NewEgg Accused of Ponzi Scheme Involvement

[Lurick]

Quote

Four South Korean banks filed a lawsuit against Newegg, Inc. on Friday alleging that the City of Industry company, which operates the computer parts and accessories retailer Newegg.com, conspired with a South Korean hardware manufacturer to defraud the banks of hundreds of millions of dollars.

 

Newegg is being accused of getting kickbacks for creating fake orders from a home-theater PC company, Moneual, and helping to defraud several South Korean banks of hundreds of millions of dollars. Newegg and ASI Corp. are said to have created the orders for Moneual who then took the orders to the banks and used them to secure over 3 billion dollars in financing. Now that Moneual's CEO has been sentenced to prison and fined, the banks are going after Newegg and ASI Corp.

Quote

The banks allege that they lent Moneual hundreds of millions of dollars because the manufacturer had shown that Newegg and ASI had made sizable orders. Both Newegg and ASI were in on the scheme, the banks say, because Moneual priced the computers that were supposedly ordered at 300 times their actual market value.

“No such business would have bought the products at such an 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,” the complaint said.

 

I hope that this doesn't prove to be true in the end but right now things aren't looking good.

 

Link:

http://www.latimes.com/business/technology/la-fi-tn-newegg-lawsuit-20171020-story.html

[paddy-stone]

If this is true, then

 

It boggles my mind however how banks are blaming someone else for their lending billions of dollars to a company that they obviously didn't do their due diligence background checks on... that's what it sounds like to me.

[Master Disaster]

[Master Disaster]

10 minutes ago, paddy-stone said:

If this is true, then

 

It boggles my mind however how banks are blaming someone else for their lending billions of dollars to a company that they obviously didn't do their due diligence background checks on... that's what it sounds like to me.

I don't think you can really blame the bank here, it's very likely they simply got a $100,000 overall sales total figure (just an example btw, I have no idea of the actual numbers) and were asked to lend based on that number.

 

I highly doubt the bank were ever told how many units the total covered and in fairness to the bank, if someone comes to you and tells you NewEgg are buying $100,000 worth of stock then you ask for proof of the transaction and don't really question anything else, I mean, it's NewEgg. They're not exactly risky borrowers.

 

I'll be very interested to hear NewEggs response to this one.

[Trik'Stari]

Hope nothing comes of it.

 

I really don't want Amazon to be the only place to get PC components. Their filters are utter garbage and finding certain things can be a real pain in the ass.

[AresKrieger]

Based on events in recent memory I have no reason to trust the south korean government, especially where tech is concerned, the country can be considered to literally be controlled by samsung after all.

 

Now could it be true, surely yes but I'm skeptical of banks and generally will assume they're lying first unless compelling evidence comes to light.

[AresKrieger]

20 minutes ago, huilun02 said:

Jumping on Newegg for the full sum when all they got was a tiny fraction seems unreasonable no? 

Banks are entirely unreasonable, hence why I don't trust them and assume they are trying to screw me at all times.

[dfsdfgfkjsefoiqzemnd]

7 minutes ago, Trik'Stari said:

I really don't want Amazon to be the only place to get PC components.

True.  On the other hand, if Kyle and Paul are involved too, perhaps they can do Awesome Hardware from prison.  At least we'd be rid of the barking dogs then. 

[paddy-stone]

23 minutes ago, Master Disaster said:

I don't think you can really blame the bank here, it's very likely they simply got a $100,000 overall sales total figure (just an example btw, I have no idea of the actual numbers) and were asked to lend based on that number.

 

I highly doubt the bank were ever told how many units the total covered and in fairness to the bank, if someone comes to you and tells you NewEgg are buying $100,000 worth of stock then you ask for proof of the transaction and don't really question anything else, I mean, it's NewEgg. They're not exactly risky borrowers.

 

I'll be very interested to hear NewEggs response to this one.

 

I'm not well read on these thing, this is just MY take on it from what I could gleam from the information. I may be wrong, but IMO it's always the lenders fault if they didn't adequately check that the borrower could fulfill their contract. To start throwing blame onto others that might have done business with them is ridiculous, as far as I could see newegg didn't actually do business with them. And if they submitted tenders to MAYBE trade with them, maybe they were fooled too? but AFAIK submitting tenders to do business is not the same as having a contract. I could be wrong.. most likely am.

[Misanthrope]

Yikes. I am fairly glad I always avoid their "Asia direct" or whatever items. It's a common trap on Amazon too: Uncommon item, fairly competitive price, Vendor with no ranking shipping from China. That's about the fastest way to convince me not to buy.

[Master Disaster]

25 minutes ago, paddy-stone said:

 

I'm not well read on these thing, this is just MY take on it from what I could gleam from the information. I may be wrong, but IMO it's always the lenders fault if they didn't adequately check that the borrower could fulfill their contract. To start throwing blame onto others that might have done business with them is ridiculous, as far as I could see newegg didn't actually do business with them. And if they submitted tenders to MAYBE trade with them, maybe they were fooled too? but AFAIK submitting tenders to do business is not the same as having a contract. I could be wrong.. most likely am.

