Southport Man Sentenced for Role in $18.6 Million Fraud Scheme

A Southport man was sentenced to 21 months in prison for his part in an $18.6 million corporate fraud case.

In addition to the prison term, Jonathan Wheeler, 46, of Southport, was ordered to forfeit $957,435 by U.S. District Judge Jed S. Rakoff Wednesday in Manhattan federal court.

Wheeler was a co-owner and chief financial officer of G3K, a New Jersey-based company that provided in-store displays for retailers.

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In addition to Wheeler, fellow co-owners Steven Kaitz, Latchmee “Robbie” Mahato and executive Zachary Katz were sentenced on Wednesday for their roles in an elaborate scheme to defraud G3K’s lenders and customers out of millions of dollars.

Steven Kaitz received 40 months, while Mahato was sentenced to 24 months and Zachary Katz four months.

All four men and Kathleen Smith, the fifth defendant charged in this case, each pled guilty earlier this year.

The four executives must also pay $18,687,518 in restitution.

Read more from the press release below:

Manhattan U.S. Attorney Preet Bharara said: “This case highlights the lengths people will go to steal money and cover their tracks. These defendants covered much of the fraud playbook, from creating phony purchase orders and invoices to using fake email customer accounts to inflate company revenues, and then used the ill-gotten gains to pay for homes, luxury cars, and private school tuition.”

According to the Indictment and statements made during the proceedings in this case:

STEVEN KAITZ, LATCHMEE MAHATO, and JONATHAN WHEELER were the 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. ZACHARY KAITZ served as G3K’s vice president of creative services.

From 2012 to May 2014, in order to trick various lenders, including Veritas Financial Partners, LLC, and MVC Capital, Inc., into lending at least $18.6 million to G3K, STEVEN KAITZ, MAHATO, WHEELER, 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. STEVEN KAITZ, MAHATO, WHEELER, and Kathleen Smith also tricked certain of the company’s customers, including Foot Locker, Inc., Smith’s employer, 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, STEVEN KAITZ, MAHATO, and WHEELER were involved in the creation of fake email accounts purporting to belong to fictitious employees of Foot Locker and Adidas, G3K’s two largest customers. STEVEN KAITZ, MAHATO, and WHEELER operated these fake email accounts themselves, pretending to be employees of those customers, and then used those fake email accounts to “verify” false information about G3K’s financial condition, including its sales and accounts receivable, to G3K’s lenders and outside auditors. STEVEN KAITZ, MAHATO, and WHEELER also utilized shell companies to engage in “round-trip” transactions to create the false appearance that customers were paying G3K’s phony outstanding receivables, thereby allowing G3K to continue to borrow from its lenders. ZACHARY KAITZ, who was skilled in graphic design, helped carry out the fraud by creating fraudulent documentation, such as fake invoices, purchase orders, and bills of lading, to support the false representations to the lenders about G3K’s business.

STEVEN KAITZ, MAHATO, and WHEELER 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 Smith.

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.

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In addition to their prison terms, STEVEN KAITZ, 56, of Jersey City, New Jersey, was ordered to forfeit $1,382,427 and pay $18,687,518 in restitution; LATCHMEE MAHATO, a/k/a “Robbie,” 50, of Jamaica, Queens, was ordered to forfeit $2,215,417 and pay $18,687,518 in restitution; JONATHAN WHEELER, 46, of Southport, Connecticut, was ordered to forfeit $957,435 and pay $18,687,518 in restitution; and ZACHARY KAITZ, 32, of Brooklyn, New York, was ordered to forfeit $100,000 and pay $18,687,518 in restitution.

Kathleen Smith, 50, of South Plainfield, New Jersey, is scheduled to be sentenced before Judge Rakoff on October 16, 2015.

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. Attorney Joshua A. Naftalis is in charge of the prosecution. Assistant U.S. Attorney Edward B. Diskant of the Money Laundering & Asset Forfeiture Unit is responsible for the forfeiture aspects of the prosecution.