(PRWEB) April 25, 2013
A federal judge in Orange County, California, acknowledged the pressure of trying to maintain a struggling business during the economic recession of 2008 as a factor to consider in imposing sentence in a business fraud case. On February 25, 2013, U.S. District Judge Cormack Carney sentenced Cheryl Fu to 36 months based on her guilty plea to bank fraud. Government attorneys had argued for a higher sentence of 46 months in prison. Counsel for creditors of Fu’s failed business had sought a far greater sentence.
Defense counsel, Steven Katzman of Bienert, Miller and Katzman, argued that a lesser sentence was warranted because the crime was not the result of greed or evil motive, but was born out of difficult financial circumstances. The Court agreed, finding that “…this was not a fraud from the outset,” but “…was a very successful business for years. It came on difficult financial times and unfortunately, and tragically, Ms. Fu gave in to the economic pressure and lied.”
In March, 2011, Mrs. Fu and her husband, Thomas Fu, were charged in connection with a $130 million revolving line of credit from a consortium of seven banks, led by Bank of America, for their Anaheim-based home decor business, Galleria USA, Inc. Galleria USA was a business that imported home decor items from China and then sold those items in the United States to stores such as Home Depot, Lowe's, Costco and TJ Maxx. The Fu’s also ran a related export business in Hong Kong, Galleria H. K., that was placed into liquidation.
In January, 2012, Mrs. Fu plead guilty to one count of bank fraud, admitting that between October, 2008 and June, 2009, she caused to be submitted false reports that overstated Galleria USA's accounts receivables by tens of millions of dollars. Mrs. Fu and the government agreed that these actions caused creditors to loan Galleria $4.7 million that it otherwise wouldn’t have received.
At sentencing, Bank of America and the liquidator of Galleria Hong Kong claimed that the Fus had caused over $200 million in losses going back to 2001, warranting a significant sentence and order of restitution reflecting this alleged losses. Katzman, however, argued that the situation was not so simple, pointing out that Gallaria had operated successfully until the 2008 financial crisis, when Bank of America put pressure on the Fus to pay down a $40 million line of credit. Trying to meet the bank’s demand, the Fus put millions of dollars of their own funds to into the business. When funds still fell short, the Fus made the regrettable decision to falsify Galleria’s accounts receivable reports to keep the business afloat. Katzman further noted that Galleria USA had successful relationships with its customers (including winning Home Depot Expo Design Center’s “Partner of the Year” for 2007); had longstanding employees (many of whom expressed to the Court their support for the Fus); and that Mrs. Fu was able to start new businesses with the same customers following the collapse of Galleria USA without any bank financing. Katzman concluded, “Let’s not bring the whole financial crisis on the shoulders of the Fus.”
In rejecting the request for a longer prison sentence and higher restitution, the Court found that based upon the evidence presented , the amount of loss was $4.7 million and ordered Mrs. Fu to pay that amount of restitution. In the time between her charging and the sentencing, Mrs. Fu had already paid $250,000 towards restitution from proceeds of her new business.
“There was a lot of tragedy that came from the financial crisis,” Katzman said. “People did things that were bad and wrong, but they were facing tremendous pressure. It doesn’t make someone a lifelong crook.”
United States v. Cheri Fu, Case No. 11-00059-CJC, United States District Court, Central District of California, Santa Ana Division. Ms. Fu was represented by Steven Katzman and Ariana Seldman Hawbecker of Bienert, Miller & Katzman, San Clemente, California, http://www.bmkattorneys.com .