Remember this isn't about not fulfilling an obligation, this is about boosting numbers to get larger payouts in order to steal money.

 

It seems as though NewEgg knowingly generated artificially high invoices for items so these other guys could use the high numbers to take out loans(?) with the sole intention of stealing the extra money from the banks.

 

It's like I said, if they turned up at the banks with genuine invoices/order receipts and asked to borrow then the banks have no real reason to question it, its a legitimate document issued by a very well know business.

 

Of course only time will tell us what actually happened but if it is proven that NewEgg did falsify documents in any way then it really is straight up fraud.

[paddy-stone]

1 hour ago, Master Disaster said:

Remember this isn't about not fulfilling an obligation, this is about boosting numbers to get larger payouts in order to steal money.

 

It seems as though NewEgg knowingly generated artificially high invoices for items so these other guys could use the high numbers to take out loans(?) with the sole intention of stealing the extra money from the banks.

 

It's like I said, if they turned up at the banks with genuine invoices/order receipts and asked to borrow then the banks have no real reason to question it, its a legitimate document issued by a very well know business.

 

Of course only time will tell us what actually happened but if it is proven that NewEgg did falsify documents in any way then it really is straight up fraud.

Seems like 2 different things here to me. IF newegg did falsify documents, then yes of course it could be considered fraudulent behaviour maybe, but the definition of fraud

fraud

A deception deliberately practiced in order to secure unfair or unlawful gain.

A piece of trickery; a trick.

One that defrauds; a cheat.

 

I can't see where Newegg gained anything from this?  unless the allegation of a kickback is true?, which we don't know and may never know.

 

But the bank still has to take the blame for not checking things properly.. if I were in the business of lending money, I would for damn sure check someone's numbers on their paperwork to make sure they added up, in the sense of double checking with an independent entity or at least the company contact that they had this proposal from. If not. someone could say that he wants to buy a million toasters for 2 billion dollars, and fake an invoice somehow if all they do is look at the piece of paper with a big company's name on it. There must be checks in place to prevent this?  If I missed where they checked with newegg about this business proposal to buy/sell to that company, please enlighten me?

 

 

It stinks of passing the buck to me. But I don't know the full story, so can only guess as to the reason this was allowed to happen in the first place.

[Jito463]

3 hours ago, paddy-stone said:

If this is true, then

 

It boggles my mind however how banks are blaming someone else for their lending billions of dollars to a company that they obviously didn't do their due diligence background checks on... that's what it sounds like to me.

That was my initial impression also.

3 hours ago, Master Disaster said:

if someone comes to you and tells you NewEgg are buying $100,000 worth of stock

My understanding of the article is that the Korean company was claiming to be buying from Newegg, not the other way around.

[paddy-stone]

After re-reading the summation, I may have mis-understood the allegation to begin with maybe?

 

Are they saying that Moneual was the "manufacturer" in this? and that they had orders FROM Newegg? The wording of the article and summation aren't very clear which party the banks are referring to when they say "manufacturer" for example... as Newegg isn't a manufacturer AFAIK?

[Master Disaster]

4 minutes ago, paddy-stone said:

Seems like 2 different things here to me. IF newegg did falsify documents, then yes of course it could be considered fraudulent behaviour maybe, but the definition of fraud

 

 

 

I can't see where Newegg gained anything from this?  unless the allegation of a kickback is true?, which we don't know and may never know.

 

But the bank still has to take the blame for not checking things properly.. if I were in the business of lending money, I would for damn sure check someone's numbers on their paperwork to make sure they added up, in the sense of double checking with an independent entity or at least the company contact that they had this proposal from. If not. someone could say that he wants to buy a million toasters for 2 billion dollars, and fake an invoice somehow if all they do is look at the piece of paper with a big company's name on it. There must be checks in place to prevent this?  If I missed where they checked with newegg about this business proposal to buy/sell to that company, please enlighten me?

 

 

It stinks of passing the buck to me. But I don't know the full story, so can only guess as to the reason this was allowed to happen in the first place.

Yeah, I can see your point for sure. Like I said, I'm guessing it comes down to a lack of info. Like they just told the bank NewEgg had confirmed $xxxxxxx amount of orders from them but didn't tell them exactly how many were ordered. In that case the bank wouldn't be able to check the numbers properly however then yoûr point is probably still valid. Why did the bank not ask how many units the order covered?

 

I'm honestly not sure if that's something they do or even need to do?

[Taf the Ghost]

5 hours ago, huilun02 said:

I wonder what kind of 'orders' would be worth $3b in financing?

Also, Moneual's CEO acted as an agent of his company Moneual. The banks can still go after Moneual. Jumping on Newegg for the full sum when all they got was a tiny fraction seems unreasonable no? 

