5Linx co-founders arrested, criminal charges filed
The beef between 5Linx’s former CEO Craig Jerabeck and former partners Jason Guck and Jeb Tyler has escalated, following criminal charges filed by the DOJ.
Arrest warrants were issued for Jerabeck, Guck, Tyler earlier this week, in conjunction with a criminal complaint filed on March 21st.
Jerabeck served as 5Linx’s President and CEO up until last September. After leaving 5Linx he allegedly began poaching affiliates to join him in Paycation.
Jerabeck argued he wasn’t in breach of contract, because 5Linx affiliates were independent contractors.
A December court decision saw Jerabeck ordered to stop recruiting 5Linx affiliates into Paycation.
What was particularly interesting about the lawsuit was Jerabeck’s allegations of financial fraud.
According to Jerabeck, Jason Guck and Jeb Tyler were lying to ‘would-be lenders about the company’s financial standing‘.
Those allegations appear to have legs, resulting in all three of 5Linx’s co-founders arrested earlier this week.
A March 21st criminal complaint against Jerabeck, Guck and Tyler alleges the trio, through 5Linx,
knowingly devise(d) a scheme and artifice to defraud and to obtain money by means of false and fraudulent pretenses, representations and promises.
Attached to the complaint is an affidavit from an FBI Special Agent, which goes on to allege probable cause.
The defendants engaged in multiple schemes to defraud investors by diverting company money away from 5Linx and hiding it in accounts controlled by and for the benefits of the defendants.
Beginning in approximately 2009 and continuing until at least May 2015, without the knowledge, permission, or authorization of the investors, the defendants created, and inserted fraudulent contracted representatives into the 5LINX direct sales team in order to make additional income in excess of their compensation plan.
For the purpose of executing the scheme and artifice, the defendants set up fraudulent 5LINX independent contractor accounts under multiple company names which were actually controlled by the defendants individually or together.
These shell companies were utilized in order to conceal the real owner’s information from employees and the investors
Fluffing up shell company positions in the 5Linx affiliate-base to steal from affiliates? Oh dear…
The scheme generated multiple financial wire transactions and additional financial electronic transfers between 5LINX and bank accounts or debit cards owned individually and collectively by the defendants.
The defendants caused millions of dollars to be diverted from 5LINX into the defendants’ personal bank accounts or onto debit cards personally owned by the defendants without the knowledge or approval of the investors.
The FBI agent alleges that had Jerabeck, Guck and Tyler not have been stealing millions, ‘, the money would have gone to the 5LINX main account and increased the cash flow of the company‘.
Meanwhile get a load of the balls on Jerabeck… He brings up 5Linx’s financial dire straits in the civil lawsuit months prior, failing to acknowledge his stealing of millions being the direct result!
And Guck and Tyler don’t address the issue, because of course they’re in on it too!
Jerabeck, Guck and Tyler’s siphoning of millions
caused false financial reports to be routinely generated and disclosed to the investors.
The investors relied on the false financial representations provided by 5LINX to make major financial decisions over multiple years.
As a result of the defendants’ collective decision to engage in this scheme and divert money from 5LINX without the knowledge or approval of the investors, the investors were materially impacted based on information they believed to be accurate which resulted in a financial loss of at least $4 million.
Here’s how Jerabeck, Guck and Tyler robbed 5Linx, investors and its affiliates blind.
When “high earning” affiliates left 5Linx, Jerabeck, Guck and Tyler transferred their positions to various shell company positions.
One of those companies was It’s About Time (IAT).
Beginning in approximately 2009 through at least May 15, 2015, IAT’s account received approximately 97.6 million.
$1.1 million was wired into a Citizens Bank account with the authorized signer listed on the account as defendant JERABECK.
The remaining $6.5 million was wired into another account in the name of Telecom Broker Network (TBN).
Per Department of State business records, a company bearing the name Telecom Broker Network has defendant JERABECK listed as the sole officer.
From the TBN account some of the $6.5 million was further divided as follows:
a. $14,536 was wired to a IP Morgan Chase Bank, N.A. account in the name of TBN.
This account lists defendant JERABECK as the only signer.
b. $144,772 was wired to a Canandaigua National Bank account in the name of TBN.
This account lists defendants TYLER and JERABECK as authorized signers.
c. $2,178,194 was transferred to an account in the name of Mirage Development.
Per Department of State business records, a company bearing the name Mirage Development list defendant JERABECK as the sole officer.
d. $2,118,194 was transferred to an account in the name of defendant TYLER
e. $2,118,194 was transferred to an account in the name of defendant GUCK.
f. $11,658.51 was placed onto Debit cards.
Another shell company was “5Linx Inc. II- GOFY”.
“GOFY” stood for “Go Fuck Yourself” but if anyone asked, they were told it stood for “Go For You”.
