Newegg Lawsuit: Retailer Accused Of Partaking In Massive Fraud

Newegg, a popular computer and electronics parts seller based in California, and wholesaler ASI Corporation are being sued by four South Korean banks that allege the retailers participated in “massive fraud,” the Los Angeles Times reported.

According to the lawsuit filed in the U.S. District Court in Los Angeles, the Industrial Bank of Korea, Keb Hana Bank, Nonghyup Bank and Kookmin Bank claim Newegg and ASI Corporation conspired together to defraud banks and have run up a debt of at least $230 million.

The suit alleges Newegg and its computer wholesaler partner ASI Corporation made fraudulent orders for home theater personal computers (HTPCs) from Moneual—a hardware manufacturer based in South Korea that is accused of masterminding the entire operation.

Those fake orders—of which the lawsuit lists over 70 pages worth—placed to Moneual were then used by the company to secure financing from banks. In some cases, the fake transactions showed components being sold for over 370 times their actual value.

According to the complaint, in some instances Moneual purported to charge ASI and Newegg between $2,530 and $2,980 per HTPC unit, which were the prices shown to the banks by Moneual in order to receive funding. In reality, the HTPCs were only worth $8 per unit.

“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.

Moneual allegedly provided kickbacks in varying amounts to Newegg and ASI for their participation in the process.

In total, Moneual managed to secure more than $3 billion in loans from 10 Korean banks through its system of circular transactions. The company defaulted on many of the loans and ended up owing about half a billion dollars to its debtors.

The lawsuit against Newegg and ASI amount to a continuation of complaints stemming from Moneual. In a 2015 suit filed against the company, Moneual CEO Park Hong-seok was sentenced to 23 years in prison and ordered to forfeit over $31 million for operating “one of the largest instances of fraud in South Korea’s history.”

The complaint against Newegg and ASI are the first to take aim at Moneual’s alleged co-conspirators, and is leaning heavily on the already proven wrongdoings of the Korean company. In the lawsuit filed by U.S. law firm Gibson Dunn on behalf of the Korean banks, Moneual is accused of engaging “in a classic Ponzi scheme” with the help of the American retailer and wholesaler.

The Korean banks are seeking a jury trial and monetary damages from Newegg and ASI. According to the suit, more than $230 million is still owed to the banks for orders made by the two American companies to Moneual that were financed by the banks.

Newegg legal counsel Matt Strathman told International Business Times "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."

A spokesperson for ASI Corp told IBT, "We are aware of the lawsuit filed against our company and another U.S. computer company arising out of a financial scandal in South Korea. Moneual, Inc. is a former vendor with whom we ceased doing business several years ago. Our company and its officers were unaware of, and did not participate in, any misconduct by Moneual, Inc. We categorically deny each and every allegation and will vigorously defend our company and its reputation. When it is all over, we expect to be totally vindicated."