Financial Fraud Law

Jury Convicts CEO in $1 Billion Check Kiting Scheme

 Mair Faibish, the former chief executive officer of Synergy Brands, Inc., has been convicted by a federal jury in Brooklyn on all three counts of the indictment for defrauding Signature Bank out of $26 million through a massive check kiting scheme, for making false statements to the U.S. Securities and Exchange Commission, and for defrauding investors by overstating the value of the company.

The jury’s verdict followed a three-week trial in the U.S. District Court for the Eastern District of New York held before Judge Eric N. Vitaliano.

“Through lies and deceit, the defendant and his co-conspirators took advantage of banks, auditors, and unsuspecting investors and stole millions of dollars. Their representations and assurances were not worth the paper the checks were written on. We will vigorously pursue and bring to justice those who would defraud FDIC insured banks and the investing public,” stated U.S. Attorney Loretta E. Lynch.

The evidence at trial established that Faibish was the former CEO of Synergy, a publicly held food products company that traded on the NASDAQ and Over-the-Counter (“OTC”) exchanges and manufactured and distributed various food products. According to prosecutors, Faibish, together with his co-conspirators, executed a check-kiting scheme on behalf of Synergy to funnel approximately $1.3 billion worth of checks that were not backed by sufficient funds through Signature Bank, Capital One Bank, and various Canadian banks. Faibish caused those checks to be deposited into bank accounts of associated food manufacturers and distributors in Canada. The Canadian companies then sent checks in corresponding amounts, which also were not backed by sufficient funds, back to Faibish-controlled third party companies. Because the banks made deposited funds immediately available for withdrawal, the scheme artificially inflated the companies’ account balances while the scheme was ongoing. The defendant and his co-conspirators used Synergy’s fraudulently inflated bank account balances to book millions of dollars in fictitious accounts receivable and revenue, prosecutors said.

As a result of this financial fraud, the government said, FDIC-insured Signature Bank lost approximately $26 million that the defendant and his co-conspirators had withdrawn before the bank uncovered the scheme. Following the scheme’s collapse, Synergy was taken into bankruptcy and its publicly traded stock became essentially worthless, causing hundreds of thousands of dollars in investor losses, the government said.

The trial evidence established that Faibish falsely inflated the values of Synergy’s sales, cost of goods sold, and pre-paid expenses in filings with the SEC for the quarter ending June 30, 2008. These material misrepresentations were breaches of the defendant’s fiduciary duties to investors.

When sentenced by Judge Vitaliano, Faibish faces a sentence of up to 30 years’ imprisonment for bank fraud and securities fraud conspiracy as a result of the check kiting scheme.

The government’s case is being prosecuted by Assistant United States Attorneys Sylvia S. Shweder and Jack Dennehy.

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