and

GM S sent or caused to be sent wire communications which falsely represented the nmotmts

of the paid claim s, prem ium s and resultant loss ratio to representatives of Virginia Tech. In

an effort to conceal and disguise the scheme and artitice to defraud, the wire

com mlmications sent or caused to be sent by JOHN PAUL GUTSCHLAG, SR. and GM S

also mesented false and tktitious explanations seeking to justify the infonnation provided to

Virginia Tech. The following example illustrates the point: on September 16, 201 1, after

eonceding that the information in the reports provided by GM S to Virginia Tech was false,

JOHN PAUL GUTSCHLAG , SR. and GM S sent or caused to be sent wire comm unications

containing false and tktitious explanations seeking to shift the blnme for the fraud to JL.

24. As more fully described in this indictment, JOHN PAUL GUTSCHLAG, SR. and GM S

utilized and caused the utilization of wire commtmications and other instnlmentalities of

interstate eommeree, including computers and telephones, to transmit false rem esentations

to Virginia Tech, in violation of Title 18, United States Code, Section 1343. JOHN PAUL

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GUTSCHLAG, SR. and GM S also caused the use of the United States postal service by

Virginia Tech and the students to transmit premium payments to which the co-conspirators

were not entitled, and to deliver invoices and other documents related to the health

inslzrance program, in violation of Title 18, United States Code, Section 1341.

COUNT ONE(Racketeering Conspiracy)

The Grand Jul'y charges:THE ENTERPRISE

1. The allegations set forth in the Introduction to this lndictment are incorporated herein by

reference.

At various times relevant to this indictment, JOHN PAUL GUTSCHLAG, SR., and

others known and unknown, were members and associates of GM S, an organization

whose oftkers, directors and employees engaged in wire fraud and mail fraud.

3. JOHN PAUL GUTSCHLAG, SR., Pabede, LLC, Diversified Student Undelw riters, LLC

and GM S, including the officers, directors and employees of those entities, constitm ed an

ttenteprise'' as that term is delined in Title 18, United States Code, Section 1961(4), that

is, a group of individuals and entities associated in fact.The enterprise constituted an

ongoing organization whose m embers functioned as a continuing unit for the comm on

purposes of achieving the objectives of the enterprise. The enterprise wms engaged in,

and its activities affected, interstate commerce.

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PURPOSES OF THE ENTERPW SE

4. The purposes of the enterprise included the following:

a. Enriching the members and associates of the enterprise through, among other things,

mail fTaud and wire fraud;

b. Preserving and protecting the com mercial, finmwial and personal interests of the

members of the enterprise through the use of fraud, deceit, intentional misrepresentations,

withholding of infonnation, and affirmatively misleading victims through such means;

Promoting and enhancing the enterprise and its members' and associates' activities.

M EAN S AND M ETH ODS OF THE ENTERPRISE

5. M embers of the enterprise and their associates, having devised or intending to devise a

scheme or artitice to defraud, or for obtaining money by means of false or fraudulent

pretenses, representations or promises, for the purpose of executing or attempting to execute

such scheme transmitted false information by wire and by mail, as more fully described in

the Introduction to this Indictm ent.

THE RACKETEEW NG CO NSPIR ACY

6. From a date not known to the grandjtlry, but not later than in or about Jarmary, 2005 and

continuing through in or about October, 201 1, both dates being approxim ate and inclusive,

within the W estem District of Virginia and elsewhere, JOHN PAUL GUTSCHLAG, SR,

and GM S, together with other persons known and unknown, being persons employed by and

associated with GM S, an enterprise which engaged in, and the activities of which affected,

interstate commerce, knowingly, and intentionally conspired to violate 18 U.S.C. 1962(c),

that is, to conduct and participate, directly and indirectly, in the conduct of the affairs of that

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enterprise through a pattern of racketeering activity, as delined by 18 U.S.C. 1961(1) and (5)

involving multiple acts indictable tmder:

a. 18 U.S.C. 1341 (mail fraud)

b. 18 U.S.C. 1343 (wire fraud)

It was further a part of the conspiracy that GM S and JOHN PAUL GUTSCHLAG, SR.

agreed that a conspirator would commit at least two acts of racketeering activity in the conduct

Of the affairs of the enterprise.

