Holding Company CEO Charged with Bank Fraud

   BROOKLYN, N.Y. – 4/13/2012 - The former chief executive officer of a publicly held food products company that traded on the NASDAQ and manufactured and distributed a line of baking mixes and spices was indicted on April 13 on conspiracy, bank fraud and false statement charges arising out his scheme to inflate Synergy’s sales through a $26 million bank fraud scheme. Mair Faibish, the former chief executive officer of Synergy Brands Inc., was arrested earlier in the day and was due to appear in court before U.S. Magistrate Judge Viktor V. Pohorelsky in Brooklyn.
   The charges were announced by Loretta E. Lynch, U.S. Attorney for the Eastern District of New York; James T. Hayes Jr., Special Agent-in-Charge, Department of Homeland Security (DHS), Homeland Security Investigations (HSI), New York Field Office; and Nassau County, N.Y., Police Commissioner Thomas V. Dale.
    As alleged in the indictment, the defendant and his co-conspirators fraudulently inflated Synergy’s sales by approximately 20 percent for the quarter ending June 30, 2008, through an international check kiting scheme in which they kited approximately $750 million worth of checks not backed by sufficient funds through various banks in the United States and Canada.
   The defendant caused those checks to be deposited into bank accounts of associated food manufacturers and distributors in Canada. The Canadian companies then sent checks in corresponding amounts, but also not backed by sufficient funds, back to Synergy. Because the banks made deposited funds immediately available for withdrawal, the scheme artificially inflated the companies’ bank account balances while the scheme was ongoing. The defendant and his co-conspirators used Synergy’s fraudulently inflated bank account balance to book millions of dollars in fictitious accounts receivable and revenue. By the end of the scheme, Signature Bank had lost approximately $26 million that the defendant and his co-conspirators had withdrawn before the bank discovered the scheme.
   In addition to the bank fraud and conspiracy charges, the indictment charges that the defendant made false statements to the U.S. Securities and Exchange Commission (SEC) about Synergy’s financial condition in a public filing, specifically: (1) that Synergy had approximately $44.5 million in sales, when approximately 20 percent of those sales were fictitious; (2) that Synergy had approximately $40 million in cost of goods sold, when approximately 20 percent of the cost of goods sold was fictitious; and (3) that Synergy recognized approximately $1.5 million in “prepaid expenses,” when at least 25 percent of those prepaid expenses were fictitious.
    According to the company’s filings with the SEC, Synergy was a holding company with subsidiaries that distributed nationally known food and beauty products to retailers and wholesalers and manufactured baking products through its Loretta Baking Mix Products subsidiary. Synergy also sold premium cigars to restaurants, hotels, casinos and country clubs as well as directly to consumers over the Internet and through its retail store in Miami.
   “The defendant allegedly defrauded an FDIC-insured bank out of millions of dollars through a massive check-kiting scheme, as well as fraudulently inflated Synergy’s financial statements in order to make the struggling company appear prosperous. These false representations were then provided to the SEC and the investing public,” Lynch said. “Corporate executives who abuse their positions of trust can expect to be investigated and prosecuted to the full extent of the law.”
   If convicted, the defendant faces a maximum sentence of 30 years in prison on the most serious charge in the indictment.
   The government’s case is being prosecuted by Assistant U.S. Attorneys Ilene Jaroslaw and Sylvia Shweder.
   Source: Financial Fraud Enforcement Task Force

Photo by Steve Rensberry (c) 2014