WAFFLE HOUSE, PONDEROSA: Franchisees Strung Up for Check Kiting

When Mary Poppins’ George Banks lost his job, he decided to go fly a kite.

Law enforcement officials claim that hard times have prompted some franchisees to fly a different kind of kite… and at least one is facing jail time.

Check kiting is a means of using two or more deposit accounts to withdraw money illegally from banks by using the “float.” The Check Kiter writes a check from one account, even though the account doesn’t have the necessary funds to cover the it. That check is then deposited into a second account, and a withdrawal is made before the bank realizes that the deposited check will be returned for insufficient funds. 

This can go around and around until there are millions being removed from the banks, despite the funds never being there in the first place.

Waffle House Franchisee Accused of Check Kiting

According to a story in at Tennessean.com:

Local entrepreneur James L. Shaub II’s job running SouthEast Waffles, a 113-restaurant Waffle House franchise based in Nashville, remains under the scrutiny of creditors amid whispers of missing millions and the shadow of a pending Chapter 11 bankruptcy hearing.

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Executives with the Waffle House parent company want a bankruptcy judge to oust Shaub from the franchise he bought nearly a decade ago and stop his $20,000-a-month executive salary.

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SouthEast Waffles reported sales of $67 million for the fiscal year that ended in May. But officials at SunTrust Bank said in early August that they discovered “a massive check-kiting scheme perpetrated over several months,” according to court documents. Check-kiting refers to a customer’s passing worthless checks between banks.

SunTrust officials say the bank lost about $3.7 million, according to court documents. FirstBank of Lexington, Tenn., which had a loan agreement with SouthEast Waffles, says in a court filing that it’s owed $12 million.

Ponderosa Franchisee Gets 33 Months in Prison

According to the Aurora Advocate, 9 of Fred Boukzam’s 15 Ponderosa franchises have closed following a federal lawsuit involving what authorities said is “one of the largest “check-kiting’” schemes ever prosecuted in Northeast Ohio.”checkkitingFB

Fred Boukzam, 49, of the Cleveland suburb of Brooklyn and his restaurant company, PON Management, owned and operated 15 Ponderosa restaurants in Northeast Ohio, including the Kent-area location.

On Sept. 24, Boukzam was sentenced to 33 months in prison by U.S. District Court Judge Solomon Oliver Jr.

Boukzam and his company were named in an April indictment from U.S. District Court, Northern District of Ohio. According to the indictment, both Boukzam and PON Management were charged with one count of felony bank fraud stemming from the scheme.

According to federal court documents, Boukzam used his 15 company accounts at FirstMerit Bank to float $824 million in checks during a 21-month span. FirstMerit sustained a loss of $4.1 million after discovering Boukzam’s activities in fall 2007, according to the documents.

During that time period, the documents say, Boukzam used several of his restaurants, including the Franklin Township location, as collateral for more than $2 million in loans.

The indictment states that between January 2006 and Sept. 24, 2007, Boukzam and other defendants wrote more than 44,000 checks in the scam.

During its final days, the indictment says, the defendants’ scheme had increased to a level where more than 300 checks were being cashed daily for amounts totaling between $4.9 million and $5.25 million.

Word to the wise:  when times get tough, don’t go fly a kite.

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