MIAMI, FL — A former specialty pharmaceutical company CEO whose opulent Miami lifestyle included a private jet and at least two luxury homes, was found guilty of federal fraud charges in connection with a $100 million phony invoice scheme more than a decade ago that triggered a series of events culminating in the 2010 collapse of Westernbank, one of Puerto Rico’s largest banks at the time, according to federal prosecutors in Miami.
Fifty-five-year-old Jack Kachkar was convicted of eight counts of wire fraud affecting a financial institution following a three-week trial before U.S. District Judge Donald L. Graham in Miami. Kachkar is scheduled to be sentenced on April 30.
In addition to Westernbank, Kachkar was also convicted in connection with a $3 million scheme to defraud Mellon United National Bank of Miami.
“Jack Kachkar engineered a massive fraud scheme that led directly to the failure of a major Puerto Rican bank with more than 1,500 employees,” explained Assistant U.S. Attorney General Brian A. Benczkowski in Washington, D.C.
Federal prosecutors said Kachlar diverted tens of millions of dollars for his own personal benefit, including the purchase of a private jet, luxury homes in Key Biscayne and Miami’s trendy Brickell area, luxury cars, pricey hotel stays and extravagant jewelry and clothing expenditures.
“Jack Kachkar’s fraud caused substantial harm to the 1,500 employees of Westernbank and the people of Puerto Rico,” added U.S. Attorney Ariana Fajardo Orshan in Miami. “The U.S. Attorney’s Office remains committed to the prosecution of those individuals and corporations that use Miami and other South Florida communities as their base to operate multinational fraud schemes.”
The fraud occurred during Kachkar time as chairman and CEO of Inyx Inc., a publicly traded multinational pharmaceutical manufacturing company in New York.
“Beginning in early 2005, Kachkar caused Westernbank to enter into a series of loan agreements in exchange for a security interest in the assets of Inyx and its subsidiaries,” federal prosecutors said. “Under the loan agreements, Westernbank agreed to advance money based on Inyx’s customer invoices from ‘actual and bona fide’ sales to Inyx customers.”
Kachkar ordered Inyx employees to fool Westernbank by creating tens of millions of dollars worth of fake customer invoices from customers in the United Kingdom, Sweden and elsewhere.
“Kachkar caused these invoices to be presented to Westernbank as valid invoices,” prosecutors explained. “Kachkar made false and fraudulent representations to Westernbank executives about purported and imminent repayments from lenders in the United Kingdom, Norway, Libya and elsewhere in order to lull Westernbank into continuing to lend money to Inyx.”
Prosecutors said Kachkar made false and fraudulent representations to Westernbank executives that he had additional collateral, including mines in Mexico and Canada worth hundreds of millions of dollars.
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“In fact, this additional collateral was worth barely a fraction of that represented by Kachkar,” according to prosecutors. “During the course of the scheme, Kachkar caused Westernbank to lend approximately $142 million, primarily based on false and fraudulent customer invoices.”
With respect to Mellon Bank, prosecutors said Kachkar deposited a $3 million check at Mellon Bank from the sale of his private jet that he knew to be worthless.
“In fact, the defendant agreed to sell his plane to a different buyer,” prosecutors said. “After receiving a provisional credit for the check from Mellon Bank, the defendant wired out all of the provisional credit, including a $1 million wire to Kachkar’s personal account in Canada. Upon Mellon Bank’s request to reverse this $1 million wire, Kachkar refused to do so, resulting in at least a $1 million loss to Mellon Bank, the evidence showed.”
In an April 30, 2010 press release issued by the Federal Deposit Insurance Corporation, officials said Westernbank’s 46 branches and its deposits in Puerto Rico were to be assumed by Banco Popular de Puerto Rico of San Juan.
As of Dec. 31, 2009, Westernbank Puerto Rico had approximately $11.94 billion in total assets and $8.62 billion in total deposits, the FDIC said in the release.
The investigation against Kachkar was conducted by the Federal Deposit Insurance Corporation Office of Inspector General; the IRS Criminal Investigation for Miami and Puerto Rico; U.S. Immigration and Customs Enforcement’s Homeland Security Investigations in San Juan and the FBI’s San Juan Field Office.
“Today’s verdict holds the defendant accountable for orchestrating fraudulent schemes that resulted in more than $100 million in losses to insured institutions and the FDIC as receiver,” added Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation Office of Inspector General.
“This defendant’s greed was powerful enough to destroy a bank, taking with it the jobs of approximately 1,500 hard working citizens of Puerto Rico,” said FBI Special Agent in Charge Douglas A. Leff. “The FBI thanks the U.S. Attorney’s Office for sending an equally strong message that most fraud schemes will eventually lead to a prison cell.”
The case is being prosecuted by Assistant U.S. Attorney Michael N. Berger of the Southern District of Florida and Trial Attorney Michael O’Neill of the Criminal Division’s Fraud Section.
Miami Federal Courthouse Photo by Paul Scicchitano