8. Al1 in violation of Title 18, United States Code, Section 1962(d).

COUNT TW O(Conspiracy to Commit W ire Fraud)

The Grand Jury charges that:

The allegations set forth in the lntroduction to this lndictment are incom orated herein by

reference.

2. Begilming on a date not known to the grand jury, but not later than in or about January 2005

and continuing until in or about October 201 1, both dates being approximate and inclusive,

in the W estem Judicial District of Virginia and elsewhere JOHN PAUL GUTSCHLAG,

SR., and GM S, in concert with other persons whose identities are known and unknown to

the Grand Jury, knowingly and with the intent to defraud conspired with each other, and

with diverse other persons to com mit the following offenses against the United States, to

wit: to devise and intend to devise a scheme and artifice to defraud Virginia Polytechnic

Institute and State University (Virginia Tech), and to obtain money and property by means

of materially false and fraudulentpretenses, representations and prom ises, and for the

purpose of executing the schem e and artitk e described in the introduction, and attempting to

do so, caused to be transm itted by m eans of wire communication in interstate com merce the

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signals and sotmds described in the lntroduction and Counts Three through Nine, inclusive,

to this Indictment, all of which m'e incomorated herein by reference.

3. Al1 in violation of Title 18, United States Code, Sections 1343 and 1349.

COUNTS THREE THROUGH NINE(W ire Fraud)


The allegations set forth in the Introduction to this Indictment are incorporated herein by

reference.

2. On the dates set forth in Paragraph 3, in the W estel'n Judicial District of Virginia and

elsewhere, JOHN PAUL GUTSCHLAG, SR., and GM S, as principals and aiders and

abettors, devised and intended to devise a scheme to defraud Virginia Tech and to obtain

money by means of materially false and fraudulentpretenses, representations and

prom ises.

3. For the purpose of executing the scheme or artitice to defraud and to obtain money or

property by means of materially false and fraudulent pretenses, representations and

prom ises, and attempting to do so, JOHN PAUL GUTSCHLAG, SR. and GM S

knowingly and with the intent to defraud transmitted or caused to be transmitted by

means of wire communication in interstate com merce certain signs, signals and sounds as

described below , each transmission constituting a separate cotmt:

COUNT DATE DESCRIPTION

Facsim ile transm ission from JL in Virginia to CB inTHREE September 15, 2009

Texas with Virginia Tech -claim report

FOUR M ay 10, 2010 Facsim ile transm ission from JF on behalf of CB in

Texas to JL in Virginia, containinj reported andActual claim s and prem ium s infonnatlon

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FIVE October 4, 2010 Electronic mail transmission with Benefit CodeSllmm aries from CB in Texas to JL in Virginia

Electronic mail transmission with from CB in Texas toSlX Jarmary 31, 2011JL in Virginia, copy to JOHN PAUL GUTSCHLAG,SR.

SEVEN February 2, 201 1 Electronic mail transm ission JL in Virginia to CB inTexas with Virginia Tech - Claim s Analysis

EIGHT M arch 28, 201 1 Electronic Mail from CB in Texas to ED in Virginia,regarding lack of knowledge of ççlkate StabilizationPlan,'' copy to JOHN PAUL GUTSCHLAG, SR.

NINE M rch 28, 201 l Electronic M ail from JOHN PAUL GUTSCHLAG,SR. in Texas to ED in Virginia advising that claimsline is correct and revising loss ratio

4. A11 in violation of Title 18, United States Code, Sections 1343 and 2.

COUNT TEN(Conspiracy to Commit M ail Fraud)

The Grand Jtlry charges that:

The allegations set forth in the Introduction to this Indictment are incomorated herein by

reference.

Beginning on a date not known to the grand jtlry, but not later than in or about January

2005 and continuing until in or about October 201 1, both dates being approximate and

inclusive, in the W estem Judicial District of Virginia and elsewhere JOHN PAUL

GUTSCHLAG, SR., and GM S, in concert with other persons whose identities are known

and Ilnknown to the Grand Jury, knowingly and with the intent to defraud conspired with

each other, and with diverse other persons to commit the following offenses against the

United States, to wit: to devise and intend to devise a schem e and artifice to defraud

Virginia Polytechnic Institute and State University (Virginia Tech), and to obtain money

and property by m eans of m atedally false and fraudulent pretenses, representations and

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promises and for the pum ose of executing the scheme and artifice, and attempting to do

so, knowingly caused to be delivered by mail according to the directions thereon matters

or things, to wit: premium checks from student erlrollees of Virginia Tech and the

tmiversity itself, and invoices, billing statements and identification cards from Automated

M ailing Systems, Inc. to Virginia Tech and student enrollees.

