TRENTON, NJ – A Monmouth County, New Jersey man today admitted to defrauding lenders of approximately $50 million in an invoice factoring scheme that has been perpetrated for nearly a decade, announced the American lawyer Philip R. Sellinger.
Vincent Galano, 59, of Oceanport, New Jersey, pleaded guilty by videoconference before U.S. District Judge Zahid N. Quraishi to a filing charging him with one count of wire fraud.
According to documents filed in this case and statements made in court:
Accounts receivable factoring (factoring), also known as invoice financing, is a financial transaction in which a business obtains cash by selling its outstanding invoices, usually at a discount, to a factor. Factoring customers send their debtors notices of assignment naming the factor as the assignee of the receivable due on the invoices. The factor, in turn, collects the invoiced amounts owed by the customers’ debtors and, after collection of the full invoiced amount, pays its customers the balance of the invoice, less the factor’s fees.
Galano formed Prime Financial Funding LLC (PF Funding) in 1996 for the purpose of factoring accounts receivable for various corporate clients. In 2007, PF Funding entered into a secured lending relationship with a single purpose entity created to fund PF Funding’s factoring business. Shortly thereafter, the factoring lender established a line of credit as a means of providing PF financing capital to grow its receivables portfolio. Over the next few years, PF Funding grew its factoring business by tapping into the line of credit while maintaining its loan obligations to the factoring lender. However, beginning in 2011, Galano, through PF Funding, purchased an increasing number of invoices for which it was unable to collect the debt owed on receivables. To justify PF Funding’s continued drawdowns on the line of credit, Galano concealed this bad debt from the factoring lender by misrepresenting the bad invoices as being collectible on the reports he regularly provided to the factoring lender. In other cases, Galano incorrectly qualified invoices that had already been paid and collected as unpaid and eligible for consideration, double-counting them to increase the unpaid receivables. In reports provided to the factoring lender, Galano manipulated the overall value of PF Funding’s portfolio of unpaid invoices by an amount proportional to the funds it needed to withdraw from the unsecured line of credit to maintain principal and interest payments on its outstanding loans.
Engaging in this pattern of misrepresentation for nearly a decade, by 2020 PF Funding had finally defaulted on its loan obligations, owing approximately $50 million to its lenders under the scheme. In a May 2020 phone call with his lenders, Galano admitted to covering up significant losses suffered by PF Funding for many years. He further admitted that he regularly distributed to lenders during this extended period fabricated reports which exaggerated the number and value of unpaid invoices which the reports represented as payable.
The wire fraud charge to which Galano pleaded guilty carries a maximum sentence of 20 years in prison and a fine of $250,000, or double the gross pecuniary gain/loss of the scheme, whichever is greater. . Judgment is scheduled for July 14, 2022.
US Attorney Sellinger credited FBI Special Agents, under Special Agent in Charge George M. Crouch Jr. in Newark, with the investigation that led to today’s guilty plea.
The government is represented by Assistant U.S. Attorney Eric A. Boden of the Criminal Division of the U.S. Attorney’s Office in Trenton.