Check Cashing Company Owner Committed Financial Fraud: Officials

LONG ISLAND, NY - The owner of several Long Island commercial check cashing companies was arrested on Wednesday with financial fraud for failing to file reports for customers receiving over $10,000, according to the U.S. Attorney.

John Drago the owner and compliance officer of the Kayla Companies was charged with multiple criminal violations of the Bank Secrecy Act, including failure to file required Currency Transaction Reports (“CTRs”) for customers receiving in excess of $10,000, the U.S. Attorney said.

Drago, 54, of St. James is also charged in the indictment with failure to collect and pay taxes, the U.S. Attorney said.

Drago was arraigned before United States Magistrate Judge A. Kathleen Tomlinson and released on a $500,000 bond.

Drago owned and operated check cashing businesses on Long Island, including Kayla Check Cashing Corp., North Island Check Cashing Corp., South Island Check Cashing Corp., East Island Check Cashing Corp., Bay Shore Check Cashing Corp. and Brentwood Check Cashing Corp. (collectively, the “Kayla Companies”), the according to the U.S. Attorney.

The operation was administered from the offices of Kayla Check Cashing Corp. in Farmingdale.

Hogwarts, Inc., was a management company owned by Drago through which employees of the Kayla Companies were paid.

Financial institutions are required to file a CTR for each transaction in cash in excess of $10,000.

In addition, a CTR is required to be filed by the financial institution when multiple checks, the total value is over $10,000, are cashed in a single day, the U.S. Attorney said.

"Check cashers provide a valuable service to our community," IRS-CI Assistant Special Agent-in-Charge Justin Campbell. “However, when they commit tax fraud, IRS-CI will aggressively investigate and seek prosecution of those involved.”

Between January 2010 and October 2013, Drago instructed employees to cash multiple checks in excess of $10,000 in a single day for certain customers without filing required CTRs, the U.S. Attorney said.

In addition, from August 2010 and October 2013, Drago directed employees to deposit and cash, over the course of several days, checks that had been submitted together on a single day in amounts in excess of $10,000, according to U.S. Attorney.

Drago also instructed employees to tell certain customers who presented individual checks in amounts exceeding $10,000 to return with multiple checks in amounts that were less than $10,000 to avoid the reporting requirement for such financial transactions.

As a result, he is also charged with failing to file CTRs and failing to develop, implement and maintain an effective anti-money laundering program for the Kayla Companies.

Between April 2012 and July 2013, Drago paid overtime wages and commissions to employee of the Kayla Companies in cash and failed to inform the IRS of the payment of these cash wages, the U.S. Attorney said.

Drago falsely underreported to the IRS the gross wages paid to his employees in order to avoid paying the full amount of Federal Insurance Contribution Act taxes that the Kayla Companies owed, the U.S. Attorney.

If convicted, Drago faces a maximum sentence of 10 years’ imprisonment.

"As alleged in the indictment, Drago flagrantly violated his obligations as the owner of check cashing businesses to follow federal regulations designed to prevent such businesses from being used to facilitate money laundering; he also failed to fulfill his responsibility as an employer to pay the proper taxes," United States Attorney Richard Donoghue said. "This Office and our law enforcement partners are committed to ensuring the integrity of financial institutions, including check cashing businesses."

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