3. A11 in violation of Title 18, United States Code, Sections 1341 and 1349.

CO UNTS ELEW N THROUGH FIFTY-ONE(MaiI Fraud)


The allegations set forth in the Introduction to this Indictment are incorporated herein by

reference.

2. On the dates set forth in Paragraph 3, in the W estem Judicial District of Virginia and

elsewhere, JOHN PAUL GUTSCHLAG, SR., and GM S, as principals and aiders and

abettors, devised and intended to devise a scheme to degaud Virginia Tech and to obtain

money by means of materially false and fraudulentpretenses, representations and

promises.

3. For the purpose of executing the scheme or artifice to defraud and to obtain money or

property by means of materially false and fraudulent pretenses, representations and

prom ises, and attempting to do so, JOHN PAUL GUTSCHLA G, SR. and GM S

knowingly and with the intent to defraud caused to be delivered by mail according to the

directions thereon m atters or things as described below, each m ailing constituting a

separate count:

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CO UNT DATE -DESCRIPTION

ELEVEN April 30, 2008 M ailing of lnvoice //34593 f'rom Automated M ailingSystem s, lnc. to GM S

TW ELVE September 30, 2008 M ailing of lnvoice #38416 from Automated M ailingSystems, lnc. to GM S

THIRTEEN January 31, 2009 M ailing of lnvoice #41198 from Automated M ailingF Systems, lnc. to GM S

FOURTEEN February 27, 2009 Mailing of lnvoice #41878 f'rom Automated M ailingSystem s, Inc. to GM S

FIFTEEN July 31, 2009 M ailing of lnvoice #44927 from Automated M ailingSystems, Inc. to GM S

SIXTEEN January 31, 2010 M ailing of Invoice #48696 from Automated M ailingSystem s, Inc. to GM S

SEVENTEEN Septem ber 30, 2010 M ailing of Invoice #53689 from Autom ated M ailingSystems, lnc. to GM S

EIGHTEEN March 13 1, 201 1 Mailing of Invoice #57478 from Automated M ailingSystems, Inc. to GM S

NINETEEN August 28, 2009 VT check #***166 paid to GM S for $126,980.87

TW ENTY September 14, 2009 VT check #***207 paid to GM S for $269,751.46

TW ENTY-ONE September 28, 2009 VT check //***664 paid to GM S for $285,623.46

TW ENTY- October 13, 2009 VT check #***698 paid to GM S for $249,171.99TW O

TW ENTY- October 28, 2009 VT check #*** 146 paid to GM S for $241,243.38THREE

TW ENTY- November 12, 2009 VT check //***698 paid to GM S for $258,782.66FOUR

TW ENTY- November 24. 2009 VT check //***569 paid to GM S for $247,388.90FIVE

TW ENTY-SIX December 14, 2009 VT check #***568 paid to GM S for $258,875.47

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. *

TW ENTY- December 23, 2009 VT check #***638 paid to GM S for $252,301.81SEVEN

TW ENTY- January 12, 2010 VT check //***348 paid to GM S for $239,272.55EIGHT

TW ENTY- January 28, 2010 VT check #***875 paid to GM S for $257,101.39N INE

THIRTY February 12, 2010 VT check //***241 paid to GM S for $268,023.13

THIRTY-ONE Febnzary 25, 2010 VT check #***947 paid to GM S for $251,921.93

THIRTY-TW O M arch 11, 2010 VT check //***283 paid to GM S for $255,183.78

THIRTY- March 29, 2010 VT check #***410 paid to GM S for $252,057.69THREE

THIRTY-FOUR April 14, 2010 VT check #***815 paid to GM S for $251,541.82

THIRTY-FIVE April 27, 2010 VT check #***105 paid to GM S for $253,904.73

THIRTY-SIX M ay 11, 2010 VT check #***061 paid to GM S for $250,331.88

THIRTY- August 27, 2010 VT check #***408 paid to GM S for $144,452.56SEVEN

THIRTY- September 14, 2010 VT check #***452 paid to GM S for $277,326.13EIGHT

THIRTY-NINE September 28, 2010 VT check //***694 paid to GM S for $243,986.53

FORTY October 13, 2010 VT check #***249 paid to GM S for $258,529.80

FORTY-ONE October 26, 2010 VT check //***488 paid to GM S for $264,949.31

FORTY-TW O November 11, 2010 VT check #***670 paid to GM S for $255,678.71

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FORTY- November 30, 2010 VT check #***826 paid to GM S for $251,380.41THREE

