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Wednesday, December 13, 2006

Logistics Company Prosecuted For Wire Fraud and Tax Evasion Relating to Factoring Scheme

Pacific States Logistics Management Inc's owner, William Martindale was sentenced to 18 months in federal prison to be followed by 36 months of supervised release after being convicted of wire fraud and tax evasion in US Courts in Los Angeles, CA.

He was also ordered to repay Celtic Capital Corporation over $900k in restitution as a result of a fraudulent accounts receivable loan scheme.

The scheme was based on an arrangement whereby Celtic agreed to loan money to Martindale's company based on the verification of sales and the transfer of the resulting receivable to Celtic from Martindale.  The receivables were essentially factored, assigned and held as collateral by Celtic.

Martindale's company however proceeded to create fraudulent documentation and sent it to Celtic to show evidence of sales and shipping transactions that never took place.  Martindale's company later defaulted on some of the loans.  Martindale also was shown to have diverted some of the proceeds for his personal bank account and to another company under his control for which he did not claim any income on his taxes.

The indictment indicates that other people known and unknown to the government may have been involved.  Bank fraud schemes and money laundering schemes typically involve more than one person.  In this case the owner of the company was found to be accountable, however it is possible in this case that many of the individuals or groups involved were located offshore in a foreign jurisdiction where US authorities and courts could not touch them.

Diversion of funds by bank wire transfer makes it readily possible for this type of fraud to occur depositing funds to foreign accounts and leaving only a paper trail and US owner or part owner left holding the bag.

The scheme is so basic that it has even been described in movies such as 'Goodfellas' where a restaurant owner is forced to hand over control to organized criminals that proceed to force the legal owner to take out loans against the company, which are then diverted in cash to criminals.  Lest that plot sound to far fetched for business today, it should be noted that some of Martindale's diverted money was spent on gambling according to the presiding Judge in the case.