A New Jersey man who used a Ponzi scheme to defraud financial institutions out of $80 million was sentenced to sixteen years in federal prison. Charles K. Schwartz, 58, pled guilty in April to one count of mail fraud, which carried a maximum penalty of twenty years in prison and a fine up to $250,000. Under federal sentencing guidelines, prosecutors recommended a sentence between fifteen and nineteen years.
According to charging documents, Schwartz was president of Allied Health Care Services, Inc. ("Allied"), which was founded in 1976. An unindicted co-conspirator operated a company ("Company 1") purporting to be a vendor of medical equipment. Additionally, Schwartz owned and controlled C&C, Inc. ("C&C"), which held itself out to be a distributor of medical equipment. From 2002 to July 2010, Schwartz would solicit invoices from Company 1 that created the false appearance that Company 1 was providing valuable medical equipment to Schwartz and Allied. Schwartz would then take those fictitious invoices and seek millions of dollars in financing from lenders to purportedly assist in Allied's leasing of the medical equipment. The lenders would not take possession of the equipment, which would be shipped directly to Allied, who in turn would make periodic lease payments to the lenders. In total, lenders paid approximately $135 million to Company 1 in furtherance of the purported operation.
However, Company 1 never provided any medical equipment to Schwartz or Allied. Instead, the conspirators went to exorbitant lengths to create the appearance of a thriving business, including the alteration or creation of serial numbers to match the phony invoices and the transfer of funds to bank accounts in Allied's name to make it appear that the company was credit-worthy. In reality, nearly $90 million was transferred from Company 1 to Schwartz and entities controlled by Schwartz. Prosecutors alleged that Schwartz used these ill-gotten proceeds to buy numerous residential and commercial properties in New Jersey and New York, including at least one horse farm.
In addition to the sentence, United States District Judge Susan Wigenton also ordered Schwartz to pay $80 million in restitution to the defrauded financial institutions. However, a trustee currently overseeing the liquidation of Allied estimates the total recovery at less than $10 million.
A copy of the Information filed against Schwartz is here.