The three co-founders of 5Linx Enterprises Inc., one of the fastest-growing companies in the Rochester area, are facing federal fraud charges accusing them of cheating investors out of $4 million.
Craig Jerabeck, 56, of Rochester; Jeb Tyler, 44, of Penfield; and Jason Guck, 42, of Victor, Ontario County, were charged Thursday with wire fraud and conspiracy, according to the U.S. Attorney’s Office.
If convicted, they face up to 20 years in prison and a fine of $250,000.
From 2001 to 2015, Jerabeck was president and CEO of the multilevel marketing company. Guck and Tyler were vice presidents since 2001.
In June 2006, 5Linx was sold to two investment companies. As a condition of the purchase agreement, the investors, 5Linx and the defendants agreed the trio’s compensation was limited, and any bonus payments required the approval of the board of directors.
But Jerabeck, Tyler and Guck defrauded investors by diverting millions of dollars from 5Linx into their own personal bank accounts or onto their debit cards, prosecutors claim.
Starting in about 2009, and continuing until May 2015, the three men "created and inserted fraudulent contracted representatives into the 5Linx direct sales team in order to make additional income in excess of their compensation plan," the U.S. Attorney’s Office said Thursday.
They allegedly set up fraudulent independent contractor accounts under multiple company names, which were actually controlled by the defendants. Those shell companies were used to conceal the real owners’ information, prosecutors claim.
Jerabeck, Tyler and Guck failed to disclose to the investors that they were independent contractors of 5Linx and that they were covertly receiving millions of dollars in additional compensation without the investors’ knowledge or permission, prosecutors claim.
As a result, inaccurate corporate financial documents were issued that significantly understated the company’s available cash. The inaccurate statements were then used by the investors to make financial decisions and the investors lost as much as $4 million, prosecutors claim.
The three defendants appeared before U.S. Magistrate Judge Jonathan Feldman on Thursday morning and were released on conditions. They are due back in court on May 5.
5Linx was recognized by Inc. magazine as one of the fastest growing private companies in the United States nine straight years, the company states on its website.
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