A California businessman currently serving a 20-year federal prison sentence for masterminding a $230 million Ponzi scheme was ordered to pay $108 million in restitution to victims defrauded by the scheme. Deepal Wannakuwatte, 64, pleaded guilty last year to operating the scheme, which ultimately took in more than $230 million from nearly 200 victims based on false promises of lucrative contracts with latex glove manufacturers. While the government and Wannakuwatte's lawyers fought vigorously as to the correct amount of restitution, the number will ultimately have little meaning beyond a symbolic figure -Wannakuwatte declared bankruptcy last year.
Wannakuwatte operated International Manufacturing Group ("IMG") and RelyAid Global Healthcare Inc. ("RelyAid") (collectively, the "Companies"), telling potential investors that the Companies had lucrative contracts providing surgical gloves to various government agencies. Investors were told that the Companies had annual sales exceeding $100 million, including more than $125 million in contracts from the U.S. Department of Veteran Affairs ("VA") alone. Based on these representations, Wannakuwatte and the Companies took in more than $200 million from at least 100 victims.
However, authorities allege that Wannakuwatte grossly overstated the extent of the Companies' dealings with the VA - indeed, rather than $100 million in sales from the supply of medical gloves, authorities claim that the actual amount of the contracts were $25,000 while 2013 sales for the Companies were just $5 million. The scheme began unraveling in late 2013 when Wannakuwatte, his wife, and the Companies were sued by a creditor, General Electric Capital Corp. ("GE Capital"), who claimed that RelyAid had defaulted on a loan it had taken out to purportedly build a latex glove factory. Wannakuwatte was ordered to turn over a $3 million King Air private plane that had been pledged as collateral on the loan, and multiple government agencies began investigating Wannakuwatte and the Companies shortly thereafter.
After being arrested in February 2014 on mail fraud, wire fraud, and bank fraud charges, Wannakuwatte pleaded guilty several months later to a single count of wire fraud. As part of that plea agreement, prosecutors agreed to seek up to a 20-year sentence - the maximum term allowed under a wire fraud charge. After accounting for distributions received by victims, total losses were estimated at approximately $109 million.
Wannakuwatte's sentencing in August 2014 was delayed when, at the sentencing hearing, Wannakuwatte's lawyer presented Judge Nunley with a note claiming that his current lawyer had been "intimidating" towards him and that he had retained another attorney. That lawyer later denied the accusations to a reporter and stated that it was in Wannakuwatte's best interests to plead guilty given the "overwhelming" case against him. Wannakuwatte's subsequent counsel was apparently successful in conveying this message, and Wannakuwatte was sentenced late last year.
While Wannakuwatte was ordered to forfeit certain assets totaling approxiamtely $3.5 million as a result of his conviction, recovery prospects for victims appear to be bleak given Wannakuwatte's bankruptcy and the lack of a court-appointed receiver or bankruptcy trustee for Wannakuwatte's companies. It remains unknown whether efforts will be made to pursue clawback or third party claims to benefit victims.