Updated Online electronics souk Newegg has been accused of taking part in a financial scam that duped banks in South Korea out of billions of dollars.
This according to a complaint filed in the US District Court for Los Angeles by Industrial Bank of Korea, Nonghyup Bank, Keb Hana Bank, and Kookmin Bank. The lawsuit, filed late last week, lists Newegg Inc among nearly 20 other companies and individuals as defendants facing accusations of fraud, negligence, and unfair business practices.
Newegg and others, it is claimed, acted as accomplices to Moneual Inc, a South Korean electronics manufacturer that pulled off a $3bn fraud by taking in what the suit calls "circular transactions" on bogus PC orders.
"Specifically, the defendants participated in the scheme by issuing fraudulent purchase orders that Moneual used to sell export receivables to the Banks in exchange for loans or advances," the lawsuit claims.
"Moneual then engaged in a classic Ponzi scheme, selling additional receivables backed by fraudulent purchase orders from its foreign importers, including Defendants, to repay the Banks for the previous receivables they had purchased. Defendants continued to issue these purchase orders even though little to no product actually was exported."
Newegg, based near Los Angeles in southern California, did not respond to a request for comment on the sueball.
Word of Moneual's fraud operation broke in 2014 when it was found the company had taken $3bn in loans from South Korean banks using fraudulent business reports. In 2016, Moneual's former CEO was sentenced to 24 years in prison (since reduced to 15) for fraud.
Now, the banks are going after the entities they believe helped Moneual prop of its "Ponzi scheme" operation by agreeing to purchase its products.
In the case of Newegg, the complaint alleges, the fraud was carried out by Moneual selling home theater PCs that in some cases cost as little as $8 each to Newegg at the grossly inflated price of $2,500 or more apiece. Moneual would then go to the banks boasting about the size of its Newegg orders, and secured upfront business loans by giving the banks the rights to collect the money owed by Newegg for the home theatre orders.
Rather than actually sell the PCs, it is alleged Moneual used part of those loans to give Newegg the money, via shell companies, to pay off the banks, with Newegg getting a kickback in the process and Moneual getting its hands on generous loans. In other cases, the invoices were simply not paid, defaulting and leaving the banks out millions.
"No business of the size, breadth, history, and experience of Newegg could legitimately have judged that the products were worth the more than $2,500 per unit that Newegg was supposedly paying for them," the complaint alleges, "and no such business would have bought the products at that inflated price, unless it intended to create the illusion of extensive, profitable, high-value commerce between it and its supplier for the purpose of defrauding lenders into supporting the transactions."
Now, the banks want to extract money owed and damages. They charge Newegg on one count each of fraud, neglegent misrepresentation, negligent supervision, and violations of California business and professions code on unfair competition. ®
Updated to add
"Newegg prides itself on conducting business fairly, ethically and honestly," Matt Strathman, Newegg's legal counsel for North America, told The Register. "The company vehemently denies the allegations in the complaint filed last week, and Newegg intends to vigorously defend itself against those unfounded charges."