Owner of Long Island Commercial Check Cashing Companies Indicted for Financial Fraud
John Drago Also Charged with Tax Fraud for Paying Employees Off the Books Through His Management Company, Hogwarts Inc.
An eight-count indictment was unsealed today in federal court in Central Islip charging John Drago, the owner and compliance officer of the Kayla Companies, with multiple criminal violations of the Bank Secrecy Act, including failure to file required Currency Transaction Reports (“CTRs”) for customers receiving in excess of $10,000. Drago is also charged in the indictment with failure to collect and pay taxes. Drago was arrested today, and arraigned this afternoon before United States Magistrate Judge A. Kathleen Tomlinson. Drago was released on a $500,000 bond.
Richard P. Donoghue, United States Attorney for the Eastern District of New York, and Justin Campbell, Assistant Special Agent-in-Charge, Internal Revenue Service Criminal Investigation, New York (IRS-CI), announced the indictment.
“As alleged in the indictment, Drago flagrantly violated his obligations as the owner of check cashing businesses to follow federal regulations designed to prevent such businesses from being used to facilitate money laundering; he also failed to fulfill his responsibility as an employer to pay the proper taxes,” stated United States Attorney Donoghue. “This Office and our law enforcement partners are committed to ensuring the integrity of financial institutions, including check cashing businesses.”
“Check cashers provide a valuable service to our community,” stated IRS-CI Assistant Special Agent-in-Charge Campbell. “However, when they commit tax fraud, IRS-CI will aggressively investigate and seek prosecution of those involved.”
According to the indictment, Drago owned and operated check cashing businesses on Long Island, including Kayla Check Cashing Corp., North Island Check Cashing Corp., South Island Check Cashing Corp., East Island Check Cashing Corp., Bay Shore Check Cashing Corp. and Brentwood Check Cashing Corp. (collectively, the “Kayla Companies”). The operation was administered from the offices of Kayla Check Cashing Corp. in Farmingdale, New York. Hogwarts, Inc., was a management company owned by Drago through which employees of the Kayla Companies were paid.
Financial institutions are required to file a CTR for each transaction in cash in excess of $10,000. In addition, a CTR is required to be filed by the financial institution when multiple checks, the total value of which exceeds $10,000, are cashed in a single day.
As alleged in the indictment, from January 2010 to October 31, 2013, Drago instructed employees to cash multiple checks in excess of $10,000 in a single day for certain customers without filing required CTRs. Between August 1, 2010 and October 31, 2013, Drago directed employees to deposit and cash, over the course of several days, checks that had been submitted together on a single day in amounts in excess of $10,000. Drago also instructed employees to tell certain customers who presented individual checks in amounts exceeding $10,000 to return with multiple checks in amounts that were less than $10,000 to avoid the reporting requirement for such financial transactions. As a result of these practices, Drago is also charged with failing to file CTRs and failing to develop, implement and maintain an effective anti-money laundering program for the Kayla Companies.
In addition, between April 1, 2012 and July 31, 2013, Drago paid overtime wages and commissions to employee of the Kayla Companies in cash and failed to inform the IRS of the payment of these cash wages. Drago falsely underreported to the IRS the gross wages paid to his employees in order to avoid paying the full amount of Federal Insurance Contribution Act taxes that the Kayla Companies owed.
The charges in the indictment are allegations, and the defendant is presumed innocent unless and until proven guilty. If convicted, Drago faces a maximum sentence of 10 years’ imprisonment.
The government’s case is being handled by the Office’s Long Island Criminal Division. Assistant United States Attorney Burton T. Ryan, Jr., is in charge of the prosecution.
St. James, New York
E.D.N.Y. Docket No. 18-CR-394 (SJF)