Tennessee Man Convicted Of Defrauding Investors In A Snack Company And A Pet Food Company
Defendant also Convicted of a Firearm Offense and Pled Guilty to a Narcotics Offense
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that yesterday, following a seven-day jury trial before U.S. District Judge Jed S. Rakoff, JOEL MARGULIES was convicted of participating in two schemes to defraud more than 50 investors in the Starship Snacks Corporation and the All American Pet Company of more than $2.8 million. MARGULIES made false and fraudulent representations about, among other things, the status of the companies’ products, guarantees that purportedly backed the investments, and the interest of large multi-national corporations in acquiring the companies. The jury also convicted MARGULIES of illegally transferring a firearm to an out-of-state resident. Additionally, today, MARGULIES pled guilty before Judge Rakoff to conspiracy to distribute and to possess with the intent to distribute cocaine.
U.S. Attorney Geoffrey Berman said: “Joel Margulies went to trial in Manhattan federal court to face a slew of charges related to defrauding more than 50 investors by making materially false representations about the snack and pet food companies he helped run. As part of his schemes, Margulies used other people’s identities and created falsified documents that were sent to investors, on the basis of which he and his co-conspirators raised more than $2.8 million. Rather than using those funds for their intended purpose of creating dog food bars and caffeinated candies, the co-conspirators spent the money on real estate in Bel Air, Manhattan, and West Palm beach, as well as on plastic surgery, luxury clothing, and the purchase of a Mercedes. Not only was Margulies convicted unanimously by a Manhattan jury, but he also pled guilty today to conspiracy to distribute cocaine to one of his fraud scheme co-conspirators. Margulies’s criminal conduct was as audacious as it was diverse, and he faces a lengthy sentence in federal prison.”
According to the evidence presented during the trial and statements made in related court filings and proceedings:
The All American Pet Company Fraud Scheme
From October 2013 through May 2017, MARGULIES, Lisa Bershan, and a co-conspirator raised more than $575,000 in purported loans for the All American Pet Company (“AAPT”), a penny-stock company that produced, marketed and sold food bars and other products for dogs, based on the following misrepresentations, among others: (a) that the Internal Revenue Service (“IRS”) had accepted an “offer in compromise” from AAPT that significantly reduced the back taxes AAPT owed to the IRS; (b) that Bershan had paid to the IRS the amount of this offer in compromise and had thus absolved AAPT of its outstanding tax liability; (c) that Bershan was the beneficial owner of a bank account containing over $6.9 million; (d) that Bershan would personally guarantee some of the loans; and (e) that Nestlé USA had proposed various business deals with AAPT. Margulies held himself out as AAPT’s Vice President for Marketing and Advertising, but in reality he played a number of roles at the company, including communicating with investors and creating fake documents, such as forged bank account statements and letters, to support AAPT’s misrepresentations to investors.
Although MARGULIES and his co-conspirators had promised investors that they would use the loans to help improve AAPT’s manufacturing and distribution capacities, the conspirators instead used those funds largely for their personal expenses, including the rental of a luxury villa in the Bel Air neighborhood of Los Angeles where all three of them lived.
In connection with the AAPT fraud scheme, MARGULIES used the stolen identities of three individuals – an IRS employee, a Nestlé Purina employee, and a Manhattan attorney – to create false and fraudulent letters that were sent to AAPT investors to induce them to make loans to AAPT.
The Starship Snack Corporation Fraud Scheme
From approximately August 2015 through August 2017, MARGULIES, Bershan, and a co-conspirator, Barry Schwartz, raised more than $2.3 million from investors in a company originally called the Awake Company and later renamed Starship Snacks Corporation (“Starship”), which purported to be in the business of developing and manufacturing caffeinated snack products, based on the following misrepresentations, among others: (a) that investments in Starship were guaranteed against losses by Bershan; (b) that Starship was going to be acquired by Monster Beverage (“Monster”) in a one-for-one stock exchange; (c) that Starship was engaged in actual product development and had procured samples of chocolate candies infused with caffeine; (d) that MARGULIES and others at Starship had entered into non-disclosure agreements with Monster that prohibited them from discussing Starship’s purported acquisition by Monster and its purported product development. Margulies’s title at Starship was Senior Vice President; he served as the primary point of contact for investors, to whom he made the aforementioned misrepresentations, and he also created a number of fake documents that were used in connection with the Starship fraud.
After receiving funds from Starship investors, Margulies and his co-conspirators used those funds to maintain their own extravagant lifestyles, spending hundreds of thousands of dollars on things like luxury clothing, plastic surgery, interior decorating, the rental of a high-end apartment in New York City, and the down payment for a multi-million dollar house in Florida.
The Illegal Firearm Transfer and Narcotics Distribution of Narcotics
In addition to the fraud and identity theft conduct set forth above, the jury also convicted MARGULIES of illegally transferring a firearm and ammunition from Tennessee to Bershan in New York via commercial courier without being a licensed firearms dealer.
Finally, MARGULIES pled guilty today to a narcotics distribution charge that had been severed from the charges that were the subject of the trial. Specifically, MARGULIES pled guilty to a conspiracy to distribute cocaine that lasted from October 2015 through August 2017, during which MARGULIES sent, and caused to be sent, quantities of cocaine via commercial courier in interstate commerce to Bershan.
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JOEL MARGULIES, 75, of Murfreesboro, Tennessee, was convicted at trial of wire fraud and wire fraud conspiracy in relation to AAPT; aggravated identity theft; securities fraud, wire fraud and conspiracy to commit securities and wire fraud in relation to Starship; and illegally transferring a firearm to an out-of-state resident. Today, he also pled guilty to conspiracy to distribute cocaine. The wire fraud, securities fraud, and conspiracy to commit wire fraud counts carry a maximum sentence of 20 years in prison; the conspiracy to commit securities fraud and wire fraud count carries a maximum sentence of five years in prison; the aggravated identity carries a mandatory sentence of two years in prison to run consecutively to any punishment; the firearm offense carries a maximum sentence of five years in prison; and the drug conspiracy count carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the Court.
MARGULIES is scheduled to be sentenced before Judge Rakoff on December 16, 2019, at 11:00 a.m.
Lisa Bershan and Barry Schwartz each previously pled guilty and are scheduled to be sentenced before Judge Rakoff on October 17, 2019 and October 10, 2019, respectively.
Mr. Berman praised the work of the FBI, and thanked the SEC for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Negar Tekeei and Christine Magdo are in charge of the prosecution.