Gregory A. White, United States Attorney for the Northern District of Ohio, announced today that Larry D. Jones, age 58, of Elyria, Ohio, was sentenced to 37 months imprisonment, followed by 4 years of supervised release, for bank fraud and money laundering. Jones had pleaded guilty in July 2006 to two counts of bank fraud and two counts of money laundering in connection with a line of credit he fraudulently obtained from National City Bank (NCB) for his now-defunct corporation, Erie Shores Computer, Inc. (Erie Shores). Jones was President and principal shareholder of Erie Shores, a computer sales and service company based in Elyria, Ohio, which was placed in receivership in July 2003 due to a lawsuit by NCB to collect the unpaid loan balance. Jones was sentenced by United State District Judge James S. Gwin, who ordered Jones to pay restitution of $1,946,601.28 to National City Bank. Jones was ordered to self-report to prison on December 17, 2007, and remains free on bond in the interim.

Jones devised a scheme for Erie Shores to obtain and draw on the line of credit from NCB through false and fraudulent misrepresentations and concealment of material facts pertaining to the company’s financial condition, assets available as loan collateral, and use of moneys drawn on the line of credit. Under the loan agreement, the amount Erie Shores was entitled to draw on the line of credit was limited by the amount of the company’s “Borrowing Base,” defined as 80 percent of certain recent account receivables, known as “Eligible Receivables” (subject to a loan maximum of $4,000,000, later reduced to $3,000,000). Jones caused Erie Shores to submit false and fraudulent Borrowing Base Reports and supporting schedules of accounts receivable, both during the application process and to support draws on the line of credit, which falsely overstated the company’s total and eligible receivables by listing amounts supposedly owing on (1) real invoices that had actually been paid, (2) fictitious invoices to real customers or other business entities for nonexistent purported sales and services, and (3) fictitious invoices to fictitious entities. Jones also used loan proceeds for investments in other companies and for other purposes other than Erie Shores’s business operations and concealed the nature of those expenditures from the bank. Jones acknowledged executing the bank fraud scheme through 22 instances of submitting false Borrowing Base Reports to the bank.

Jones also used a system of inter-bank transfers, resembling a check-kiting arrangement, to promote and help carry out the scheme to defraud NCB by enabling him to record transferred funds as purported payments on older receivables on the Erie Shores books, including fictitious receivables. After or in anticipation of receiving a draw on the loan or customer receipts, Jones would cause a transfer of funds by check from Erie Shores’s principal operating account at NCB to an account at FirstMerit Bank under the name of JBH Group, LLC, which was a shell company he controlled. He would then cause funds to be transferred by check from the JBH Group account to an Erie Shores account at Huntington National Bank, which had been the lockbox account under a previous Erie Shores line of credit from Huntington. The deposits to the Huntington account would be fraudulently entered on the Erie Shores books as payments on trade accounts. Jones would then transfer funds by check from the Huntington account to a lockbox account at NCB. On some occasions, he would use the funds monies just transferred to the National City lockbox account to fund another series of transfers through the FirstMerit and Huntington Bank accounts. Jones acknowledged engaging in 17 such money laundering transactions, involving transfers of funds originating, in whole or in part, from draws on the line of credit.

The government’s case was prosecuted by Assistant United States Attorney John M. Siegel, following an investigation by the Federal Bureau of Investigation.