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South Florida Resident Convicted of $100 Million International Fraud Scheme that Led to Collapse of One of Puerto Rico’s Largest Banks

February 7, 2019 / Source: FDICIG



Tuesday, February 5, 2019

South Florida Resident Convicted of $100 Million International Fraud Scheme that Led to Collapse of One of Puerto Rico’s Largest Banks

A Key Biscayne, Florida resident was found guilty yesterday by a federal jury for his role in a $100 million scheme to defraud Westernbank of Puerto Rico (Westernbank); the losses triggered a series of events leading to Westernbank’s insolvency and ultimate collapse.  The defendant was also convicted of a $3 million scheme to defraud Mellon United National Bank of Miami (Mellon Bank). 

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Ariana Fajardo Orshan of the Southern District of Florida, Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), Special Agent in Charge Michael De Palma of IRS Criminal Investigation (IRS-CI) for Miami and Puerto Rico, Special Agent in Charge Iván J. Arvelo of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) in San Juan and Special Agent in Charge Douglas A. Leff of the FBI’s San Juan, Puerto Rico Field Office made the announcement. 

Jack Kachkar, 55, was convicted of eight counts of wire fraud affecting a financial institution after a three-week trial before U.S. District Judge Donald L. Graham of the Southern District of Florida.  Kachkar is scheduled to be sentenced by Judge Graham on April 30, 2019.  

“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,” said Assistant Attorney General Benczkowski.  “I want to commend the prosecutors and our law enforcement partners for their tireless work investigating this complex case and holding the defendant to account for these crimes.”

“Jack Kachkar’s fraud caused substantial harm to the 1,500 employees of Westernbank and the people of Puerto Rico,” said U.S. Attorney Fajardo Orshan. “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.”

“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,” said Inspector General Lerner.  “The FDIC Office of Inspector General remains committed to investigate cases of deception and swindles that undermine the integrity of financial institutions, and we will continue to work with our law enforcement partners to bring to justice those who commit such offenses.”

“IRS Criminal Investigation will always pursue investigations like this where Mr. Kachkar, for his own personal benefit, orchestrated such a large scheme at the expense of one of Puerto Rico’s largest banks and its 1,500 employees,” said IRS-CI Special Agent in Charge Palma.  “This investigation shows that the appearance of success can be a mask for a tangled financial web of lies, and we are proud to be part of the prosecution team that is bringing Mr. Kachkar to justice.”

“HSI San Juan will continue working with our local, state and federal partners to investigate and prosecute these types of cases as well as those involving violations to the more than 400 federal statutes that we investigate, “ said HSI Special Agent in Charge Arvelo.  “This man was responsible for one of the largest fraud schemes ever recorded in the banking business in Puerto Rico and he will pay the consequences.”

“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 Leff.  “The FBI thanks the US Attorney’s Office for sending an equally strong message that most fraud schemes will eventually lead to a prison cell.”

According to evidence presented at trial, from 2005 to 2007, Kachkar served as chairman and CEO of Inyx Inc., 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 showed that Kachkar orchestrated a scheme to defraud Westernbank by causing numerous Inyx employees to make tens of millions of dollars worth of fake customer invoices purportedly payable by customers in the United Kingdom, Sweden and elsewhere.  Kachkar 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 the scheme, Kachkar caused Westernbank to lend approximately $142 million, primarily based on false and fraudulent customer invoices.  The evidence showed that the defendant 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.

In addition, the evidence showed, Kachkar knowingly deposited a $3 million check at Mellon Bank from the purported sale of his private jet.  At the time of its deposit, based on the evidence presented, Kachkar knew that the check was worthless.  In fact, the defendant agreed to sell his plane to a different buyer.   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. 

This matter was investigated by the FDIC-OIG, IRS-CI, HSI and FBI.  The case is being prosecuted by Trial Attorney Michael O’Neill of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Michael N. Berger of the Southern District of Florida.