On February 5, the U.S. Department of Justice announced that on February 4, after a three-week trial, a federal jury in the Southern District of Florida convicted Jack Kachkar, former Chairman and Chief Executive Officer of Inyx Inc., on eight counts of wire fraud affecting a financial institution (18 U.S.C. §1343), for his role in a $100 million scheme to defraud Westernbank of Puerto Rico (Westernbank). That scheme, according to the Department, set in motion a series of events that led to Westernbank’s insolvency and ultimate collapse. Kachkar’s conviction also included a $3 million scheme to defraud Mellon United National Bank of Miami (Mellon Bank).
As the Department summarized the trial evidence, from 2005 to 2007, Kachkar served as Chairman and CEO of Inyx., a publicly traded multinational pharmaceutical manufacturing company:
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. Under the loan agreements, Westernbank agreed to advance money based on Inyx’s customer invoices from “actual and bona fide” sales to Inyx customers, the evidence showed.
The trial evidence further showed that Kachkar orchestrated a scheme to defraud Westernbank, by causing numerous Inyx employees to create tens of millions of dollars’ worth of fake customer invoices that were purportedly payable by customers in the United Kingdom, Sweden, and elsewhere. Kachkar then
caused these invoices to be presented to Westernbank as valid invoices. 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, the evidence showed. In fact, these lenders had not agreed to repay Westernbank’s loan. Kachkar made false and fraudulent representations to Westernbank executives that he had additional collateral, including purported mines in Mexico and Canada worth hundreds of millions of dollars, to induce Westernbank to lend additional funds, the evidence showed. In fact, this additional collateral was worth barely a fraction of that represented by Kachkar.
During the course of his scheme, Kachkar caused Westernbank to lend approximately $142 million, primarily based on the false and fraudulent customer invoices. The evidence also showed
that he diverted tens of millions of dollars for his own personal benefit, including for the purchase of, among other things, a private jet, luxury homes in Key Biscayne and Brickell, Miami, luxury cars, luxury hotel stays, and extravagant jewelry and clothing expenditures.
In or around June 2007, Westernbank declared the loan in default and ultimately suffered losses exceeding $100 million on the Inyx loans. According to trial evidence, these losses later triggered a series of events leading to Westernbank’s insolvency and ultimate collapse. At the time of its collapse, Westernbank had approximately 1,500 employees and was one of the largest banks in Puerto Rico.
With regard to the second scheme involving Mellon Bank, the trial evidence showed that Kachkar “knowingly deposited a $3 million check at Mellon Bank from the purported sale of his private jet.” At the time of its deposit, he knew that the check was worthless, and in fact agreed to sell his plane to a different buyer. After receiving a provisional credit for the check from Mellon Bank, Kachkar “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.”
Kachkar is scheduled to be sentenced April 30.
Note: This trial and conviction underscore the importance of financial institutions’ maintaining a robust fraud compliance program that addresses both internal and external fraud. As the evidence at Kachkar’s trial showed, fraud schemes are still capable of bringing down financial institutions if management fails to conduct enhanced due diligence on major borrowers from their institutions, and fails to invest the necessary compliance resources to safeguard their institutions.
Kachkar’s own prior history should have caused any financial institution to regard him with the utmost suspicion. In 2005, Kachkar reportedly
was banned from acting as a director of any companies in Ireland for five years after a judge found he had not acted responsibly in connection with a transfer of about $4 million (Canadian) from a floundering Irish company, part of the Miza Group, out of the country to other companies within the group. He appealed, and Ireland’s Supreme Court upheld the judgment of not acting responsibly, but noted “no question of dishonesty arose.”
Later, 2011 media reports stated that Kachkar was convicted of fraud and attempted fraud in France, in connection with his 2007 attempted purchase of a French football club, Olympique de Marseille. According to French media reports, the French court imposed a 10-month suspended sentence and a €50,000 fine in relation to his failed purchase of the club in 2007, as well as a €500,000 payment to the family of the then-Olympique owner who had since died.