Jreck Subs Former Franchisor Owner Imprisoned for 12 1/2 Years in Investor Fraud Scheme
A New York district judge last week sentenced Christopher M. Swartz, former owner of franchising firm Jreck Subs, to prison for 12 ½ years for defrauding investors and lenders in his company out of at least $9.5 million. Swartz was also ordered to pay restitution to his victims and the U.S. Internal Revenue Service in the amount of $26,660,590.18.
The franchisor pleaded guilty to wire fraud and tax evasion in federal court last September admitting he made false representations to his lenders and investors, in order to get them to lend him money or to invest money into in his Jreck Subs franchise restaurants. From 2005 to 2015, Swartz induced them by making false promises that he would repay them at high interest rates, court documents state. Swartz was able to keep investors at bay by lulling them into a false sense of security, issuing limited reimbursement checks, some that even bounced.
Swartz had also defrauded investors in another company he owned, North Country Hospitality, from 2005 to 2008. That restaurant business operated restaurants in Sackets Harbor and Watertown, including a pub, a beer distribution company, an Italian restaurant, and others, including five Jreck Subs units.
Some investors sued Swartz in 2011 seeking the unpaid debt and threatening to seize the Jreck Subs franchise, court papers state. He then tried to conceal his assets and income to put them out of reach of lenders, investors and creditors. The report states, "He commingled money in different bank accounts, started making cash transactions, and created multiple names for the businesses he owned to make it hard to trace the ownership."
Some say Swartz was just following in his father's footsteps. H. Thomas Swartz was sentenced to prison for three-and-a-half years in 1997 on a bank fraud conviction. A New York UpState report stated that a jury found the father's law firm paid an official at Jefferson National Bank $333,000 in kickbacks to get all of the bank's legal business. The official also pushed through more than $1.8 million in loans for Thomas Swartz and his businesses. He was convicted of conspiracy, bank fraud and bribery.
A New York Upstate report last week said Christopher Swartz began conning Jreck Subs investors 15 years ago and didn't stop defrauding people until he was jailed two months ago for trying to hide his assets. His reign of swindling ended when a federal judge gave him his sentence. Wearing an orange jail jumpsuit and handcuffs, Swartz said to U.S. District Judge David Hurd, "I sit here profoundly sorry for my actions. Early success altered my objectivity and brought me to this court today."
The report said Swartz cried as he spoke and wiped away tears. His wife, Tricia Swartz, also cried as she urged the judge to give her husband a lighter sentence. Swartz's attorney, Gabriel Nugent, also asked the judge for leniency, asking for a sentence of less than three years in prison.
Federal prosecutor John Kane disagreed. He asked Judge Hurd for a sentence closer that recommended under federal sentencing guidelines, 19 to 24 years in prison.
In the end, the judge said Swartz's "crimes are so very, very serious, involving so many people and charitable organizations and millions and millions of dollars over more than a decade."
Prosecutor Kane surmised that Swartz victimized 81 people in the U.S., many of them out of their life's savings or retirement accounts. And he victimized another 70 investors in the United Kingdom. Kane said Christopher Swartz's father Thomas Swartz bought Jreck Subs from its founders in 1991. He contends the father started a fraud scheme then that the son continued.
Nugent disputed the prosecutor's contention that Swartz hid assets through a fraudulent bankruptcy filing. "It was that accusation that prompted federal investigators to arrest Swartz in May while he awaited sentencing," the UpState report said.
Christopher Swartz owned the Jreck Subs franchise since at least 2002, according to an affidavit from FBI Special Agent Joel Mercer, a Syracuse.com article stated. Mercer said that Swartz's business is separate from the Jreck Subs shops operated by independent franchisees who are not involved in the case.
The FBI agent also stated in his affidavit at that time that Swartz owned the intellectual property rights to the Jreck brand and the royalty payments from more than 40 stores. He estimated the franchise's value at $2.5 million, with annual net profits of $400,000.
Today, Jreck Subs is under Focus Franchise Inc. of Watertown, New York.