Leader of Multi-Million Dollar Bank ‘Bustout’ Scheme that used Counterfeit Checks Sentenced to over 5 Years in Federal Prison
LOS ANGELES – A West Los Angeles man who masterminded a bank account ‘bustout’ scheme that defrauded financial institutions such as Bank of America and Chase Bank and cumulatively caused more than $15 million in losses has been sentenced to serve 63 months in federal prison.
Jae Ho Chung, 46, who resides in Westwood, received the prison sentence on May 12 from United States District Judge John A. Kronstadt, who also ordered the defendant to pay nearly $2.1 million in restitution to a variety of banks.
The overall scheme involved approximately $15 million in losses, but Chung was directly involved in criminal conduct that netted him approximately $2 million – money that prosecutors said Chung used to support his lifestyle, which included a home in Bel Air and gambling at casinos.
Chung pleaded guilty in October 2015 to two counts of bank fraud, admitting that he “conspired over a period of more than five years with 14 others to defraud banks by depositing fraudulent checks to inflate account balances so that, in the brief period that credited and reflected those deposits, defendant and others could withdraw provisionally-granted funds for their benefit,” according to a sentencing memorandum recently filed in federal court. “This scheme was defendant’s brain child.”
According to documents filed in the case, beginning in July 2008 and continuing until October 2013, Chung conspired with Michael Yeon Cho and 13 other co-defendants to defraud banks through the bustout scheme that used counterfeit checks to inflate account balances so that withdrawals could promptly be made before the banks learned that the deposited checks were worthless. Chung created and directed others to create counterfeit checks, directed others to arrange the establishment of “shell” corporations make it appear that bank accounts were legitimate; and withdrew funds from bustout accounts and transferred the fraudulent proceeds to himself and others.
“While members of the public may be familiar with high-tech scam such as so-called phishing schemes, they may not have heard of bustout schemes that have plagued financial institutions for years,” said United States Attorney Eileen M. Decker. “This type of fraud is very common and the threat is growing. Whether it is one person with a stolen credit or a sophisticated operation with numerous participants, the losses from one bustout scheme can be huge. We are continuing to work with the financial industry to address the problem and to prosecute those responsible for exploiting the goodwill banks extend to their customers.”
“This case shows that the appearance of success can be a mask for a tangled financial web of lies,” stated acting Special Agent in Charge Anthony J. Orlando for IRS Criminal Investigation’s Los Angeles Field Office. “Bustout schemes can thrive for a while until the source of funds is scrutinized and the perpetrators are identified. Now that time is gone, and as this sentence shows, it’s time for Mr. Chung to be held accountable.”
Cho, who was Chung’s primary co-conspirator, a 32-year-old Pacific Palisades resident, previously pleaded guilty and is scheduled to be sentenced by Judge Kronstadt on December 1.
Out of the remaining 13 defendants, the charges against 12 of them have been resolved either through pre-trial diversion or through guilty pleas. Several of those defendants have been sentenced to prison terms as long as 33 months. One remaining defendant is scheduled to go on trial in September.
The case against Chung, Cho and the 13 other defendants is the result of Operation “Check Kkang,” a multi-agency investigation into the bustout scheme that victimized financial institutions such as Bank of America, JPMorgan Chase, U.S. Bank and Wells Fargo Bank. Check Kkang refers to a Korean term that describes check kiting.
The investigation was jointly conducted by special agents with the Federal Bureau of Investigation and IRS Criminal Investigation.