Four South Korean Banks Sue Newegg For Allegedly Participation In A Ponzi Scheme
The L.A. Times has reported that Newegg, one of the internet’s largest and most popular PC hardware and accessory retailers, has been sued by four South Korean banks for alleged participation in a Ponzi scheme. The banks allege that the company worked with a South Korean hardware manufacturer to defraud banks of hundreds of millions of dollars.
The lawsuit, which was filed in filed in U.S. District Court in Los Angeles, claims that Newegg along with ASI Corp, which is a computer wholesaler, made false orders for home-theater personal computers from South Korean hardware firm Moneual. The suit alleges that Moneual, who was reportedly originated the scheme, used those fake orders to secure loans from 10 South Korean banks. Only four of those banks, Industrial Bank of Korea, Nonghyup Bank, Keb Hana Bank and Kookmin Bank, are participating in the lawsuit.
The suit alleges that Newegg and ASI received payments from Moneual in exchange for their cooperation in the scheme.
In total, Moneual is believed to have secured about $3 billion in loans from the 10 banks. The company then defaulted on many of those loans and ended up owing about half a billion dollars. For his part in the scheme, Moneual’s CEO, Hong-seok Park, was, in 2015, sentenced to 25 years in prison and ordered to pay fines. A higher court later reduced his sentence to 15 years.
As for Newegg and ASI, the banks allege that they only agreed to finance Moneual due to the large orders placed by Newegg and ASI. The suit also states that the products ordered by Newegg and ASI were marked up by about 300 percent.
“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 lawsuit argues.
The banks allege that Moneual still owes about $230 million and is seeking monetary damages through a jury trial.
Newegg has not yet publicly commented regarding the lawsuit.
Eric is an avid tech junkie, gamer, and comic fan. When he's not working on his PC, you'll find him at your local comic book shop.