Former owner and president of Allied Heath Care Services, Charles Schwartz, was sentenced last week to 195 months in prison (16.25 years) for organizing and executing a $135 million phony lease scheme that losses of more than $80 million and victimized over 50 financial institutions.
In April Schwartz pleaded guilty to one count of mail fraud but has been in federal custody since September of 2010.
From at least 2002 through July 2010, Schwartz, through Allied Health Care Services, Inc. (“Allied”), convinced financial institutions to pay more than $135 million by telling them that the money would be used to lease valuable medical equipment. In reality, the purported medical equipment supplier did not provide Schwartz and Allied with any equipment during that time. Instead, the “supplier” created phony invoices which appeared to reflect legitimate transactions.
As part of the scheme, Schwartz approached various financial institutions and informed them that Allied needed to lease particular medical equipment. Using the phony invoices from the “supplier,” Schwartz convinced the financial institutions to enter into leasing arrangements. Pursuant to these arrangements, the financial institutions purchased the medical equipment – which they immediately leased to Schwartz and Allied – and sent payment for the medical equipment to the purported supplier. The “supplier” then sent the money received from the financial institutions (minus his 3 to 5 percent payment) to an entity created by Schwartz to facilitate the fraud.
In addition to spending millions of dollars on properties in New Jersey and New York, including a horse farm, Schwartz used the money in Ponzi-scheme fashion to repay earlier bank loans that were a part of the scheme. By August 2010, several financial institutions from which Schwartz had obtained loans filed lawsuits against Schwartz and Allied, claiming he owed them at least $20 million. Allied and Schwartz were forced into involuntary bankruptcy in August 2010 and September 2010, respectively. Losses from the scheme now total at least $80 million. Schwartz admitted that more than 50 victim financial institutions lost a total of between $50 and $100 million as a result of the scheme.
Schwartz and the medical equipment “supplier” undertook efforts throughout the scheme to deceive bank examiners who wanted to inspect the non-existent medical equipment, which had been purchased by the financial institutions.
Schwartz admitted that in advance of expected inspections by financial institutions, he directed others to alter serial numbers or create fraudulent serial numbers on existing ventilators to match fraudulent invoices he had supplied to the various financial institutions. At times, when financial institutions sought to review documentation regarding Allied’s leasing of the ventilators to its customers, Schwartz falsely told the financial institutions that the information was protected by Health Insurance Portability and Accountability Act regulations. At one point during an August 2010 conversation between Schwartz and the “supplier,” Schwartz commented that the financial institutions had fallen “hook, line and sinker” for the false explanation given to bank examiners who asked why the purported supplier used his home address on certain invoices.
In conjunction with his jail time Schwartz also faces three years of supervised release and owes $80 million in restitution.
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