Manhattan District Attorney Cyrus R. Vance, Jr., on July 15 said the individuals have been charged in New York State Supreme Court with one count of Grand Larceny in the First Degree for illegally diverting these assets to repay millions in third-party loans. In a parallel action, Palleschi and Lethem were arrested and charged by the U.S. Attorney’s Office (SDNY) and Securities Exchange Commission for scheming to defraud investors.
“Our relentless focus on integrity in construction and development continues with this indictment of top executives of a publicly-traded company who flaunted New York’s construction lien laws,” Vance said in a statement. “As alleged, this $28 million fraud targeting a Manhattan-based company affected more than two dozen construction projects, with serious repercussions for subcontractors and the workers they employ. My office’s Rackets Bureau is committed to protecting New York City’s construction workers by proactively uncovering fraud and holding executives accountable.”
Statement from Benchmark Builders regarding the indictments
In April 2017, Florida-based FTE, a holding and investment company then-listed on the New York Stock Exchange, acquired Benchmark Builders as a wholly owned subsidiary, the statement said.
“According to court documents and statements made on the record in court, in early 2018, Benchmark executives learned that FTE was using Benchmark’s operating accounts to secure loans from a variety of third-party lenders. When FTE failed to make necessary repayments to those lenders, a series of liens were placed on Benchmark’s accounts.
“After successfully removing the liens, Benchmark executives instructed Palleschi and Lethem that Benchmark’s operating accounts contained client “trust assets” – funds only to be used to pay for expenses relating to its clients’ construction projects – and that it was a crime under New York State law for FTE to use them for any purpose,” the statement said.
“Despite this warning, Palleschi and Lethem continued to direct Benchmark to transfer significant sums of cash to FTE accounts. In response, a Benchmark executive issued a formal letter to the FTE Board of Directors in August 2018, outlining the specifics of the New York State Lien Law and reiterating its requirements that monies being held for Benchmark’s clients were considered “trust assets” and that it was illegal to take these funds for any purpose unrelated to their respective projects.
“In response to this letter, Palleschi and Lethem directed FTE employees to take full control of Benchmark’s operating accounts. Between Nov. 1, 2018, and Dec. 31, 2018, FTE – at the direction of Palleschi and Lethem – illegally diverted more than $28 million of Benchmark’s clients’ funds.
“The defendants utilized those funds to make payments on loans, including so-called ‘merchant cash advances,’ from multiple third-party lenders, in an attempt to disguise FTE’s financial health and pay for Palleschi’s excessive compensation and lavish lifestyle, including private jet rentals and luxury car leases. In early 2019, Benchmark contacted the Manhattan D.A.’s Office to report the theft.”
Vances’ office says in its statement that, in a parallel action, Palleschi and Lethem were arrested and charged by the United States Attorney for the Southern District of New York and Securities Exchange Commission for scheming to defraud investors.
Palleschi is expected to be arraigned in New York State Supreme Court today (July 16), and Lethem, who was arrested in Florida, will be arraigned at a later date following extradition proceedings.
Defendant information
Michael Palleschi, Wellesley Island, NY
Charges:
- Grand Larceny in the First Degree, a class B felony, one count
David Lethem, Ft. Myers, FL
Charges:
- Grand Larceny in the First Degree, a class B felony, one count
