New York Restaurant Entrepreneur Sentenced to 12 ½ Years in Prison for Investment Fraud Scheme and Tax Evasion
Defrauded More Than 150 Investors Out of Approximately $21 Million and Evaded More than $4 Million in Taxes
A federal district judge in Utica, New York sentenced a Watertown, New York food and restaurant entrepreneur and franchisor to serve 150 months in prison for committing tax evasion and investment fraud, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney Grant C. Jaquith for the Northern District of New York.
According to documents filed with the court, Christopher Swartz, 46, engaged in a promissory note scheme to defraud lenders and investors out of more than $19 million, as well as a scheme to evade more than $4 million in taxes and obstruct the Internal Revenue Service (IRS).
“For over a decade, Mr. Swartz stole millions from lenders, investors, and the United States, using multiple schemes, shell companies and layers of transactions in an effort to escape detection,” said Acting Deputy Assistant Attorney General Goldberg. “His 12 ½ year sentence sends the clear message to those involved in such financial chicanery that their schemes – no matter how complex – will be uncovered, investigated and successfully prosecuted.”
“Christopher Swartz stole millions of dollars from investors and lenders and cheated the public treasury out of millions of dollars of taxes,” said Acting U.S. Attorney Jaquith. “His elaborate scheme to defraud relied on a mind-boggling web of accounts and enterprises and concealment of his assets and diversions of funds. Swartz inflicted terrible harm on people who trusted him with money they needed to support their families, educate their children, pay for medical care, and retire. This case sends a strong message that such treachery will not be tolerated.”
“Today’s sentencing demonstrates the serious consequences of financial crimes such as this, and the collective focus of IRS Criminal Investigation (CI) and our partners on holding the perpetrators of such corrupt investment schemes accountable for their actions,” said Special Agent in Charge James D. Robnett of the IRS-CI. “Mr. Swartz preyed upon honest and law abiding citizens, abusing their trust for his own financial gain.”
“Mr. Swartz betrayed his investors and attempted to conceal his crimes,” said FBI Special Agent in Charge Vadim D. Thomas. “The resolution of this case is the culmination of the outstanding efforts of the FBI and our federal law enforcement partners.”
According to documents filed with the court, between 2005 and 2015, Swartz defrauded investors through bogus promissory notes and fraudulent offers of ownership in his companies. He induced investors by promising company growth and high interest rates. Despite these promises, Swartz stole investor funds and money from the businesses and spent it for his personal benefit. When lenders and investors tried to get their money back, Swartz provided false assurances, and made partial payments, including payments by check that he knew would bounce. He sought to cover up his thefts by falsifying company records. Swartz also concealed his assets and income to avoid seizure and collection by lenders, investors, and judgment creditors seeking to recover their funds.
The food and restaurant entities and companies Swartz used to fraudulently issue promissory notes and stock included: Jreck Subs, North Country Hospitality, Ultimate Franchise Systems, Caffino Live Roast, Madeline Ventures, Grace Ventures and Obees.
In addition to the promissory note scheme, Swartz sold worthless shell company stock to approximately 70 United Kingdom residents, stealing the funds and defrauding them of approximately $1.1 million.
Swartz also committed tax evasion for a decade. Between 2005 and 2015, Swartz filed false personal tax returns that underreported his income and did not file corporate returns or pay corporate taxes. Swartz diverted money from business accounts and concealed these diversions in the company records through fraudulent accounting entries. He made extensive use of cash so the funds could not be traced and used multiple entities and nominees to conceal his ownership of various assets. Swartz also falsified partnership tax returns and attempted to impede the IRS’s ability to collect employment taxes.
Court documents allege, and the defendant is not contesting, that Swartz owned and operated as franchisor, Jreck Subs, through layers of nominees and entities, since at least 2002. Jreck is one of the largest New York State-based franchises and a popular submarine sandwich chain with approximately 45 stores in central and upstate New York.
Swartz is in custody and will begin serving his sentence immediately. Judge Hurd ordered Swartz to serve three years of supervised release and to pay $21,041,249.43 in restitution to his investment fraud victims and $4,619,340.75 in restitution to the IRS. He also ordered a forfeiture money judgement totaling $12,360,400. Swartz pleaded guilty to tax evasion and wire fraud in September 2016. As part of his plea agreement, Swartz agreed not to contest ownership of the franchise or forfeiture of this asset. Jreck Subs is currently the subject of a restraining order, as the government evaluates the potential forfeiture of the business and a sale to new owners with proceeds serving as a potential source of funds to compensate victims.
Acting Deputy Assistant Attorney General Goldberg and Acting U.S. Attorney Jaquith thanked special agents of IRS-CI and the FBI Albany Field Office, and an IRS revenue agent, who conducted the investigation, and Assistant Chiefs John N. Kane Jr. and Andrew Kameros, and Trial Attorney Abigail Chingos of the Tax Division, who prosecuted the case.
Additional information about the Tax Division’s enforcement efforts can be found on the division’s website.