It was a skim that would have made the Mafia proud.
Two men running a business out of a house in North Carolina allegedly handled millions of dollars for former LeNature's CEO Gregory Podlucky and helped him skim $110 million in financing that Podlucky used to enrich himself by building a mansion and purchasing $30 million worth of gems and jewelry.
The scheme, detailed in a lawsuit filed in U.S. District Court in Pittsburgh against Podlucky, former company officers, family, friends and investment bankers, could serve as the blueprint for money laundering, bank, wire and mail fraud charges being considered by a federal grand jury in Pittsburgh.
The funds were part of more than $500 million allegedly looted by Podlucky as part of a fraud that kept the failing company afloat through forgery, deceit and questionable loans.
Evidence uncovered by forensic auditors has since been turned over to the U.S. Attorney's Office, postal inspectors and the Internal Revenue Service for use in the criminal probe, according to bankruptcy court records that detail the investigation.
Also named as defendants are Podlucky's brother, Jonathan, who was the company's COO; David Getzik of Washington, Pa., the former CFO; Robert Lynn of Ligonier, vice president; and Drew Murin, formerly of Derry, who is a friend of Podlucky's and served as a company consultant.
None of the defendants would comment on the allegations.
Here's how the scheme worked, according to Trustee Marc Kirschner's filing, which is seeking more than $1.5 billion in damages.
Podlucky hired The Pollinger Co., of Charlotte, N.C., to act as an intermediary in arranging the financing and purchase of bottling equipment that Podlucky wanted to use to expand his Latrobe plant and a sprawling plant he built in Arizona.
Podlucky and owners Donald and Paul Pollinger used a simple bait-and-switch to run the scam.
The Pollingers ordered an expensive line of equipment, then switched to cheaper machinery after the financing was in place. The company leasing the equipment ended up paying Pollinger Co. more than the Pollingers had to pay the company manufacturing the equipment, according to the suit.
When LeNature's auditors in 2006 wanted to confirm that Pollinger had the equipment deposits in a bank, the Pollingers confirmed that they held more than $200 million in deposits for Podlucky. The money was supposed to be transferred to a German company making the equipment.
As a result, "tens of millions of dollars" were funneled to Podlucky, according to Kirschner.
The suit alleges the Pollingers also helped Podlucky obtain financing for machinery that did not exist.
Kirschner said no one raised alarms when it was discovered that Pollinger was a small, two-man operation with little or no assets or credit rating. More importantly, no one bothered to check where the money was deposited, he said.
In each instance, the leasing company paid too much in financing and Pollinger sent the excess to Podlucky. In 2003 and 2004, more than $8.1 million in excess financing was transferred to Podlucky, according to the lawsuit.
The lawsuit also details Wachovia Bank's role.
Wachovia Bank and its affiliates, Wachovia Capital Markets and Wachovia Securities, are named as defendants in the lawsuit. Wachovia, which arranged a total of $600 million in financing for LeNature's, knew the company was teetering financially yet it continued to provide LeNature's "with a steady stream of capital" by issuing more debt, according to Kirschner.
Kirschner said LeNature's should have failed financially as early as 2002 but Wachovia's steady stream of money kept the company in business, piling up even more debt, until late 2006.
Despite Wachovia's own misgivings about LeNature's financial affairs, the bank kept loaning the company more money.
Using internal company e-mails, Kirschner shows that Wachovia's investment bankers were at odds with their own analysts who had serious doubts about LeNature's and Podlucky.
One Wachovia analyst questioned why LeNature's earnings did not match its reported growth projections since its line of water and juice products were not being carried by the major stores. Its products were disappearing from shelves at places like Wal-Mart, Target, Pathmark and Kroger's.
Another analyst in Wachovia's food and beverage division asked how LeNature's could be making money by selling its product for 99 cents.
Finally, it got to the point where Wachovia analysts said LeNature's financial information was "frankly worthless" even though brokers had put out a "buy rating" on a series of junk bonds for the company.
Wachovia was able to reduce its liability to nothing by selling its debt to other financial institutions and hedge funds who never were told about LeNature's financial problems.
In the process, the bank earned more than $7.1 million in fees "for a few days' work." Wachovia's actions in that instance also are the subject of a lawsuit in federal court in Pittsburgh.
Pat Huddleston, the former chief of enforcement for the Securities and Exchange Commission, said corporate corruption "is all about the money."
"There is always a battle between the compliance department and people who make money for the investment banking firms -- the investment bankers," said Huddleston, who now operates Investors Watchdog, a Web site in Atlanta that tracks financial fraud.
"Voices get drowned out by investment banking fees, which are pretty hefty. Some officials just don't have the courage to insist that people take a harder look at these things out of fear for their job," Huddleston said.
"On one hand, you have someone raising red flags. On the other, you have someone saying, 'I can make $20 million on this deal.' "
He said creating bogus financial records and forging documents are nothing new in corporate America. Corrupt businessmen are willing to go to any length to conceal fraud.
He said he tracked a recent scam involving a company official who creating a non-existent accounting firm so it could issue fictitious financial opinions on behalf of the company to hide the businessman's misdeeds.
"Truth is stranger than fiction," he said.
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