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Thomas J. Fagan, 57, of Rye, NY, already has been sued by the state Attorney General’s Office on charges of defrauding nearly 800 investors of $9.5 million by selling unregistered stock in one of the companies, Energex Systems, Inc.
More than 225 of them were in New Jersey, state Attorney General Jeffrey S. Chiesa said today.
Fagan was president and CEO of Energex Systems, which was “promoted as a developer of various biotech products, including ones related to blood safety,” Chiesa said.
“Only one Energex product received FDA approval, and the company never had significant sales,” he added.
In 2009, Chiesa said, Fagan founded Arbios Acquisition Partners to gain control of Arbios Systems, Inc., a medical device company, and sold over $1.6 million in unregistered Arbios Systems promissory notes and stock.
“Investors entrusted Fagan with millions of dollars of their hard-earned money, which they expected he would use to advance these high-tech companies, but he allegedly repaid their trust by stealing and misappropriating hundreds of thousands of dollars and running the companies into the ground,” Chiesa said. “He rightfully faces serious criminal charges.”
The grand jury indictment returned today charges Fagan with misapplication of entrusted property, theft, money laundering, and corporate misconduct.
He is also charged with three counts of failing to file personal income tax returns in New Jersey, for tax years 2007 through 2009, and filing a fraudulent state tax return in 2010.
The charges stemmed from an investigation by the state Division of Criminal Justice Financial & Computer Crimes Bureau, which received a referral from New Jersey Bureau of Securities, Chiesa said. The bureau filed suit against Fagan and his companies in July 2011.
“We are making it a priority to investigate major financial crimes,” said DCJ Director Elie Honig. “This type of white collar crime has a devastating impact on victims.”
Chiesa said Fagan commingled investor funds among the two companies, stealing or misappropriating more than $230,000 “for his personal use and enrichment,” including withdrawals of tens of thousands of dollars for casino gambling.
Fagan paid himself several hundred thousand dollars a year in salary, bonuses and reimbursement of business expenses, as well, the attorney general said.
Although those amounts aren’t the subject of the indictment, Chiesa said Fagan also “took additional unauthorized funds for his personal use either by making company checks directly payable to himself, making bank counter withdrawals, or making ATM withdrawals from company accounts.”
The indictment also alleges that Fagan wrote Energex checks to himself in 2008 totaling $117,772. The checks were categorized in company books and records as “other” expenses.
It says he used $60,772 of those checks to cover gambling losses in Atlantic City and Las Vegas, $40,000 to give to his sister, and $17,000 toward payment of a personal out-of-court legal settlement.
What’s more, the indictment alleges, Fagan made $114,031 in cash withdrawals for personal use from accounts of Energex and Arbios Systems, including withdrawals made in Atlantic City and Las Vegas.
He also “disguised the source and ownership of company funds he stole or misappropriated through a series of inter-company cash transfers, cash deposits and withdrawals, and deposits of company checks into his personal account, followed by withdrawals as cash or cashier’s checks,” Chiesa said.
That includes structuring at least $84,000 in transactions to conceal or disguise instances when he stole or misappropriated company funds, the indictment alleges.
Deputy Attorney General Peter Gallagher presented the case and secured the indictment from the state grand jury.
The investigation by the DCJ’s Financial & Computer Crimes Bureau was handled by Detectives Edward Augustyn III and Cheryl Smith, Lt. David Nolan, Lt. Michael Fallon, Deputy Attorney General Gallagher and Analyst Alison Callery.
Also investigating the case for the Department of Taxation, Office of Criminal Investigations was Special Agent William Makar and Supervising Forensic Auditor Michael Mullane.
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