Harlingen Businessman Sentenced in Million-Dollar Check Kiting Case
|Aug, 31, 2011|
BROWNSVILLE, Texas – John Jeff Woodard Jr., 49, of Harlingen, Texas, has been sentenced to a 51-month-term of imprisonment for bank fraud conducted through the operation of a check kite scheme involving multiple bank accounts held in the names of several of his former businesses, United States Attorney José Angel Moreno announced today. Woodard, who pleaded guilty to the scheme which resulted in a significant financial loss for three local banks in February 2010, was sentenced today by U.S. District Court Judge Andrew S. Hanen.
Woodard operated Harlingen Imports, aka Competition Car and Truck Center, in Harlingen, Texas, Competition Chrysler Dodge Jeep and Competition RGV in Raymondville, Texas, and Competition Motor Sports, with locations in Harlingen and McAllen, Texas.
A check kite exists when a person passes checks back and forth between banks before the checks have time to clear to create the appearance that the bank customer has more money in the accounts than he actually does. A check is written on one bank and deposited in a second bank. Checks not backed by sufficient collectable funds are written from the second bank (or a third bank) and deposited with the first bank to mask the fact that there are not sufficient funds to pay the initial check. The process continues until the kite is discovered.
This scheme, which occurred between Nov. 1, 2004, through Jan. 30, 2006, required Woodard or persons acting under his direction to write multiple checks on one account and to deposit them with another of the three banking institutions each day. There was no legitimate business reason for the vast majority of the checks to be written. The number and size of the checks dwarfed the reported operations of the three businesses combined. Over time, Woodard withdrew uncollected funds (“bleeding the kite”), which required him and those acting under his direction to write larger and larger checks. The checks were all written in whole dollar amounts, typically in even hundreds, and were typically sequential. Woodard signed about half of the checks, while others were signed by employees or business partners acting under his direction. It does not appear anyone but Woodard received a benefit.
Throughout the scheme, financial statements for the businesses containing inaccurate and altered entries relating to the financial strength of the businesses were submitted to the banks to support loans. The alterations made it appear that the businesses were more successful than they actually were in order to induce the banks to lend money or to continue lending money to Woodard’s businesses.
The FBI, the agency that investigated the case, conducted detailed computer analysis of bank records from October 2005 through December 2005 which showed that Woodard was responsible for kiting a cumulative total of more than $114 million in checks. The total actual loss amount to the banks, when the kite collapsed in late January 2006, was approximately $1.6 million.
In addition to the prison term, Judge Hanen imposed a five-year-term of supervised release and further ordered Woodard to pay a total of $2.5 million in restitution to the banks and to his former business partner. He was permitted to remain on bond and voluntarily surrender to a Bureau of Prisons facility to be determined in the near future.
Assistant U.S. Attorneys Michael J. Wynne and Israel Cano prosecuted the case.