[UPDATED] Newegg sued by Korean banks accusing them of Ponzi scheme

Business / Tech
Newegg

The banks are demanding a jury trial and monetary damages and they say more than $230 million is still owed to them.

Newegg is probably one of the best known online storefronts for electronic and computer parts, now they are being sued. Four South Korean banks are filling a lawsuit in California against Newegg for fraud. The banks claim the company “conspired” with a South Korean hardware manufacturer (Moneual) to defraud them of millions of dollars. According to the suit, Newegg and another company (ASI Corp.) initiated fraudulent orders from Moneual to secure financing from the banks.

UPDATE (10/23/2017 10 p.m. ET): Matt Strathman (Newegg Legal Counsel, North America) has provided us with the following statement:

“Newegg prides itself on conducting business fairly, ethically and honestly. The company vehemently denies the allegations in the complaint filed last week, and Newegg intends to vigorously defend itself against those unfounded charges.”

ORIGINAL STORY (cont):

“Moneual then engaged in a classic Ponzi scheme,” said the complaint, which was filed by U.S. law firm Gibson Dunn on behalf of the Industrial Bank of Korea, Nonghyup Bank, Keb Hana Bank and Kookmin Bank.

Moneual, according to the lawsuit, obtained additional financing from the banks backed by more fraudulent purchase orders from Newegg and ASI. The lawsuit alleges that Newegg and ASI received kickbacks for their participation.

Using this scheme, Moneual received $3 billion in loans from the banks which it then defaulted on and ended up owing a half billion dollars.

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.

The banks are demanding a jury trial and monetary damages and they say more than $230 million is still owed to them.

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  Source: LATimes
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