Michael Palleschi, Securities Fraud, New York 2023

MICHAEL PALLESCHI, DAVID LETHEM Face Years Behind Bars

Two former top executives at New York-based public telecommunications company FTE Networks, Inc. have been charged in federal court with a scheme to defraud investors out of more than $22 million.

Audrey Strauss, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the unsealing of an Indictment in Manhattan federal court charging MICHAEL PALLESCHI, the former Chief Executive Officer of FTE, and DAVID LETHEM, the former Chief Financial Officer of FTE, with conspiracy, securities fraud, and wire fraud, improperly influencing the conduct of an audit and aggravated identity theft.

According to court documents, from 2014 to 2019, PALLESCHI and LETHEM caused FTE to issue approximately 70 notes with a total principal balance of more than $22 million to private lenders that the lenders could convert to FTE’s common stock, either upon demand or upon default. The defendants took several steps to conceal the notes’ conversion features, including creating fake notes with the same lenders, principal amounts and other terms as the convertible notes and giving them to the auditors and accountants.

PALLESCHI and LETHEM created more than 35 such fake notes with a total principal balance of more than $14 million. They also created fake resolutions of FTE’s Board of Directors that purportedly authorized the company to issue the convertible notes on which they forged the Directors’ signatures. The defendants then provided these forged Board resolutions to FTE’s lenders.

U.S. Attorney Audrey Strauss said: “When corporate executives sell their company’s stock to the public, they assume the responsibility under federal law of making full and accurate disclosures about their company’s financial condition to investors. PALLESCHI and LETHEM instead chose to lie about FTE’s finances to make the company appear more financially healthy than it was, thus defrauding FTE’s stockholders and lenders.

FBI Assistant Director William F. Sweeney Jr. said: “Concealing a company’s true financials from investors is not only an unscrupulous business practice, but in the case of PALLESCHI and LETHEM, as we allege today, it amounted to a federal crime. Financial fraud schemes are all too common, and in order to maintain investor confidence, we need to hold accountable those who perpetrate them.”

PALLESCHI was arrested this morning in the Northern District of New York and will be presented today in that district. LETHEM was arrested this morning in the Middle District of Florida and will be presented today in that district.

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