Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that MARVIN JEMAL, the former Chief Executive Officer of a Manhattan-based company that designed, imported and distributed luggage, business bags, backpacks, and accessories (the “Company”), was arrested today for a fraudulent scheme to obtain millions of dollars in loans by making false statements and providing false and fraudulent documents to a commercial bank based in New York (the “Bank”). JEMAL was arrested this afternoon at John F. Kennedy International Airport in New York, and is expected to be presented later today in Manhattan federal court before United States Magistrate Judge Gabriel W. Gorenstein.
MARK BERNSTEIN, the former Chief Financial Officer of the Company, was previously arrested in August 2013 and pled guilty in October 2013 before U.S. District Judge Robert P. Patterson for his role in the scheme.
Manhattan U.S. Attorney Preet Bharara said: “As alleged, former CEO Marvin Jemal and another executive at his luggage company set out to fleece a bank into lending their company millions of dollars by submitting documents loaded with lies and backing them up with false statements. Those millions were then allegedly funneled to Jemal’s personal accounts and used for mortgage payments and payments on a Porsche, among other things.”
FBI Assistant Director-in-Charge George Venizelos said: “As alleged in the indictment, the defendant thought he could ‘beat the bank’ with lies and misrepresentations to support a lavish lifestyle. He obtained millions of dollars in loans by submitting falsified and fraudulent documents to his commercial lender, then diverted that money to his personal accounts. Bank fraud is a serious crime that weakens the economic integrity of our financial institutions. The defendant’s arrest today should send a clear message to the public that bank fraud cases such as this one are, and will continue to be, a high priority for the FBI. Individuals who try to line their pockets by engaging in financial fraud schemes should be reminded that their criminal activity will not go undetected and they will be held accountable.”
According to the allegations contained in the Indictment unsealed today and other documents previously filed in Manhattan federal court:
From 2007 through October 2009, JEMAL and BERNSTEIN engaged in a scheme to fraudulently induce the Bank to lend millions of dollars to the Company. Among other things, JEMAL and BERNSTEIN knowingly made false representations to the Bank, concealed material facts from the Bank, and submitted false and fraudulent documents to the Bank, including fabricated invoices and shipping documents. In total, the Company obtained approximately $6.9 million in loans from the Bank and defaulted on approximately $6 million of those loans.
Further, although the loans were purportedly for the benefit of the Company’s business, in fact, JEMAL diverted approximately $3.5 million of the loan proceeds to personal bank accounts and used the money to pay for various personal expenses, including mortgage payments on properties he owned, credit card bills, and payments on his Porsche.
The Factoring Agreement
The Company obtained the loans from the Bank as part of a secured credit facility, pursuant to a factoring agreement between the Company and the Bank. Under the terms of the factoring agreement, the Company would assign and sell the Company’s interest in its accounts receivable to the Bank and, in exchange, the Company could borrow from the Bank up to 85% of the value of those receivables. In addition, the Company could borrow up to 50% of the value of its inventory. In order to draw down on its secured credit facility, however, the Company was required to provide the Bank with, among other things, an accurate listing of all accounts receivable, as well as supporting documentation, including copies of (i) relevant underlying invoices and (ii) shipping documents or other proof of delivery.
The Scheme to Fraudulently Obtain Loans
To fraudulently obtain loans from the Bank under the factoring agreement, JEMAL and BERNSTEIN made false statements and submitted false and fraudulent documents to the Bank, including the following:
- JEMAL and BERNSTEIN sent duplicate and/or fabricated invoices to the Bank that purported to reflect the sale of certain products by the Company and, thus, an outstanding receivable for the Company. In truth, however, the sales reflected on those invoices were false, as those sales either had never occurred or had already been invoiced separately.
- JEMAL and BERNSTEIN provided fraudulent shipping documents to the Bank to substantiate the purported sales of products by reflecting that those products had been shipped to customers. In truth, however, those shipping documents were false and fraudulent, as the products had not, in fact, been shipped to the customers as reflected in the shipping documents.
- JEMAL and BERNSTEIN concealed material facts from the Bank, including credits that the Company had provided to certain of its customers (which thereby reduced the total accounts receivable associated with those customers) and instances in which the Company had directly collected and deposited payments from its customers on the same invoices the Company assigned to the Bank.
- JEMAL and BERNSTEIN provided inaccurate monthly inventory spreadsheets to the Bank which overstated the Company’s existing inventory.
Further, in order to conceal the scheme, JEMAL made various oral misrepresentations to certain representatives of the Bank when those representatives confronted him about irregularities and other issues that the Bank had discovered with respect to the Company’s assignment of its accounts receivable.
The Money Laundering Scheme
Between approximately May 2007 and February 2012, after fraudulently inducing the Bank to loan millions of dollars to the Company, JEMAL and BERNSTEIN arranged to divert more than $3.5 million in loan proceeds to personal bank accounts controlled by JEMAL. To conceal that the money was being diverted to JEMAL’s personal accounts, the defendants first moved the funds through bank accounts in the name of two shell corporations that JEMAL controlled. From those accounts, the money was transferred to JEMAL’s personal accounts and used to pay for personal expenses, including, among other things, mortgage payments on properties owned by JEMAL, bills from credit cards in the name of JEMAL and his wife, and payments on a Porsche driven by JEMAL.
JEMAL, 60, of Brooklyn, New York, is charged with one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making a false statement to influence bank action, each of which carries a maximum sentence of 30 years in prison, and one count of money laundering, which carries a maximum sentence of 20 years in prison. U.S. District Judge Valerie E. Caproni is assigned to the case.
BERNSTEIN, 63, of Belle Harbor, New York, pled guilty to one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making a false statement to influence bank action, each of which carries a maximum sentence of 30 years in prison. He also pled guilty to one count of wire fraud and one count of money laundering, each of which carries a maximum sentence of 20 years in prison. BERNSTEIN awaits sentencing.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Bharara praised the outstanding investigative work of the FBI.
The case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Christopher D. Frey is in charge of the prosecution.
The charges contained in the Indictment are merely accusations, and JEMAL is presumed innocent unless and until proven guilty.
U.S. Marvin Jemal Indictment