FORTY-FOUR December 14, 2010 VT check #*** 186 paid to GM S for $257,569.69

FORTY-FIVE December 28, 2010 VT check #***907 paid to GM S for $257,351.78

FORTY-SIX January 11, 2011 VT check #***062 paid to GM S for $224,266.52

FORTY- January 28, 2011 VT check #***492 paid to GM S for $253,037.88SEVEN

FORTY-EIGHT February 14, 2011 VT check #***814 paid to GM S for $262,083.14

FORTY-NINE February 25, 2011 VT check #***548 paid to GM S for $248,425.96

FIFTY M arch 14, 2011 VT check #***047 paid to GM S for $249,604.33

FIFTY-ONE M arch 29, 2011 VT check #*** 124 paid to GM S for $249,287.38

A11 in violation of Title 18, United States Code, Sections 1341 and 2.

COUNT FIFTY-TW O(M onev Launderinz Conspiracv)


1. The allegations set forth in the Introduction to this lndictment are incorporated herein by

reference.

2. Beginning on a date not known to the grand jury, but not later than in or about January,

2005 and continuing tlzrough in or about April, 201 1, both dates being approxim ate and

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inclusive, in the W estem Judicial District of Virginia, and elsewhere, JOHN PAUL

GUTSCHLAG, SR.and GM S, knowingly combined, conspired, confederated and

agreed with each other and with other persons known and unknown to the Grand Jury to

conlmit certain offenses tmder Title 18, United States Code, Section 1956(a)(1)(B)(i), as

follows:

Knowing that the property involved in a financial transaction represented the proceeds

of some form of unlawful activity, conducted and attempted to conduct financial

transactions affecting interstate com merce,which transactions in fact involved the

proceeds of specified tmlawful activity, namely wire fraud and mail fraud, and knowing

that the transactions were designed in whole or in part to promote the carrying on of

specified unlawful activity.

Al1 in violation of Title 18, United States Code, Section 1956(h).

COUNTS FIFTY-THREE THROUGH FIFTY-SEVEN(M oney Laundering)


The allegations set forth in the Introduction to this lndictment are incorporated herein by

reference.

2. On the dates set forth below, in the W estem Judicial District of Virginia and elsewhere,

JOHN PAUL GUTSCHLAG, SR., and GM S, in the W estern Judicial Distrid of Virginia,

and elsewhere, JOHN PAUL GUTSCHLAG, SR. and GM S, as principals and aiders and

abettors, knowing that the property involved in each financial transaction represented the

proceeds of som e fonn of unlawful activity, did knowingly conduct such financial

transactions affecting interstate com merce, and which transactions in fact involved the

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proceeds of specified unlawful activity, that is, wire fraud and mail fraud, and with the

intent to prom ote the canying on of specitied unlawful activity in violation of Title 18,

United States Code, Section 1956(a)(1)(A)(i), each conàtituting a separate cotmt:

COUNT DATE FINAN CIAL TM N SACTION

FIFTY-THREE July 1, 2008 Check #**733 in amount of$14,000 from GM S to AutomatedM ailing Systems, Inc.

FIFTY-FOUR November 4, 2008 Check #**060 in amount of$8,641.51 from GMS toAutomated M ailing Systems, Inc.

FIFTY-FIVE July 7, 2009 Check #**605 in amount of$6,500 *om GM S to AutomatedM ailing Systems, Inc.

FIFTY-SIX August 8, 2009 Check #**037 in amotmt of$12,626.08 from GM S toAutomated M ailing Systems, Inc.

FIFTY-SEVEN July 21, 2010 Check #**841 in amount of$10,000 from GM S to AutomatedM ailing Systems, lnc.

