Tennessee Man Sentenced To 4 Years In Prison For Defrauding Investors In A Pet Food Company And A Purported Caffeinated Snack Company Of More Than $2.9 Million
Defendant also Sentenced for Aggravated Identity Theft, a Firearm Offense, and a Narcotics Offense
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that JOEL MARGULIES was sentenced to four years in prison today by U.S. District Judge Jed S. Rakoff for participating in two schemes to defraud more than 50 investors in the Starship Snacks Corporation and the All American Pet Company of more than $2.9 million, by making 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. MARGULIES was convicted after a seven-day jury trial in August 2019 of various fraud counts, aggravated identity theft, and the illegal transfer of a firearm to an out-of-state resident; he then entered a plea of guilty to participating in a narcotics distribution conspiracy.
U.S. Attorney Geoffrey Berman said: “For years, Joel Margulies took advantage of individuals who thought they were investing in start-up companies, when in fact Margulies and his co-conspirators diverted for their own personal benefit the more than $2.9 million they had raised. Margulies perpetuated lies about the products that companies were developing, the interest of large public corporations in buying out the companies, and the existence of guarantees to back the investments. In order to make these lies more convincing, Margulies stole the identities of three individuals, and created fake letters that appeared to be authored by those individuals. For the financial and emotional devastation his fraud inflicted on more than 50 individuals, Margulies will spend the next four years of his life in prison.”
According to allegations contained in the Indictment filed against MARGULIES, the evidence presented during trial and statements made in related court filings and proceedings:
The All American Pet Company Fraud Scheme
From October 2013 through May 2017, MARGULIES, co-defendant 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 Lisa 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 Lisa Bershan was the beneficial owner of a bank account containing over $6.9 million, (d) that Lisa 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 co-defendant 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; and (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 multimillion-dollar house in Florida.
The Illegal Firearm Transfer and Narcotics Distribution
In addition to the fraud and identity theft conduct set forth above, MARGULIES was sentenced for illegally transferring a firearm and ammunition from Tennessee to Bershan in New York via commercial courier without being a licensed firearms dealer. Finally, MARGULIES was also sentenced for conspiracy to distribute cocaine, a charge that had been severed from the charges that were the subject of the trial.
In addition to the prison term, MARGULIES, 75, was sentenced to three years of supervised release. MARGULIES was also ordered to forfeit $108,983 and to make restitution in the amount of $2,926,702.54.
Lisa Bershan was convicted upon a guilty plea, and sentenced by Judge Rakoff on November 22, 2019, principally to a term of seven years in prison.
Barry Schwartz was convicted upon a guilty plea, and sentenced by Judge Rakoff on December 12, 2019, principally to a term of four years in prison.
Mr. Berman praised the work of the Federal Bureau of Investigation, and thanked the Securities and Exchange Commission for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Christine Magdo and Negar Tekeei are in charge of the prosecution.