Aventura executives arrested for fraud and money laundering in Long Island raid

Nov. 8, 2019
Seven defendants, including managing director Jack Cabasso, charged with selling Chinese-made security products falsely claiming them as U.S. made

In a stunning afternoon raid yesterday, the headquarters of Aventura Technologies, Inc. in Commack, New York, six employees were arrested and later arraigned before a United States Magistrate on a criminal complaint charging the surveillance and security equipment company with selling Chinese-made equipment with known cybersecurity vulnerability to government and private customers while falsely representing that the equipment was made in the United States and concealing that the products were manufactured in the People’s Republic of China (PRC). Additional charges of defrauding the U.S. government and money laundering were also filed against four of the defendants.

This case highlights the growing concern among U.S. national security officials of possible cybersecurity breaches and data incursions from Chinese security and telecommunication equipment manufacturers. According to Justice Department information, more than 80 percent of economic-espionage cases brought by federal prosecutors have involved China since 2012.

Individual defendants charged in the complaint are Jack Cabasso, Aventura’s Managing Director, and de facto owner and operator; Frances Cabasso, his wife and Aventura’s purported owner and Chief Executive Officer; senior executives Jonathan Lasker, Christine Lavonne Lazarus and Eduard Matulik; current employee Wayne Marino; and recently retired employee Alan Schwartz. 

“As alleged, the defendants falsely claimed for years that their surveillance and security equipment was manufactured on Long Island, padding their pockets with money from lucrative contracts without regard for the risk to our country’s national security posed by secretly peddling made-in-China electronics with known cyber vulnerabilities,” stated Richard P. Donoghue, United States Attorney for the Eastern District of New York.  “With today’s arrests, the defendants’ brazen deceptions and fraud schemes have been exposed, and they will face serious consequences for slapping phony ‘Made in the U.S.A.’ labels on products that our armed forces and other sensitive government facilities depended upon.”  Donoghue expressed his appreciation to U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit for their work on the case.

The filed criminal complaint and other court documents present a sorted picture of deceit and corruption seldom seen in the security industry. For over a decade Aventura lied to its customers, including the U.S. military, the federal government, and private customers in the United States and abroad. Under federal government procurement laws and regulations, a product’s country of origin can impact a procurement officer’s decision to purchase a product. A product’s country of origin is also of concern to private sector customers with high-security applications. Federal law states that all products imported into the United States must be marked with their proper country of origin. 

Aventura made upwards of $88 million, including over $20 million in federal government contracts over the last decade, while claiming that it was manufacturing its products at its headquarters in Commack. In fact, Aventura does not manufacture anything in the United States but instead has been importing products primarily from the PRC, then reselling them as American-made or manufactured in a small number of other countries. Aventura imported networked security products from PRC manufacturers with known cybersecurity vulnerabilities and resold them to U.S. military and other government installations while claiming that they were American made. The company similarly deceived private customers in the United States and abroad who paid a premium for what they believed to be American-made goods. Aventura not only defrauded its customers, but also exposed them to serious, known cybersecurity risks, and created a channel by which hostile foreign governments could have accessed some of the government’s most sensitive facilities. 

“Product substitution is a serious crime that puts our men and women in uniform at greater risk,” said Leo Lamont, Special Agent-in-Charge, Naval Criminal Investigative Service (NCIS).  “Our Sailors, Marines, and other armed services personnel deserve to have equipment that meets the highest standards for safety and performance, which will not fail them when it matters most.  Substandard and counterfeit parts simply cannot be depended upon.  Investigating product substitution and mitigating risks to the Department of the Navy supply chain is a top priority for the Naval Criminal Investigative Service.  NCIS has a cadre of Special Agents trained in all aspects of economic crime, tirelessly fighting fraud in the procurement process.”

Added William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office: “Greed is at the heart of this scheme, a reprehensible motive when the subjects in this case allegedly put into question the security of men and women who don uniforms each day to protect our nation. There is no mistaking the cyber vulnerabilities created when this company sold electronic surveillance products made in the PRC and then using those items in our government agencies and the branches of our armed forces. I cannot stress enough that we will do everything we can to search out and stop any other company willing to cut corners and pocket profits that endanger the lives of Americans and make this country less safe.”

A Web of Deceit

In the course of its investigation, the government intercepted and covertly marked numerous shipments from PRC sources to Aventura’s Commack headquarters. In some cases, cameras shipped from the PRC were pre-marked with Aventura’s logo and the phrase “Made in the USA,” accompanied by an American flag. In many instances, the items were later resold to government agencies to whom the defendants falsely represented that the products were American made.

In March 2019 the U.S. Navy ordered from Aventura a $13,500 laser-enhanced night vision camera that was specified as American-made on Aventura’s U.S. General Services Administration (GSA) price list. (In fact, no item on Aventura’s GSA price list is listed as being made in the PRC.) In April 2019, at a shipping facility in Jamaica, Queens, a team led by CBP officers intercepted a shipment from a PRC manufacturer (“PRC Manufacturer-3”) to Aventura that contained a camera matching the Navy’s order and surreptitiously marked it for later identification using a method that would not be apparent to a casual observer. Two weeks later, that same camera was delivered to Naval Submarine Base New London in Groton, Connecticut. 

In another instance, in September 2018, the Department of Energy (DOE) ordered approximately $156,000 worth of networked automated turnstiles from Aventura, to be installed at a facility in Tennessee. Aventura’s GSA price list described the turnstiles as American-made. In January 2019, turnstiles matching DOE’s order were intercepted in a shipment from a PRC manufacturer and marked by CBP; one month later, they arrived at the DOE facility in Tennessee. The crates shipped by Aventura to the DOE appeared identical to those that the CBP-led team had inspected, except that the shipping labels from the PRC directing the crates to Aventura had been peeled off, leaving behind visible traces of paper and glue. A special agent with the DOE-OIG placed a call to Lazarus regarding the turnstile shipment in May 2015. During the call, Lazarus falsely stated that the turnstiles were “U.S. made [in] New York.” 