3. A1l in violation of Title 18, United States Code, Sections 1956(a)(1)(A(i) and 2.

NOTICE OF FORFEITURE

1. Upon conviction of a violation of 18 U.S.C.j 1962, as alleged in Cotmt One of

the Indictment, pllrsuant to 18 U.S.C. j 1963, defendants shall forfeit to the United States:

a) any interest acquired or maintained in violation of 18 U.S.C. j 1962;

b) any interest in, security of, claim against, or property or contractual rightof any kind affording a source of influence over, any entem rise which thedefendants established, operated, conlolled, conducted, or participated inthe conduct of, in violation of 18 U.S.C. j 1962,. and

c) any property constituting. or derived from, any proceeds obtained, directlyor indirectly, from racketeering activity in violation of 18 U.S.C. j 1962.

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2.

through Fifty-seven of this Indictment, the defendants shall forfeit to the United States:

Upon conviction of one or more of the felony offenses alleged in Counts Two

a) any property, real or personal, which constitutes or is derived fromproceeds traceable to a violation of 18 U.S.C. jj 1341, 1343, and 1349,pttrsuant to 18 U.S.C. j 981(a)(1)(C) and 28 U.S.C. j 2461.

b) any property, real or personal, involved in in a violation of 18 U.S.C. j1956, or any property traceable to such property, pursuant to 18 U.S.C. j982(a)(1).

3. The property to be forfeited to the United States includes but is not limited to the

following property:

a) M onev Judzment

(1) Not less than Twelve Million ($12,000,000.00) in United Statescurrency and a1l interest and proceeds traceable thereto, in that suchsum in aggregate wms obtained directly or indirectly ms a result of saidoffenses or is traceable to such property.

b) Real estate:

(1) The business real estate of GM Southwest located at 6946 Lebanon Road,Frisco, Texas,

AND BEING the snm e property conveyed to Pabede, LLC, a Texas Lim itedLiability Company, from Nichols Real Estate, LLC, a Texas Lim ited LiabilityCompany, via a Special W arranty Deed dated April 17, 2007, recorded asDocument 20070510000635180 in the Official Public Records of CollinCounty, Texas.

c) Al1 of the assets, real and personal, held or administered by Pabede, LLC,including the entity itself;

d) Al1 of the assets, real and personal, held or administered by GM Southwest,Inc., ineluding the entity itself;

All of the mssets, real and personal, held or adm inistered by DiversifiedStudent Underwriters, LLC, including the entity itself;

Any interest in, security of, claim against or property or contractual right of ankind affording an influence over any enterprise established, operated,controlled or conducted by the defendants;

e)

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g) Proceeds acquired or maintained by the enterprise, or any individual or entitycomprising the enterprise which are derived from racketeering activity; and

h) Al1 accounts receivable reflecting any sum of money owed to the defendantsfor services rendered, including but not limited to monies due and payable tothe defendants from Virginia Tech and any assets owned by said defendants.

4. If any of the above-described fodkitable property, as a result of any act or

omission of the defendant:

a. carmot be located upon the exercise of due diligence;b. has been transferred or sold to, or deposited with a third person;c. has been placed beyond the jurisdiction of the Court;d. has been substantially diminished in value; ore. has been commingled with other property which cannot be

subdivided without difficulty;

it is the intent of the Ulaited States to seek forfeiture of any other property of the defendant up to

the value of the above-described forfeitable property, ptzrsuant to 18 U.S.C. j 1963(m) and 21

U.S.C. j 853û9, including but not limited to the following:

a) lteal Estate:

(1) The personal residence of Jolm Paul Gutschlag, Sr., located at 6629Rockbridge Trail, Aubrey, Texas, 76227, more particularly described as:

BEING the same property conveyed to Jolm P. Gutschlag from Kimi RaeSkipper Gutschlag by Deed dated October 14, 2004, recorded in the CircuitCourt of Denton County, Texas as Instnzm ent Number 2004-13541 1.

b) Vehicles

(1) 2009 Cadillac Escalade, Black, VlN 1GY17C53299R116876

(2) 2008 Mercedes S5A, White, VIN W1717NG86X88A163253

c) Financial Accounts- alI funds received and on deposit:

(1) Morgan Stanley Smith Bnrney, (MSSB) C/F Diversitied StudentUnderwriters FBO John Gutschlag, Account # 293-014819-321

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(2) Morgan Stanley Smith Barney (MSSB) C/F Diversified StudentUnderwriters FBO Jolm Gutschlag, Accotmt # 293-014817-321

