SEC report on FTE Networks Administration Workforce: Michael Palleschi as CEO and Chairman of the Board and David Lethem, CFO.Supply: SECThe previo
SEC report on FTE Networks Administration Workforce: Michael Palleschi as CEO and Chairman of the Board and David Lethem, CFO.
Supply: SEC
The previous high executives of FTE Networks, a onetime telecommunications firm whose inventory was delisted final yr from the New York Inventory Trade, have been individually charged Thursday by federal prosecutors and the Manhattan District Legal professional’s workplace on a raft of felony counts.
The 2 males, Michael Palleschi and David Lethem, have been additionally sued in a civil grievance by the Securities and Trade Fee for a similar conduct that’s the foundation of the felony indictment in opposition to them in federal courtroom.
Palleschi, the ex-CEO of FTE Networks, and Lethem, the corporate’s former chief monetary officer, are accused within the federal case and SEC grievance of a broad scheme to fraudulently conceal FTE Networks’ deteriorating monetary situation from 2016 via 2019.
The boys are also accused in these instances of embezzling tens of millions of {dollars} from the corporate to pay for personal jet use, luxurious vehicles, private bank cards, unauthorized wire switch, inventory issuances and unauthorized wage will increase.
Within the grand jury indictment obtained by the workplace of Manhattan DA Cyrus Vance Jr., the boys are accused of stealing greater than $28 million in development belief belongings from a Manhattan-based agency, Benchmark Builders, starting in November 2018.
The boys allegedly diverted these belongings from the corporate, which was an entirely owned subsidiary of FTE Networks, to repay tens of millions of {dollars} in third-party loans obtained by FTE. They’re charged with first-degree grand larceny in that case.
Palleschi, a 46-year-old resident of Naples, Florida, was arrested Thursday morning in upstate New York, whereas Lethem, 62, was arrested in Florida.
They’re because of seem in separate federal courts later Thursday.
Palleschi had served as chairman of FTE’s board of administrators and CEO from 2014 via Might 2019, whereas Lethem, of Fort Meyers, Florida, was CFO from June 2014 to March 2019.
The federal felony indictment accuses them of working with others in “a multifaceted scheme to fraudulently signify to buyers, lenders and accountants” that the corporate’s monetary situation was higher than it truly was.
The scheme, which allegedly ran from 2016 via 2019, included concealing the convertible and warrant options of $22 million value of firm convertible debt and recognizing greater than $12 million of pretend income, in keeping with the grand jury indictment, which was unsealed Thursday.
The concealment of the debt options finally led FTE Networks to restate a web lack of $92 million for 2017, the indictment mentioned.
That charging doc says that Palleschi and Lethem, together with others, made these false statements and omitted key information in monetary paperwork “with a purpose to masks a pattern of FTE’s rising working losses” and to keep away from firm inventory dropping in worth.
The indictment notes that if FTE’s share worth dropped beneath a sure degree, it might have triggered debt covenants by the corporate, forcing it out of business.
The 2 males are charged with six felony counts, which embody conspiracy to commit securities fraud, wire fraud, improperly influencing the conduct of audits and aggravated identification theft.
The federal case is being prosecuted by the US Legal professional’s Workplace for the Southern District of New York, which relies in Manhattan.
“Palleschi and Lethem as a substitute selected to lie about FTE’s funds to make the corporate seem extra financially wholesome than it was, thus defrauding FTE’s stockholders and lenders,” mentioned SDNY U.S. Legal professional Audrey Strauss.
“As a substitute of forthrightness with their buyers, Palleschi and Lethem selected the simple technique to money in by obfuscating FTE’s true monetary well being via pretend paperwork and solid signatures.”
The SEC grievance fees Palleschi and Lethem with immediately violating or aiding and abetting violations of antifraud, reporting, and proxy solicitation provisions of the securities legal guidelines.
FTE Networks at present is within the enterprise of leasing residential actual property. The corporate’s present interim CEO, Michael Beys, is an legal professional who’s a former federal prosecutor within the U.S. Legal professional’s Workplace for the Jap District of New York, the sister jurisdiction to the SDNY.
Beys, in an interview with CNBC on Thursday, mentioned, “The corporate has cooperated and can proceed to cooperate with the SDNY and the SEC.”
“We stay up for justice being completed,” Beys mentioned.
“The corporate is continuous to maneuver ahead and hopefully returning and salvaging worth for the corporate shareholders,” he mentioned. “We’re the great guys and can proceed to attempt to get better from the mess Palleschi and Lethem left.”
Benchmark Builders, which was acquired by FTE Networks in 2017, mentioned Thursday that executives at that firm had alerted the Manhattan DA’s workplace to the alleged crimes dedicated by Palleschi and Lethem.
“Right now’s indictments are the end result of the tough resolution we made late in 2018 to guard our subcontractors and shoppers once we contacted the Manhattan District Legal professional concerning the improper use of belief fund cash,” Benchmark Builders mentioned in a press release emailed to CNBC.
“We invested our personal private assets into the enterprise to guard the subcontractors and their staff and separated ourselves from FTE nearly 2 years in the past,” the corporate mentioned.
“Not a single subcontractor or shopper was impacted by these occasions and never a single employee missed a paycheck. The development business on this metropolis is usually a powerful enterprise, however now we have at all times put integrity first and that is what result in right now’s occasions. We’re blissful to have this behind us and can work with renewed deal with servicing our prospects.”
The SEC lawsuit seeks everlasting injunctions, penalties and each males being barred from performing as officers and administrators of publicly traded firms, in addition to “disgorgement and prejudgment curiosity, and a clawback of equity-based compensation paid to Palleschi in the course of the alleged fraud,” the SEC mentioned.
Eric Bustillo, director of the SEC’s Miami Regional Workplace, mentioned, “The defendants engaged in an egregious scheme to fraudulently inflate FTE’s revenues to painting a false image of the corporate’s monetary situation whereas misappropriating tens of millions of {dollars} for his or her private use.”
“We’re dedicated to holding accountable executives who present the general public with materially false monetary studies and those that loot firms for their very own private acquire,” Bustillo mentioned.
FTE, which had been based mostly in New York and Naples, Florida, beforehand had its shares traded on the over-the-counter OTCQX market, however was buying and selling on the NYSE’s American market by December 2017.
It was suspended from buying and selling on the NYSE two years later and was delisted on Might 21, 2020.
A press launch in late 2019 mentioned the corporate was notified of delisting proceedings as a result of the NYSE had decided that FTE or its administration “have engaged in operations that, within the opinion of the Trade, are opposite to the general public curiosity.”