Trustee Iammartino Seeks to Recover $ 125Million in a “Massive Fraudulent Check Kiting Scheme” at IOI
August 9, 2021, Western District of Michigan – Mark T. Iammartino, as Trustee for the Consolidated Estate Trust for the bankruptcy estates of Najeeb Khan (“Khan”), the Khan Entity Debtors, and Interlogic Outsourcing, Inc. (“IOI”) Debtors recently sued Lake City Bank and Lakeland Financial Corporation (the “Defendants”) for “fraudulent transfers”. The Trustee seeks to recover millions of dollars allegedly misappropriated from the IOI Debtors, their customers, and creditors, by acts of “civil and criminal fraud orchestrated” by Najeeb A. Khan through deposit accounts held in the name of IOI and its affiliates. Allegedly, Khan directed a “massive fraudulent check-kiting scheme” at IOI, sometime around 2011.
The complaint alleges that Khan deposited dozens of checks worth as much as $125 million in the “fraud accounts” daily and before the checks had cleared, he would draw dozens of checks for comparable amounts and deposit them in another bank. The complaint states that Khan engaged in this behavior every day for nearly a decade to sustain his “fraud”.
IOI maintained a banking relationship with the Defendants. The Trustee contends that the Khan’s “fraudulent scheme” was lucrative for the Defendants and they charged and were paid money by the IOI Debtors. Allegedly, Defendants profited from the “check-kiting scheme” by receiving millions in “fraudulent transfers” in the form of uncollected funds fees, other fees, and interest payments. These “fraudulently transferred fees” (including uncollected fund fees) charged and collected by the Defendants allegedly dwarfed IOI Debtors’ net profits. Further, the Trustee claims that Khan used the Defendants to both generate the float that was integral to his decade-long “check-kiting scheme” and “to divert the funds generated by the scheme”. It was allegedly through Defendants that Khan actually stole the customer funds and funds belonging to IOI Debtors. Thus, the Trustee contends that while Khan was operating his “scheme” to increase the perception of how much money he had on deposit across all of his accounts, Defendants served as a principal exit point—the vehicle through which he was personally enriched by many millions of dollars.
Accordingly, the Trustee seeks to avoid the transfer of the funds allegedly made towards “uncollected funds” fees, the diverted funds, the loans and mortgages et al for the benefit of the Debtors’ estates under Sections 544, 547, 548 of the Bankruptcy Code.