Authorities Seek To Dismiss Amazon-Initiated Criminal Fraud Cases in Virginia

Amazon alleged that several defendants had fraudulently profited from AWS data center real estate deals.

The Washington Post

January 12, 2024

5 Min Read
An Amazon AWS data center complex in Ashburn, Virginia
The legal cases stemmed from Amazon's leasing of data center facilities in Northern VirginiaAlamy

(Washington Post) -- Federal prosecutors in Virginia are seeking to vacate the guilty pleas of two men accused of defrauding Amazon in multimillion-dollar real estate deals, a move that comes after the tech giant's lawsuit over the purported fraud was mostly thrown out by a judge last year.

The criminal and civil cases stemmed from Amazon's leasing and acquisitions of several facilities in Northern Virginia that house its data centers. In a 2020 lawsuit – which initially played out while an FBI investigation was underway – Amazon alleged that several defendants in the civil case, including former Amazon employees and a Colorado real estate firm called Northstar Commercial Partners, had fraudulently profited from the deals through a kickback scheme.

Last spring, however, US District Judge Rossie D. Alston Jr. in Alexandria, Virginia, dismissed almost all of Amazon's civil claims. Now, in an unusual move, the US attorney's office for the Eastern District of Virginia has asked Alston to undo the criminal convictions of two people who had pleaded guilty in the FBI investigation.

Christian Kirschner, who is a brother of a former Amazon employee, and Kyle Ramstetter, who was a Northstar executive, pleaded guilty in March to conspiracy to commit honest-services fraud. Kirschner and Ramstetter were two of six people accused of criminal wrongdoing in court filings by prosecutors; the four others were never formally charged.

Lawyers involved in the cases, speaking on the condition of anonymity to avoid impacting pending legal proceedings, said the federal investigation lost steam after Alston threw out most of Amazon's lawsuit, citing a lack of evidence that the company had been bilked. (Amazon founder Jeff Bezos owns The Washington Post.)

"Prosecution of these cases is not in the best interests of justice," the US attorney's office said in a motion filed Wednesday to dismiss the guilty pleas. "At this time, the government has declined to prosecute other alleged co-conspirators in this scheme. Because Kirschner and Ramstetter had comparatively minimal involvement in the larger scheme, dismissing charges against them is in the best interests of justice."

An attorney for Brian Watson, who was Northstar's chief executive and one of the four people accused but never formally charged in the criminal investigation, described the experience as "nightmarish" for his client and commended the US attorney's office for moving to drop the matter.

The "decision to dismiss the cases against Kyle Ramstetter and Christian Kirschner and announce that the other alleged co-conspirators would not be indicted was courageous and honorable," defense lawyer Stan Garnett said in a statement.

US Attorney Jessica D. Aber declined to comment. The guilty pleas were entered last year with the approval of an acting US attorney, Raj Parekh. Lawyers for Kirschner and Ramstetter, who consented to the motions to dismiss the cases, did not respond to requests for comment. Alston must approve the motions before the guilty pleas can be vacated.

Amazon is appealing Alston's ruling on the lawsuit. Asked to comment on the move to dismiss the criminal cases, Amazon spokesman Rob Munoz said in a statement: "These defendants orchestrated a sophisticated scheme to obtain millions of dollars in kickbacks related to Amazon real estate projects. Given the egregious facts we've uncovered related to this misconduct, we really have no choice but to act to protect our interests and move forward with our civil case."

The company alleged in its lawsuit that Northstar, which had been hired to work on property transactions in Northern Virginia, had unlawfully funneled money to two Amazon employees, using Kirschner, a brother of one of the employees, as an intermediary. Ramstetter was Northstar's director of development.

Amazon's civil case accused them and others of violating the federal Racketeer Influenced and Corrupt Organizations Act by taking part in a kickback scheme related to the real estate deals. The defendants in the lawsuit denied wrongdoing. The two Amazon employees have said the funds channeled to Kirschner were legitimate referral fees for scouting real estate.

In early 2020, while conducting its own investigation, Amazon contacted the U.S. attorney's office in Alexandria, according to court records. Amazon filed its lawsuit that April, after the FBI raided the homes of alleged participants in the scheme. Then in January 2022, prosecutors urged both sides to put the lawsuit litigation on hold, telling Amazon that federal authorities were better equipped than the company's lawyers to investigate fraud.

The allegations concerned the huge network of data centers in Northern Virginia that Amazon spent billions of dollars creating and through which it has made billions more by hosting cloud-computing services. The company says it accounts for about one-fifth of property taxes paid in Fairfax, Loudoun, and Prince William counties.

In pleading guilty last March, Ramstetter acknowledged to authorities that he "came to understand that the purported referral fees" from Northstar to Kirschner "were actually disguised kickback payments that were intended for the benefit of employees of [Amazon] . . . in exchange for those employees' roles in facilitating and steering real estate development deals in Northern Virginia," according to court documents.

Authorities at the time said the referral fees were funneled to Kirschner through an entity called Villanova Trust. In court documents related to his guilty plea, Kirschner acknowledged understanding that $5.1 million collected by Villanova - $1.7 million of which he personally received as profit - was an "unlawful 'kickback.'"

But in April, shortly after the guilty pleas, Alston issued a 39-page opinion criticizing and dismissing almost all of Amazon's civil claims against several defendants who were under federal investigation. Alston repeatedly noted that Amazon had not provided evidence of economic harm from the negotiations over nine data center leases, for which the company had authorized about $415.5 million in payments.

"Amazon does not claim any damages based on its rent being above-market," Alston wrote. "Nor has Amazon asked its damages expert... to assess if the lease fees and rates reflected a fair market price." The judge added that "Amazon's decision not to conduct a market analysis, at least as to the leases, may have been a conscious one, given that there is evidence in the... record indicating that the values of the leased properties exceeded the prices Amazon paid."

Alston's ruling is under review by a federal appeals court. But the Justice Department's fraud investigation is now effectively over, with no criminal charges expected for any of the people whom prosecutors had accused of wrongdoing in previous court filings, according to lawyers involved in the case.

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