CEO Who Oversaw Multi-Million-Dollar Corporate Accounting Fraud Pleads Guilty in Manhattan Federal Court
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that STEVEN KAITZ, the chief executive officer and one of three owners and principals of G3K Displays, Inc., and related entities (“G3K”)—a New Jersey-based company that provided in-store displays for retailers—pled guilty today in Manhattan federal court to an elaborate scheme to defraud G3K’s lenders and customers out of millions of dollars. Among other things, KAITZ admitted that he and others fraudulently inflated G3K’s sales and accounts receivable to secure millions of dollars in loans, and falsely verified to G3K’s lenders and outside auditors false financial information about G3K. KAITZ was charged along with four others in January 2015, and he pled guilty today before United States District Judge Jed S. Rakoff.
Manhattan U.S. Attorney Preet Bharara said: “With today’s guilty plea, Steven Kaitz has taken responsibility for his role in a scheme to inflate his company’s sales and accounts in order to secure over $18.6 million in loans. Not only did Kaitz obtain these funds for his company through lies and misrepresentations, but he also misappropriated some of the money for himself, spending it on luxury items and kickbacks.”
According to the Indictment and statements made during the plea proceeding:
KAITZ, was one of three owners and principals of G3K, a company that manufactured and designed displays for retailers around the world, including major retailers of sports apparel and footwear.
From approximately 2012 to May 2014, in order to trick various lenders, including Veritas Financial Partners, LLC, and MVC Capital, into lending at least $18.6 million to G3K, KAITZ and others engaged in a scheme to falsely inflate G3K’s revenue and accounts receivable, and as part of the scheme, made and caused to be made materially false and misleading statements about G3K’s financial condition. To create the false impression of sales, the defendants created phony documents, including fake and falsely inflated purchase orders purporting to reflect sales to G3K’s customers. The defendants also tricked certain of the company’s customers into paying falsely inflated invoices from G3K.
The defendants took elaborate steps to keep the scheme afloat and prevent G3K’s lenders and outside auditors from discovering the fraud. For example, KAITZ was involved in the creation of fake e-mail accounts purporting to belong to fictitious employees of Footlocker and Adidas, G3K’s two largest customers. KAITZ and his co-defendants operated these fake e-mail accounts themselves, pretending to be employees of those customers, and then used those fake e-mail accounts to “verify” false information about G3K’s financial condition, including its sales and accounts receivable, to G3K’s lenders and outside auditors. To keep their scheme afloat, KAITZ and the other owners of G3K also utilized shell companies to engage in “round-trip” transactions to create the false appearance that customers were paying G3K’s phony outstanding receivables.
KAITZ and the other owners of G3K further misappropriated approximately $2.8 million of the loan proceeds for their own personal use, to pay for homes and luxury cars, private school tuition, and personal credit card bills, as well as kickbacks to another co-defendant in exchange for her role in the scheme.
As of May 2014, when G3K’s lenders terminated their lending relationships with the company after discovering the fraud, G3K had approximately $18.6 million in loans outstanding.
* * *
KAITZ, 56, of Jersey City, New Jersey, pled guilty to one count of conspiracy to commit bank fraud and wire fraud, which carries a maximum sentence of 30 years in prison. As part of the plea agreement, he agreed to pay restitution in the amount of $18,600,000, and he agreed to forfeit $1,382,427. KAITZ is scheduled to be sentenced by Judge Rakoff on September 8, 2015, at 4:00 p.m.
The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. The charges remain pending against KAITZ’s co-defendants, who are presumed innocent unless and until they are proven guilty.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.
The case is being prosecuted by the Office’s Complex Frauds & Cybercrime Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Rosemary Nidiry are in charge of the prosecution.