The defendants, working with counterparts in the PRC, took extraordinary steps to conceal this scheme. In November 2018, Jack Cabasso exchanged emails with an employee of a PRC manufacturer of surveillance equipment (PRC Manufacturer-2), identifying the need to “hide” the name of PRC Manufacturer-2 from Aventura’s customers. Cabasso wrote that Schwartz was “putting together a list” of steps to be taken. 

One week later, Cabasso stressed the need to take steps so that “they cannot trace” the product to PRC Manufacturer-2, adding, “The housings are a problem since you publish them on your website but nothing, we can do about that.”  Cabasso added that “the biggest problem” was that PRC Manufacturer-2’s initials were marked on its circuit boards and said that he had “lost several potential customers” because of similar practices by another PRC manufacturer (PRC Manufacturer-1). The employee responded that the company’s initials would be removed from all circuit boards shipped to Aventura. Lasker was copied on all the emails in this sequence.

“The laws in place regulating government contracts ensure both the taxpayer and government receive quality goods and services at competitive prices. In addition, they provide a fair opportunity and level playing field for all businesses seeking government contracts. The General Services Administration’s Office of Inspector General will continue to work closely with our law enforcement partners to aggressively investigate allegations of fraud against the United States Government,” stated Joseph P. Dattoria , Special Agent-in-Charge, U.S. General Services Administration, Office of Inspector General (GSA-OIG).

In a statement issued by a Security Industry Association spokesperson, the SIA representative said: “The Security Industry Association finds today’s charges issued by the U.S. District Court, Eastern District of New York, against Aventura Technologies and members of its management team to be very serious, and if true, would represent business practices that SIA does not condone. SIA strongly encourages its members to operate ethically and comply with all U.S. laws and regulations. SIA also continues to fully support federal government efforts to strengthen the integrity of our nation’s supply chain. The SIA Board of Directors has begun to review these charges and the status of Aventura’s membership in SIA.” 

SIA represents more than 1,000 security solutions providers, ranging from large global technology firms to locally owned and operated small businesses

How Aventura Misrepresented Its Company as a Woman-Owned Small Business

Jack and Frances Cabasso, along with Lasker and Lazarus, falsely represented on numerous occasions that Frances Cabasso was the chief executive of Aventura. In fact, the true chief executive officer of Aventura was Jack Cabasso, and Frances Cabasso played a minimal role at the company. This misrepresentation gave Aventura access to government contracts that were set aside for women-owned small businesses, a category that is legally defined to include only those businesses owned by women, where management and daily operations are also controlled by one or more women. 

In order to win these set-asides, the defendants represented to the public that Frances Cabasso controlled Aventura.  The company’s website and its GSA webpage identify it as a woman-owned business, and the defendants repeatedly certified to the GSA and stated to government procurement officers that Aventura was a woman-owned business. 

However, Jack Cabasso repeatedly admitted he was the true chief executive officer of Aventura. In 2017, Jack Cabasso emailed an Air Force procurement officer, stating in part, “I am the Managing Director of Aventura Technologies and the senior-most person within the organization.” Similarly, in a 2018 deposition, Cabasso said that his job responsibilities were to “oversee all operations of the company.” By contrast, Frances Cabasso has worked as a bookkeeper at an unrelated accounting firm since 2011 and is rarely present at Aventura’s offices. At times, emails sent to Frances Cabasso’s email address appear to have been auto-forwarded to Jack Cabasso who sometimes signed his responses in Frances’s name. The defendants joked about the fact that Frances Cabasso did not work at Aventura. 

The Money Laundering Scheme

The charges filed by the U.S. Attorney’s Office in the Eastern District of New York also stated that Jack and Frances Cabasso siphoned Aventura’s illegal profits out of the company through a network of shell companies and intermediaries. The funds were then directed to investments owned by the Cabassos or controlled for their benefit. 

Between 2016 and 2018, Aventura transferred approximately $2 million to an attorney escrow account belonging to a Long Island, New York-based law firm, some of which appears to have been intended to conceal the source of the funds.  On or about May 24, 2016, Aventura transferred $450,000 to the New York law firm and on that same day the firm paid a total of $435,000 towards the purchase of a new home for a relative of Jack and Frances Cabasso.

In addition to the transactions through the New York law firm, Aventura has transferred at least $2.75 million to shell companies owned by Frances Cabasso. Those funds were then transferred to several accounts, including Frances Cabasso’s personal bank account and the business account of a lawyer retained by Jack Cabasso. Some of these funds were returned to Aventura’s bank accounts, in transactions having no discernible economic purpose.

Aventura has also made approximately $1 million in payments since 2013 related to the Cabassos’ 70-foot luxury yacht, known as the Tranquilo, which is moored in the gated community where the Cabassos reside. Although the company is the purported owner of the Tranquilo, the yacht appears to have no connection with Aventura’s corporate business, and its rental income flows to the Cabassos, not to Aventura. 

 “The arrests and other enforcement operations that occurred today were the direct results of a joint investigative effort,” shared Leigh-Alistair Barzey, Special Agent-in-Charge, Defense Criminal Investigative Service, Northeast Field Office (DCIS).  “The introduction of counterfeit parts and materials into the U.S. Defense Department’s supply chain poses a significant risk and impacts America’s military readiness and our national security. The DCIS is committed to working with its law enforcement partners and the U.S. Attorney's Office, Eastern District of New York, to ensure that individuals and companies who engage in fraudulent activity, at the expense of the U.S. military, are investigated and prosecuted.”