Former CEO of Luggage Manufacturer Pleads Guilty in Manhattan Federal Court to Orchestrating Multi-Million-Dollar Bank Fraud Scheme
Preet Bharara, the United States Attorney for the Southern District of New York, announced today 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”), pled guilty today in connection with a scheme to fraudulently obtain millions of dollars in loans from a bank by making false statements and submitting false and phony documents to the bank. JEMAL pled guilty before U.S. District Judge Valerie E. Caproni.
Manhattan U.S. Attorney Preet Bharara said: “Marvin Jemal orchestrated a scheme to line his own pockets by duping a bank into lending his luggage company more than $6 million based on lies and phony documents, and then diverting the money for his own personal uses, including the purchase of homes and luxury cars. Now Jemal stands convicted of a felony and awaits sentencing.”
According to the Indictment, other documents filed in Manhattan federal court, and statements made at today’s guilty plea:
From 2007 through October 2009, MARVIN JEMAL and Mark Bernstein, the former CEO and CFO, respectively, of the Company, engaged in a scheme to fraudulently induce a commercial bank based in New York (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. Although the loans were purportedly for the benefit of the Company’s business, 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.
JEMAL, 60, of Brooklyn, New York, pled guilty to one count of bank fraud, which carries a maximum sentence of 30 years in prison. Sentencing is scheduled for November 5, 2014, before Judge Caproni.
Bernstein, 64, of Belle Harbor, New York, pled guilty in October 2013 before U.S. District Judge Robert P. Patterson 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. He is scheduled to be sentenced on November 13, 2014.
The maximum potential sentence in this case is prescribed by Congress and is 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 and Cybercrime Unit. Assistant U.S. Attorney Christopher D. Frey is in charge of the prosecution.