SEC report on the FTE Networks management team: Michael Palleschi as CEO and Chairman of the Board of Directors and David Lethem, CFO.
The former top executives of FTE Networks, a telecommunications company that was delisted on the New York Stock Exchange last year, have been charged with conspiracy to commit securities fraud and other criminal charges in federal court in Manhattan.
Separately, the two former executives were sued by the Securities and Exchange Commission for their alleged conduct in a civil lawsuit.
The SEC said in a press release, Michael Palleschi, ex-CEO of FTE Networks, and former CFO David Lethem, "have misappropriated millions of dollars in corporate funds to pay for personal expenses, including luxury car leasing, private jet services." and illegal salary increases. "
The criminal charges against them accuse them of working with others in "a complex scheme to fraudulently display" to investors, lenders and accountants that the company's financial condition was better than it actually was.
The program, which allegedly ran from 2016 to 2019, included hiding the convertible and warrant features of the company's convertible bonds and recognizing more than $ 12 million in fake revenue, according to the grand jury indictment, unsealed Thursday .
The disguise of the debt features eventually led FTE Networks to re-estimate a net loss of $ 92 million for 2017, the indictment reads.
This indictment states that Palleschi and Lethem, along with others, made these false statements and omitted key facts in financial documents "to mask a trend of rising RTD operating losses" and to avoid a fall in the company's shares.
The indictment states that if FTE's share price had fallen below certain levels, it could have tied the company's debt and forced it into bankruptcy.
The two men are charged with six criminal charges, including conspiracy to commit securities fraud, wire transfer fraud, improperly influencing the conduct of audits, and aggravated identity theft. The case is being prosecuted by the US Attorney's Office in Manhattan.
The SEC complaint accuses Palleschi and Lethem of directly violating or aiding and abetting violations of the anti-fraud, reporting, and voting requirements of securities laws.
The lawsuit seeks permanent injunctions, penalties and the prohibition of both men from acting as officers and directors of public companies, as well as "skip and prejudice interest and a reclamation of stock-based compensation paid to Palleschi during the alleged fraud". said the SEC.
Eric Bustillo, director of the SEC's Miami regional office, said: "The defendants have carried out an outrageous program to fraudulently inflate RTD revenues in order to misrepresent the company's financial position while spending millions of dollars on theirs misappropriated personal use. "
"We pledge to hold executives accountable who provide materially false financial reports to the public and those who rob companies for their own personal gain," said Bustillo.
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FTE, which was based in New York and Naples, Fla., Had previously traded its shares on the OTCQX over-the-counter market, but was traded on the NYSE American market in December 2017.
It was suspended from trading on the NYSE two years later and delisted on May 21, 2020.
A press release in late 2019 said the company was notified of delisting because the NYSE found that FTE or its management were engaged in "business that the exchange believes was against the public interest."
Palleschi was Chairman of the Board of Directors and Chairman of FTE from 2014 to May 2019, while Lethem was CEO from June 2014 to March 2019.
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