Three Charged in Connection with Multi-million Dollar Fraud Schemes
The former chief executive officer of a publicly held food products company that traded on the NASDAQ and manufactured and distributed a line of baking mixes and spices was indicted today on conspiracy, bank fraud and false statement charges arising out his scheme to inflate Synergy’s sales through a $26 million bank fraud scheme. Mair Faibish, the former chief executive officer of Synergy Brands Inc. (“Synergy”), was arrested earlier today and will appear in court this afternoon before United States Magistrate Judge Viktor V. Pohorelsky at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York.1
The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York; James T. Hayes, Jr., Special Agent-in-Charge, Department of Homeland Security, Homeland Security Investigations (“HSI”), New York Field Office; and Nassau County Police Commissioner Thomas V. Dale.
As alleged in the indictment, the defendant and his co-conspirators fraudulently inflated Synergy’s sales by approximately 20% for the quarter ending June 30, 2008, through an international check kiting scheme in which they kited approximately $750 million worth of checks not backed by sufficient funds through various banks in the United States and Canada. The defendant caused those checks to be deposited into bank accounts of associated food manufacturers and distributors in Canada. The Canadian companies then sent checks in corresponding amounts, but also not backed by sufficient funds, back to Synergy. Because the banks made deposited funds immediately available for withdrawal, the scheme artificially inflated the companies’ bank account balances while the scheme was ongoing. The defendant and his co-conspirators used Synergy’s fraudulently inflated bank account balance to book millions of dollars in fictitious accounts receivable and revenue. By the end of the scheme, Signature Bank had lost approximately $26 million that the defendant and his co-conspirators had withdrawn before the bank discovered the scheme.
In addition to the bank fraud and conspiracy charges, the indictment charges that the defendant made false statements to the Securities and Exchange Commission (“SEC”) about Synergy’s financial condition in a public filing, specifically: (1) that Synergy had approximately $44.5 million in sales, when approximately 20% of those sales were fictitious; (2) that Synergy had approximately $40 million in cost of goods sold, when approximately 20% of the cost of goods sold was fictitious; and (3) that Synergy recognized approximately $1.5 million in “prepaid expenses,” when at least 25% of those prepaid expenses were fictitious.
According to the company’s filings with the SEC, Synergy was a holding company with subsidiaries that distributed nationally known food and beauty products to retailers and wholesalers and manufactured baking products through its Loretta Baking Mix Products subsidiary. Synergy also sold premium cigars to restaurants, hotels, casinos and country clubs as well as directly to consumers over the Internet and through its retail store in Miami.
“The defendant allegedly defrauded an FDIC-insured bank out of millions of dollars through a massive check-kiting scheme, as well as fraudulently inflated Synergy’s financial statements in order to make the struggling company appear prosperous. These false representations were then provided to the SEC and the investing public,” stated United States Attorney Lynch. “Corporate executives who abuse their positions of trust can expect to be investigated and prosecuted to the full extent of the law.”
“Synergy Brands Inc. CEO Mair Faibish and his co-conspirators allegedly abused and manipulated the free market to sustain their unstable economic status at the expense of trusting investors,” stated HSI Special Agent-in-Charge Hayes. “HSI will go to great lengths to investigate illegal financial activity to help prevent the erosion of our financial system.”
“This investigation highlights how successful law enforcement can be working in a Task Force. We could not have achieved this indictment without the assistance of our federal partners. I would like to thank the U.S. Attorney’s Office, Eastern District of New York, and the Department of Homeland Security, Homeland Security Investigations, New York Field Office, for their hard work and dedication over the last two years,” stated Nassau County Police Commissioner Dale.
If convicted, the defendant faces a maximum sentence of 30 years’ imprisonment on the most serious charge in the indictment.
The government’s case is being prosecuted by Assistant United States Attorneys Ilene Jaroslaw and Sylvia Shweder.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The Task Force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
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