Listen to this articleThe former owner and operator of a shuttered Long Island bus company pleaded guilty Wednesday to a scheme that defrauded banks out of about $9.6 million.
John B. Mensch, a resident of Quogue who owned Medford-based East End Bus Lines and affiliated entities, pleaded guilty to a bank fraud conspiracy before U.S. District Judge Nusrat Choudhury in federal court in Central Islip, according to a statement from the U.S. Attorney’s Office for the Eastern District of New York.
East End Bus Lines, which provided transportation services for students on Long Island and elsewhere, maintained several accounts at two banks located in Suffolk and Orange counties between 2017 and Sept. 2018, where the firm was given expedited check-clearing privileges, allowing it to have immediate access to the deposited funds, even before the check cleared, according to the statement.
Mensch and other East End Bus Lines executives abused those privileges by engaging in an elaborate check-kiting scheme, where they passed fraudulent checks between the firm’s various bank accounts to keep the company operational despite being effectively insolvent, the U.S. Attorney’s Office said.
Specifically, Mensch and other executives drew checks on the firm’s bank accounts at one bank, despite those accounts having insufficient funds to cover the checks. Those bad checks were deposited into the company’s bank accounts at the second bank, which, unaware that the checks would eventually bounce, allowed the bus firm immediate access to the funds, according to the statement. The firm withdrew those funds to meet various financial obligations and then, before the checks bounced, did the same process in the reverse, drawing bad checks on account at the second bank and depositing them into accounts at the first bank to create the false impression that funds were available to cover the earlier checks.
“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,” U.S. Attorney Breon Peace said in the statement. “Mensch’s fraud resulted in the banks unwittingly subsidizing several months of his financial mismanagement. This office will continue to aggressively investigate and prosecute criminals like Mensch who, through fraud and deception, seek to use financial institutions as a personal piggy bank.”
The guilty plea was announced by Peace, James Dennehy, assistant director in charge in the FBI’s New York Field Office, and Patrick Freaney, special agent in charge in the New York office of the U.S. Secret Service.
“This lengthy investigation brings down a ringleader who willfully swindled banking partners through the extensive use of fraudulent checks – siphoning millions of dollars in ill-gotten gains to his own coffers,” Freaney said in the statement. “I want to commend the many investigators who saw this comprehensive case to a successful conclusion. From the Secret Service Long Island Resident Office to the Federal Bureau of Investigation, and our prosecutorial partners at the Eastern District of New York, the law enforcement community in New York remains steadfast in its commitment to hold these types of insidious criminals accountable.”
When sentenced, Mensch faces up to five years in prison as well as financial penalties, including restitution to two victim banks of about $9.6 million, according to the statement.