PHOENIX—On December 11, 2012, David Steven Goldfarb, 64, of Scottsdale, Arizona, was sentenced by U.S. District Judge David G. Campbell to 36 months in federal prison. Judge Campbell also ordered Goldfarb to pay $19,567,512 in restitution. On September 19, 2012, Goldfarb pleaded guilty to conspiracy to commit mail fraud and transactional money laundering for his role in a multi-million-dollar investment fraud scheme.
Goldfarb, along with a few co-defendants, owned and operated CORF Licensing Services LP (CLS) and CORF Management Services LP (CMS) from 1999 until May 2003, when the companies declared bankruptcy. Goldfarb served as the president of both companies. During the life of CLS and CMS, the defendants convinced hundreds of investors to contract with CLS to establish a for-profit Comprehensive Outpatient Rehabilitation Facility (CORF), which they claimed would provide an alternative to hospitals for rehab services. For an investment fee in the range of $100,000 to $165,000, CLS was supposed to establish a profitable, Medicare-certified business for the investor. The defendants were very successful in acquiring investors: they entered 338 contracts and collected over $40,000,000. Unbeknownst to the investors, however, CLS was unable to establish medical businesses for over two thirds of its clients. In addition, at the facilities CLS did establish, its clients were losing substantial sums of money. Despite these problems, Goldfarb and his partners convinced hundreds of investors to pay CLS through an elaborate fraudulent scheme.
Goldfarb and his co-defendants placed ads in newspapers and magazines that falsely represented that an investor could expect to make $450,000 in net profit during the first year of operating a CORF. Goldfarb and his co-defendants held monthly, and sometimes bi-monthly, sales seminars at an upscale and exclusive country club in Scottsdale, Arizona, to convey the impression that CLS and its existing clients/investors were financially successful. In particular, during the sales seminars, CLS’s chief financial officer presented financial projections to the investors that showed a CORF generating over $1,000,000 in cash for its first year of operation. Investors were informed that the financial projections were based on actual CLS clients. This was false because most, if not all, of CLS’s clients were losing money. Goldfarb and his co-defendants gave prospective investors a false impression that CLS clients were successful and were collecting more than $1,000,000 a year by representing that the financial projections were “conservative,” “worst case-scenario,” and based on “averages.”
As part of the fraud scheme, investors were directed to speak to certain CORF owners who were identified as “independent” references. Again unbeknownst to the investors, Goldfarb and his co-defendants paid the “independent” references approximately $2,000,000 to provide misleading information. When speaking to prospective investors, the independent references falsely confirmed the financial representations Goldfarb and his co-defendants had made. In addition, the independent references failed to inform investors that they were being paid and that their own CORFs were losing tens of thousands of dollars a month.
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