Michael Mitrow, Jr. and his brother Matthew Mitrow were recently charged in a superseding indictment for a corporate kickback scheme in the Southern District of New York. The Brothers Mitrow were executives of an unnamed marketing agency. According to the indictment, they conspired with a third defendant named Robert Madison, the owner of two printing and direct mailing companies. They conspired to defraud the marketing agency of millions of dollars. Mr. Madison’s companies are referred to as “Madison Company A” and “Madison Company B.” In return for steering business to Mr. Madison, the two brothers allegedly received over $1 million in kickbacks.
The three defendants have pleaded not guilty and are not being held pending trial.
Like any good kickback case, the government includes in the indictment how the defendants supposedly spent the money. It’s never quite clear to me why this is relevant to the charges, but I suppose it makes for a good story. So, read on to find out the details.
History of the Marketing Agency and Who is “Individual A”?
Michael Mitrow founded a marketing agency in 1998 which specialized in providing marketing—including direct mail—for pharmaceutical companies. He founded the agency with someone identified in the indictment only as “Individual A.” Until June 2009, Michael was the President and CEO of the agency. His brother Matthew was a partner and executive vice president from 2002 to July 2010.
The agency’s founders wanted to sell their ownership interests to a private equity company. They found a buyer but the buyer agreed to buy the interests only after Individual A left the company. Individual A left the company. In 2007, the Mitrow brothers sold a substantial portion of their interests to the private equity firm. Michael received $24.7 million, plus a $400,000 annual salary. Matthew received $5.7 million and also kept his position as EVP. The deal contained one curious provision, according to the indictment:
As a condition of the sale, the private equity firm required that, if any payments were made by prior management of the Marketing Agency, including MICHAEL MITROW and MATTHEW MITROW to Individual-A or his company after the date of the sale, the prior management was required to pay to the private equity firm a penalty of five times any payment to Individual A or his company.
Odd, right? It’s not clear why that deal was in place or why the private equity company wanted nothing to do with Individual A. But Individual A doesn’t go away—keep reading.
The Fraudulent Invoices
For a five year period, 2004-2009, the agency had a large contract with a New York-based pharmaceutical company. (The indictment does not name the company.) In particular, the pharmaceutical company paid $30 million for a direct mail campaign from the agency to target members of various labor unions. The agency hired Mr. Madison’s company to do the actual mailings.
A $30 million direct mail campaign must involve a lot of work, right? Well, according to the government, Mr. Madison’s printing company did not do very much. Rather, it
submitted millions of dollars of fraudulent invoices to the Marketing Company for printing and mailing services that Madison Company A had purportedly provided on behalf of the Marketing Agency and the Pharmaceutical Company.
These invoices were fraudulent because, as alleged in the indictment, Mr. Madison’s company did not actually send the mail but rather “caused tons of marketing materials to be discarded and recycled.” And when the pharmaceutical company conducted an audit of the mail that had been sent, Mr. Madison had an employee “create[] more than 50 fictitious and fraudulent [United States Postal] Forms 3602.” These forms are receipts from the post office showing the number of pieces mailed, the total weight, the date they were sent and so forth.
All in all, the indictment alleges that Mr. Madison’s company billed the agency $7.7 million and $7.4 million of that amount was completely fraudulent.
The Kickbacks
The other part of the fraudulent scheme were the kickbacks. Mr. Madison supposedly paid Michael and Matthew Mitrow large kickbacks to encourage them to steer direct mail campaigns his way. The two brothers allegedly concealed the payments from the marketing agency, including by causing the kickbacks to be funneled through third parties or companies controlled by Michael.
For example, as alleged in the indictment, Mr. Madison paid a private jet company $750,000 for travel by Michael Mitrow. He also paid for $39,000 in home renovations, a “$19,000 payment to a New York City ‘gentleman’s club’ to settle an outstanding bill,” and other amounts to pay off Michael Mitrow’s credit card debts.
Mr. Madison also paid about $685,000 to a company controlled by Individual A, “to secretly compensate individual A for relinquishing his share of ownership in the Marketing Agency.” Apparently, the private equity company’s concerns about Individual A were warranted in some respects.
The indictment also alleges second fraudulent scheme. Michael Mitrow allegedly conspired with an unnamed owner of a private jet company to have the marketing agency pay fraudulent invoices for purported consulting work. There was no consulting work, according to the indictment. Instead, the money went to the jet company. The total amount of this alleged fraud was $618,250.
Tax Fraud
The government also charged Michael Mitrow with filing false tax returns. He apparently charged “hundreds of thousands of dollars” of personal expenses on his company credit cards and improperly included them as business expenses on his returns.
The Charges
Michael Mitrow was charged with one count of conspiracy to commit wire and mail fraud, one count of conspiracy to commit honest services fraud, one count of wire fraud, one count of tax evasion and one count of obstructing the IRS. Matthew Mitrow was charged with one count of conspiracy to commit honest services fraud. Mr. Madison was charged with one count of conspiracy to commit wire and mail fraud and one count of conspiracy to commit honest services fraud.
Where Will The Case Go?
The defendants are fairly wealthy executives who have retained private counsel. It remains to be seen whether, in fact, the marketing agency knew about the deal that the Mitrows had with Mr. Madison and whether the facts about what Mr. Madison did or did not do can be proven at trial. However, the indictment includes a few possible cooperating witnesses (e.g., Individual A, the unnamed jet company co-conspirator) so those witnesses may be critical here.
This is one of those cases where a joint defense agreement would be important not only to be able to discuss strategy among the lawyers but also so that the lawyers know when one of the three defendants is engaged in serious plea discussions with the government. Most joint defense agreements—even informal, oral ones—require the parties to inform each other if they decide to enter into a plea. So, if Mr. Madison, for example, were to decide to seek a lower sentence in return for cooperating with the government, the other defendants would at least know in advance that this was going to happen.
This early knowledge may not stop the train but at least the warning lights will be blinking madly.