I feel like there has to be some transcription error and the values aren't that high. Either that for the Korean banks are freaking idiots. This looks like trying to find someone with some liability to shake down.

[AncientNerd]

As a former manager who was involved in some Bank deals I can tell you that the banks I dealt with were never ever willing to deal on even much smaller loan without a whole lot more backing paperwork than the raw order numbers. The company I worked for was a small manufacturer of electronics and when there were loans in the works we had bank investigators all over the plant and engineering department making sure that what was documented in the paperwork shown actually matched what we were producing. Down to in the largest case I was involved in they brought in an outside engineering expert to confirm that the actual widget would work they way we said it would before loaning the money for the manufacturing upgrade needed.

 

I am very skeptical of a $3B loan on thin enough paperwork that the kind of scheme described could possibly work, unless the banks involved are completely incompetent.   

[Orangeator]

3 hours ago, AncientNerd said:

I am very skeptical of a $3B loan on thin enough paperwork that the kind of scheme described could possibly work, unless the banks involved are completely incompetent.

This ten times over... I cannot see a bank with the capabilities of giving out that large of a loan, without checking into all the details. Were are not getting the whole story, that is for sure. They are making this sound way to simple and one sided.

[dizmo]

I never liked NewEgg as a company, but this surprises me. If this is true, particularly the kickbacks, NewEgg deserves to have a very heavy penalty levied against it. Companies can't knowingly get away with such actions.

 

On 10/21/2017 at 6:23 AM, paddy-stone said:

If this is true, then

 

It boggles my mind however how banks are blaming someone else for their lending billions of dollars to a company that they obviously didn't do their due diligence background checks on... that's what it sounds like to me.

How were they supposed to know that the orders were fraudulent? If the distributor is in on this, then it's very hard to prove that the demand actually isn't there.

On 10/21/2017 at 6:44 AM, huilun02 said:

I wonder what kind of 'orders' would be worth $3b in financing?

Also, Moneual's CEO acted as an agent of his company Moneual. The banks can still go after Moneual. Jumping on Newegg for the full sum when all they got was a tiny fraction seems unreasonable no? 

It was through 10 different banks. So $300 million per bank, presumably. Not really that hard to believe when you're manufacturing something on a large scale.

On 10/21/2017 at 9:59 AM, Jito463 said:

That was my initial impression also.

My understanding of the article is that the Korean company was claiming to be buying from Newegg, not the other way around.

No, it was NewEgg buying from the company.

3 hours ago, AncientNerd said:

As a former manager who was involved in some Bank deals I can tell you that the banks I dealt with were never ever willing to deal on even much smaller loan without a whole lot more backing paperwork than the raw order numbers. The company I worked for was a small manufacturer of electronics and when there were loans in the works we had bank investigators all over the plant and engineering department making sure that what was documented in the paperwork shown actually matched what we were producing. Down to in the largest case I was involved in they brought in an outside engineering expert to confirm that the actual widget would work they way we said it would before loaning the money for the manufacturing upgrade needed.

 

I am very skeptical of a $3B loan on thin enough paperwork that the kind of scheme described could possibly work, unless the banks involved are completely incompetent.   

That's the thing though...how, in this case, would they prove it wasn't legitimate? They had POs. They had a product they were selling and manufacturing. It also wasn't a single loan, it was spread over 10 different banks.

17 minutes ago, Orangeator said:

This ten times over... I cannot see a bank with the capabilities of giving out that large of a loan, without checking into all the details. Were are not getting the whole story, that is for sure. They are making this sound way to simple and one sided.

It was 10 separate banks, not a single bank. You're not getting the whole story because you didn't read the article

[Orangeator]

31 minutes ago, dizmo said:

It was 10 separate banks, not a single bank. You're not getting the whole story because you didn't read the article

So 10 separate banks failed to look into the numbers reported to them? They didn't verify anything? 

[Jito463]

33 minutes ago, dizmo said:

No, it was NewEgg buying from the company.

After reading the article again, it appears you're correct.  I misread the quote last time.

[dizmo]

1 hour ago, Orangeator said:

So 10 separate banks failed to look into the numbers reported to them? They didn't verify anything? 

What makes you assume that?

[Glenwing]

7 minutes ago, dizmo said:

What makes you assume that?

Because they approved the loans

[dizmo]

1 minute ago, Glenwing said:

Because they approved the loans

Yes, but if they were looking at order numbers, then they'd have been given proof.

[aisle9]

On 10/21/2017 at 8:18 AM, Lurick said:

Both Newegg and ASI were in on the scheme, the banks say, because Moneual priced the computers that were supposedly ordered at 300 times their actual market value.

Not to excuse Newegg in the least if this is true, but any auditor/compliance officer/underwriter that didn't do enough research to know that something was very, very wrong with the numbers should be fired on the spot. This is the kind of thing that due diligence should root out immediately. We question figures that are off by much, much, much, much less than 300%.