FTE Networks executives charged with securities fraud conspiracy
SEC report on FTE Networks’ management team: Michael Palleschi as CEO and Chairman of the Board of Directors and David Lethem, CFO.
The former top executives of FTE Networks, a telecommunications company that was delisted on the New York Stock Exchange last year, have been charged with conspiracy to commit securities fraud and other criminal charges in federal court in Manhattan.
Separately, the two former executives were sued by the Securities and Exchange Commission for their alleged conduct in a civil lawsuit.
The SEC said in a press release that Michael Palleschi, former CEO of FTE Networks, and former CFO David Lethem, “misappropriated millions of dollars in corporate funds to pay for personal expenses, including luxury car leasing, private jet services.” and illegal salary increases. “
The criminal charges against them accuse them of working with others in “a complex scheme to fraudulently display” to investors, lenders and accountants that the company’s financial condition was better than it actually was.
The program, which allegedly ran from 2016 to 2019, included hiding the convertible and warrant features of the company’s convertible bonds and recognizing more than $ 12 million in fake revenue, according to the grand jury indictment, unsealed Thursday .
The obfuscation of the debt features eventually led FTE Networks to re-estimate a net loss of $ 92 million for 2017, the indictment reads.
This indictment states that Palleschi and Lethem, along with others, made these false statements and omitted key facts in financial documents “to mask a trend of rising FTE operating losses” and to avoid a fall in the company’s shares.
The indictment states that if FTE’s share price had fallen below certain levels, it would have resulted in debt clauses on the company and forced it into bankruptcy.
The two men are charged on six counts, including conspiracy to commit securities fraud, wire transfer fraud, improperly influencing the conduct of audits, and aggravated identity theft. The case is being prosecuted by the Manhattan Attorney General.
The SEC complaint accuses Palleschi and Lethem of directly violating or aiding and abetting violations of the anti-fraud, reporting, and proxy solicitation provisions of securities laws.
The lawsuit seeks permanent injunctions, penalties and the prohibition of both men from acting as officers and directors of publicly traded companies, as well as “skip and prejudice interest and a recovery of the stock-based compensation paid to Palleschi during the alleged fraud”. said the SEC.
Eric Bustillo, director of the SEC’s Miami regional office, said: “The defendants have engaged in an outrageous scheme to fraudulently increase RTD revenues in order to misrepresent the company’s financial position while holding millions of dollars Abusing dollars for their own personal use. “
“We pledge to hold executives accountable who provide materially false financial reports to the public and those who rob companies for their personal gain,” said Bustillo.
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FTE, based in New York and Naples, Fla., Had previously traded its shares on the OTCQX over-the-counter market, but was trading on the NYSE US market in December 2017.
It was suspended from trading on the NYSE two years later and delisted on May 21, 2020.
A press release released in late 2019 said the company was notified of delisting because the NYSE found that FTE or its management were engaged in “business that the exchange believed to be contrary to the public interest.”
Palleschi was Chairman of the Board of Directors and Chairman of FTE from 2014 to May 2019, while Lethem was CEO from June 2014 to March 2019.
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