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Long Island resident John B. Mensch, age 54, pleaded guilty in connection with a nearly year-long fraud conspiracy involving banks in Suffolk County and the Hudson Valley, federal authorities announced Wednesday afternoon, Oct. 2.
Mensch, of Quogue, faces up to five years’ imprisonment as well as financial penalties, including restitution to the two banks of approximately $9.6 million.
According to court filings, Mensch was the owner and operator of East End, a transportation company that provided busing services for students on Long Island and elsewhere.
Between 2017 and September 2018, East End maintained numerous accounts — and was granted expedited check-clearing privileges — at the banks, which are located in Suffolk and Orange counties.
East End had privileges that allowed the company to access deposited funds almost immediately, even before the checks had cleared.
However, East End executives, including Mensch, misused these privileges by participating in a check-kiting scheme. This involved passing fraudulent checks between East End's accounts to keep the company running, despite being effectively insolvent.
Specifically, Mensch and other East End executives drew checks on East End’s accounts at one of the banks despite those accounts having insufficient funds to cover the checks.
Those bad checks were deposited into East End’s bank accounts at the second bank, which, unaware that the checks would eventually bounce, allowed East End immediate access to the funds.
East End withdrew those funds to meet various financial obligations and then, before the checks bounced, conducted the same process in the reverse, drawing bad checks on its accounts at the second bank and depositing them into its other bank's accounts to create the false impression that funds were available to cover the earlier checks.
This reciprocal process continued, with the banks advancing East End non-existent funds for several months until the scheme was detected in September 2018.
By that time, East End had obtained millions of dollars from the two banks, all of which it had spent while continuing to operate at a deficit.
Federal authorities did not disclose the names of the banks or their precise locations
“Rather than take lawful steps to wind down his failing businesses, John Mensch resorted to criminality, operating a scheme to defraud two banks into advancing him millions of dollars that neither Mensch nor his company ever had, or had any realistic expectation of obtaining,” stated United States Attorney for the Eastern District of New York Breon Peace. “Mensch’s fraud resulted in the banks unwittingly subsidizing several months of his financial mismanagement."
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