SEC Report on the FTE Networks Leadership Team: Michael Palleschi as CEO and Chairman of the Board and David Lethem, CFO.
Former senior executives of FTE Networks, a former telecommunications company whose shares was delisted last year from the New York Stock Exchange, were indicted separately Thursday by federal prosecutors and the Manhattan District Attorney’s Office on a series of counts.
The two men, Michael Palleschi and David Lethem, have also been prosecuted in a civil lawsuit by the Securities and Exchange Commission for the same behavior that is the basis of the indictment against them in federal court.
Palleschi, the former CEO of FTE Networks, and Lethem, the former chief financial officer of the company, are accused in the federal case and the SEC complaint of a vast scheme to fraudulently cover up the deteriorating financial situation of FTE Networks from 2016 to 2019.
The men are also accused in these cases of embezzling millions of company dollars to pay for the use of private jets, luxury automobiles, personal credit cards, unauthorized bank transfers, emissions of unauthorized actions and salary increases.
In the grand jury indictment obtained by Manhattan office DA Cyrus Vance Jr., the men are accused of stealing more than $ 28 million in construction trust assets from a Manhattan-based company, Benchmark Builders, from November 2018.
The men allegedly misappropriated those assets of the company, which was a wholly owned subsidiary of FTE Networks, to repay millions of dollars in third party loans obtained by FTE. They are charged with first degree robbery in this case.
Palleschi, a 46-year-old resident of Naples, Florida, was arrested Thursday morning in upstate New York, while Lethem, 62, was arrested in Florida.
They are due in separate federal courts later Thursday.
Palleschi was Chairman of the Board and CEO of FTE from 2014 to May 2019, while Lethem, of Fort Meyers, Fla., Was CFO from June 2014 to March 2019.
The federal indictment accuses them of working with others in “a multifaceted scheme to fraudulently represent to investors, lenders and accountants” that the company’s financial situation was better than it was. was actually.
The scheme, which reportedly lasted from 2016 to 2019, included concealing convertible features and mandates of $ 22 million of convertible debt from the company and recognizing more than $ 12 million in bogus income, according to the deed. grand jury charge, which was unsealed Thursday.
The cover-up of the characteristics of the debt ultimately led FTE Networks to restate a net loss of $ 92 million for 2017, according to the indictment.
This indictment document states that Palleschi and Lethem, along with others, made these false statements and omitted key facts from the financial documents “in order to mask a trend of increasing FTE operating losses” and to avoid a fall in the company’s stock prices.
The indictment notes that if FTE’s share price had fallen below a certain level, it could have triggered debt commitments by the company, forcing it into bankruptcy.
The two men are charged with six counts, including conspiracy to commit securities fraud, wire fraud, undue influence in the conduct of audits and aggravated identity theft.
The federal case is being pursued by the United States Attorney’s Office for the Southern District of New York, based in Manhattan.
“Palleschi and Lethem have instead chosen to lie about FTE’s finances to make the company appear more financially sound than it was, thereby defrauding FTE’s shareholders and lenders,” said the American attorney for SDNY, Audrey Strauss.
“Instead of being candid with their investors, Palleschi and Lethem chose the easiest way to withdraw money by masking FTE’s true financial health with forged documents and forged signatures.”
The SEC complaint accuses Palleschi and Lethem of directly violating or aiding and abetting violations of the anti-fraud, reporting and proxy provisions of securities laws.
ETP networks is currently in the business of leasing residential real estate. The company’s current interim CEO, Michael Beys, is an attorney who is a former federal prosecutor in the United States Attorney’s Office for the Eastern District of New York, the sister jurisdiction of the SDNY.
Beys, in an interview with CNBC on Thursday, said, “The company has cooperated and will continue to cooperate with the SDNY and the SEC.”
“We look forward to seeing justice done,” Beys said.
“The company continues to move forward and hopefully restore and recover value for the shareholders of the company,” he said. “We are the good ones and will continue to try to recover from the mess left by Palleschi and Lethem.”
The SEC lawsuit seeks permanent injunctions, penalties and a ban on the two men from acting as officers and directors of listed companies, as well as “restitution and pre-judgment interest, and a clawback of the stock-based compensation paid to Palleschi during the alleged fraud, ”the SEC said.
Eric Bustillo, director of the SEC’s Miami regional office, said: “The defendants have engaged in a blatant scheme to fraudulently inflate FTE’s income in order to misrepresent the company’s financial situation while embezzling millions of dollars for their personal use.
“We are committed to holding accountable those executives who provide materially false financial reports to the public and those who loot companies for their own gain,” Bustillo said.
FTE, which was based in New York and Naples, Florida, previously had its shares traded on the OTCQX over-the-counter market, but traded on the U.S. NYSE market in December 2017.
It was suspended from trading on the NYSE two years later and delisted on May 21, 2020.
A press release issued in late 2019 stated that the company was made aware of the delisting proceedings because the NYSE determined that FTE or its management “engaged in transactions which, in the opinion of the Exchange, are contrary to the public interest “.
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