The former CEO of bankrupt soft drink maker Le-Nature's Inc. received the longest prison sentence ever for a financial fraud in the 25-county western Pennsylvania federal court district, for the largest such crime ever prosecuted in that jurisdiction.
Senior U.S. District Judge Alan Bloch sentenced Gregory Podlucky, of Ligonier, to 20 years in prison on Thursday after determining he defrauded investors, vendors and, mostly, lenders out of $684 million.
Because the case is so complicated, the judge said he'd rule later on how much restitution he'll order _ the law mandates it in such cases _ though all parties acknowledge Podlucky's likely to repay only a minute fraction.
Assistant U.S. Attorney James Garrett called the fraud "a financial mirage the likes of which I had never even dreamt could have been created."
The 51-year-old Podlucky expressed contrition, crying as he told the judge, "I am nothing but a filthy rag, the things that I did are abominable."
Garrett argued such remorse, if even genuine, was much too little _ given the scope of the losses and because Le-Nature's went belly-up, idling 240 workers in 2006 _ and too late _ in that Podlucky was caught laundering money only last year by selling rare jewels bought with the stolen money at a Sotheby's auction.
"This defendant is a man who will stop at nothing; a man who answers only to his own ego," Garrett said.
The prosecutor recalled the testimony of top executives about the foul-mouthed, dictatorial style Podlucky used to bully them into cooking the company's books down to a shabbily treated "go-fer." That man was not only told to shine Podlucky's shoes, but to take them off, put them back on "and then tie them, and be sure to pull the socks up," Garrett said.
Podlucky professed to be a changed man, after his pastor testified to that effect, and even stumbled over religious terms in asking Bloch for mercy.
"I am appalled at my actions, Lord, I mean, your honor, and I have asked for forgiveness of these sins because that's what they are," Podlucky said while weeping.
Karla Podlucky, 49, stepped forward to take her husband's belt and tie and some books from his satchel as deputy U.S. marshals handcuffed Podlucky and led him from the courtroom. She and one of their sons, G. Jesse Podlucky, 30, are scheduled to return to Bloch's courtroom later this month for trial on charges they helped Podlucky launder stolen money through the Sotheby's auction and other means.
Podlucky's defense attorney, Alexander Lindsay Jr., said the family had no comment. Podlucky tried to absolve them of guilt when he pleaded guilty to the money laundering charge in June, saying then "I did it all in my sole capacity."
But Garrett said that's not how Podlucky orchestrated the Le-Nature's fraud, which began in the late 1990s.
Essentially, Podlucky bullied underlings to falsify financial statements and misused even the company's graphics department to create fraudulent checks in order to make Le-Nature's, based in Latrobe, 40 miles east of Pittsburgh, seem like a bigger player in the soft-drink industry than it really was.
Five top executives, including company directors, its chief financial officer and its accounting director have pleaded guilty to helping Podlucky vastly overstate the company's revenues so Le-Nature's could get loans and equipment leases the company otherwise would not have been able to obtain. Meanwhile, Podlucky looted the company and underreported his take.
In 2005, Le-Nature's reported gross sales of $287 million, about $247 million of which were fabricated using fake invoices and deposit records. Podlucky claimed in his federal income tax return that he earned $495,000 that year and owed $147,000 in taxes, when he really diverted more than $7.1 million to himself and should have paid more than $1 million in taxes.
The fraud collapsed when Le-Nature's was forced into bankruptcy in October 2006 after a Delaware judge determined financial fraud likely occurred after overseeing a claim by some minority investors trying to get money out of the company. That led to a court-appointed company custodian who uncovered much of the fraud.
Federal agents who searched the company's headquarters found a secret room containing millions of dollars' worth of valuables, including gold, silver and platinum jewelry and diamond-rich watches. They also seized an 8,000-piece model train collection and determined Podlucky otherwise stole money to live lavishly with his family. Podlucky spent more than $10 million on a mansion that was never finished and couldn't even be seized and sold by the government to repay the victims because it was in such disrepair.
In all, Podlucky eventually obtained $875 million from banks, vendors and investors who Bloch determined lost $684 million as a result, about $18 million more than a presentence investigation had determined. It is not unusual for the amounts of money at issue in large business frauds to fluctuate, as fact-finding continues even after guilty pleas are entered.
Bloch must still determine whether Podlucky should repay most or all of that money.
Lindsay wants the debt cut by $258 million because he contends a lending consortium headed by Wachovia Bank has withdrawn a bankruptcy claim for that amount. Garrett contends Wachovia has withdrawn only a $23 million claim for its share of the overall financing package provided by dozens of banks just two months before the bankruptcy.