Michigan Man Sentenced to Prison for Check-Kiting Scheme that Caused Loss of Nearly $150 Million

CLEVELAND –Najeeb Khan, 70, of Edwardsburg, Michigan was sentenced to 97 months imprisonment by U.S. District Court Judge Pamela A. Barker after earlier pleading guilty to bank fraud and attempted tax evasion.  Judge Barker also ordered Khan to pay over $150,000,000 in restitution to the victims of his bank fraud and the IRS, and to serve 3 years of supervised release once released from prison.

According to court documents, Khan owned and operated Interlogic Outsourcing Inc. (“IOI”), a payroll processing company that, at one point, provided services to approximately 6,000 clients. 

Beginning in 2014, however, Khan operated a check-kiting scheme using his company’s business bank accounts to fraudulently obtain funds from various financial institutions, including KeyBank.  Khan used these funds to support the growth of his payroll processing business and fund his lifestyle, which included the purchase of automobiles, aircraft, and vacation homes.

As part of his scheme, Khan wrote checks and made wire transfers between multiple accounts under his control at various banks.  This type of fraud is commonly known as check-kiting, and it involves the perpetrator continually writing checks back and forth between accounts he or she controls to fraudulently inflate account balances, thus deceiving banks into honoring checks written with insufficient funds.

Khan wrote checks from IOI accounts at Lake City Bank for deposit into IOI accounts at KeyBank and then wrote checks from IOI accounts at Berkshire Bank for deposit into IOI accounts at Lake City Bank.  To cover the check funds issued from Berkshire Bank, Khan wired funds from IOI accounts at KeyBank to IOI accounts at Berkshire Bank.

This long-running check-kiting scheme caused a financial loss of nearly $150 million to businesses around the country and to KeyBank in the Northern District of Ohio. Khan also failed to report income gained from the check-kiting scheme on his annual tax return for the tax years 2014 to 2017.

“This defendant essentially gave himself a $150,000,000 loan, spent money however he wanted on himself and his business, then defaulted, all without ever getting the banks’ approval to give him that loan,” said U.S. Attorney Rebecca C. Lutzko.  “These types of financial crimes undermine the well-being of our financial institutions and harm our entire community.  This office will vigilantly investigate and prosecute persons who engage in such conduct to protect and prevent harm to financial institutions locally and nationwide.”

“Financial crimes can have serious and long-term consequences. Complex financial crimes that impact the economic well-being of institutions is reprehensible,” said FBI Cleveland Special Agent in Charge Gregory Nelsen. “The defendant orchestrated an elaborate business fraud scheme that caused extensive monetary harm to financial institutions nationwide. The FBI will work diligently and seek justice for individuals and entities who fall victim to conniving criminals who cheat and lie for the sole purpose of personal gain.” 

This case was investigated by the Cleveland FBI and IRS Criminal Investigations (“CI”).  This case was prosecuted by Assistant U.S. Attorneys Chelsea S. Rice and Alejandro A. Abreu.