(3) Morgan Stanley Smith Barney (MSSB) C/F Diversified StudentUndenvriters FBO Jolm Gutschlag, Accotmt # 293-014815-321-1-0

(4) Morgan Stanley Smith Barney (MSSB) 529 College Savings Plan FBOTate Thomas Gutschlag, Account # 293-013042-321-1-0

(5) Morgan Stanley Smith Barney (MSSB) John P. Gutschlag TTEE; Paul CGutschlag Trust U/A , Account # 293-013121-321

(6) Morgan Stanley Smith Bamey (MSSB) John P. Gutschlag, Account # 293-013041-321

(7) Morgan Stanley Smith Bnrney (MSSB) FBO John P. Gutschlag TTEE;Gutschlag Family Trust U/A; DTD 01/10/2005, Accotmt # 239-013040-321

(8) Morgan Stanley Smith Banwy (MSSB) FBO John P. Gutschlag TTEE;Gutschlag Family Trust U/A; DTD 01/10/2005, 293-013039-321

(9) Morgan Stanley Smith Bnrney (MSSB) FBO John P. Gutschlag TTEE;Gutschlag Family Trust U/A; DTD 01/10/2005, Account # 293-013038-321

(10) Morgan Stanley Smith Bnrney (MSSB) FBO John P. Gutschlag TTEE;Gutschlag Family Trust U/A; DTD 01/10/2005, Accotmt # 293-013037-321

(11) Morgan Stanley Smith Bnrney (MSSB) Retirement Account DiversifiedStudent Underwriters FBO John Gutschlag, Accotmt # 293-15085-321-1-0

(12) Morgan Stanley Smith Barney (M SSB) Retirement Account DiversifiedStudent Underm iters FBO John Gutschlag, Accotmt # 293-015086-321

(13) Morgan Stanley Smith Barney (M SSB) Diversified Student UnderwritersFBO John Gutschlag, Account # 293-015087-321-1-0

(14) Bank of America N.A.- John P. Gutschlag Money Mrket SavingsAccotmt, Accotmt # 0047 9925 8790

(15) Bank of America N.A. - John P. Gutschlag Interest Checking Account,Account # 0003 4149 7015

(16) Bank of Texas - Diversified Student Underwriters - Checking Account,Account # 8093666102

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(17) Bank of Texas - Pabede LLC - Operating Accotmt, Accotmt #8092873640

(18) Bnnk of Texas - Diversitied Student Underwriters - Certificate ofDeposit, Account # '000007140056952

(19) Bank of Texas - GM Southwest lnc. - Operating Account, Account #8092873651

(20) Bnnk of Texas -GM Southwest lnc. - Disbtlrsement Account, Account #8094369057

(21) Bank of Texas -ltisk Solution Resources LLC GM-southwest W orkingFund Account Treaty 1 1 FBO Pan Amedcan Life lnsurance Company,Accotmt #8094121634

(22) Bank of Texas -ltisk Solution Resolzrces LLC GM-southwest WorldngFtmd Account Treaty 12 FBO Pan Am erican Life lnsurance Company,Accotmt # 8094369046

(23) Bank of Texas -ltisk Solution Resotlrces LLC FBO Pan AmericanClaims Paid, Accotmt # 8094122030

(24) Bnnk of Texas -ltisk Solution Resomces LLC Trust Accotmt (Treaty 11)FBO Pan Am erican Life Insurance Company, Account # 8094121623

(25) Bnnk of Texas -ltisk Solution Resources LLC FBO Pan American LifeInsurance Paid Claims Account, Accotmt # 80936573324

(26) Bank of Texas -ltisk Solution Resources LLC GM Southwest lnc FBOPan-American Life Insurance W orking Ftmd Accotmt, Account # 8093436488

(27) Bank of Texas -ltisk Solution Resources LLC GM Southwest Inc FBOPan American Life Insurance W orking Ftmd Account, Account # 8092873629

(28) Bank of Texas -ltisk Solutions Resolzrces LLC Tnlst Account (Treaty 12)FBO Pan American Life, Accolmt # 8094369035

A True Bill, this C day of April, 2013.

TI TH . HEAPHYTED STATES ATTORNEY

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Grand ury Foreperson


Indictment of John Paul Gutschlag Sr., GM-Southwest Inc.

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Transcript of Indictment of John Paul Gutschlag Sr., GM-Southwest Inc.