Beginning in approximately May 15, 2011 through May 15, 2015 GOFY received $2.7 million from 5LINX to an account in the name of JAGOFYGUCK.
Among other disbursements, the $2.7 million was divided as follows.
a. $654,413 was transferred to an account in the name of defendant TYLER.
b. $648,721 was transferred to an account in the name of defendant GUCK.
c. $663,482 was transferred to an account in the name of Mirage Development.
d. $50,997 to an account in the name of GOFY at Canandaigua National Bank.
That GOFY account listed defendants TYLER and JERABECK as authorized signers.
Jeb Tyler had a member of his IT staff game 5Linx’s compensation plan to credit IAT’s affiliate account with revenue anytime a sale was made company-wide.
Jason Guck had the same implemented for the GOFY account.
None of the shell company affiliate accounts set up for 5Linx’s co-founders generated revenue for the company.
At one point a staff member of 5Linx’s financial department uncovered the deception behind the IAT account.
When Jeb Tyler found out he was purportedly “very angry” and told the staff member “this is what all multilevel marketing owners do”.
The staff member (identified as “Witness B”)
was told by the defendants that they did not want anyone to know about the accounts so the accounts were restricted by the information technology department.
Witness B was also involved in a conversation wherein the defendants discussed that they had to be careful the investors did not find out about IAT and GoFY.
When they weren’t siphoning money out of 5Linx via bogus affiliate positions, Jerabeck, Guck and Tyler wired 5Linx funds to themselves as they pleased.
In addition to the aforementioned representative accounts 5LINX also wired money directly into an account bearing the names Jason Guck, Jeb Tyler and Mirage Development, Inc.
Once the money was in the defendants’ individual accounts the defendants then transferred the money onto debit cards or into a variety of bank accounts all who list the defendants individually as authorized signers.
Various bank accounts were opened up between 2010 and 2011, for no other purpose it seems than to commit fraud.
Craig Jerabeck personally used funds transferred from 5Linx into Mirage Development to, among other things, “fund improvements to a second home”.
Jason Guck opened up a bank account in the name of YaYa Holdings Corp in 2010. Guck used transferred funds for his personal benefit,
including a $10,000 transfer to his TD Ameritrade brokerage account, a $10,000 payment to American Express and an $8,700 cash withdrawal, among other things.
Jeb Tyler opened up a bank account in 2010 under the name JT Global Consulting, Inc.
Tyler used funds “periodically transferred” into the account for his personal benefit. One instance saw Tyler write a check to himself for $50,000 in April, 2014.
With regard to 5Linx’s investors;
Throughout their approximate ten-year business relationship, the defendants failed to disclose at arry point, that they were independent conffactors of 5LINX andthatthey were covertly receiving millions of dollars in additional compensation without the investors knowledge or permission.
Following a buyout by 5Linx, the company began experiencing financial difficulty.
Based on the misstated financial documents provided to the investors, the investors agreed to accept a buyout of their Series A preferred stock and Series A-1 preferred stock.
Investor A stated that had the investors been aware of the “excess commissions” the defendants received, they would have insisted that most, if not all of the buyout be paid in cash versus partial cash and the remainder in loan notes.
After the buyout 5LINX began to struggle financially and at times the company ran out of cash mid-month.
The liquidity crisis prompted Investor B to provide an additional loan to 5LINX which was to be paid off in approximately a little more than ayear.
At some point in 2015 based on representations made by the defendants and the fraudulent financial documents being provided, the investors agreed to a $4 million reduction of the original buyout purchase price in order to help 5LINX with their financial burden.
The investors were only paid $730,126, instead of a much larger amount owed, towards principal and interest on the notes from september 2015 through April 2016.
In addition to the $4 million loss, the balance of the notes had to be written off and additional 5LINX stock was issued to the investors in lieu of cash for the notes when the company took on an additional owner in April of 2016.
The combination of financial misrepresentations and decreased cash reserves throughout the years diminished the value of their investment and impacted the buyout purchase price.
Had the money not been misdirected to the defendants, there would have been sufficient cash reserves to pay the buyout and keep the company financially sound.
Investor A stated that had the investors known then what they know now the investors would have never agreed to the buyout in January of 2014 as it was structured.
The fraudulent financial statements caused the investors to make business decisions that caused material harm and financial loss to the investors.
Jerabeck, Guck and Tyler stand accused defrauding and obtaining money by means of false and fraudulent pretenses, in violation of Title 18, United States Code, Section 1343.
At a March 23rd hearing a $100,000 bond was set for all three defendants with additional travel restrictions.
At the time of publication the case docket shows Jerabeck posted bond after the March 23rd hearing.
A Status Conference has been scheduled for May 5th. Stay tuned…
Update 9th December 2018 – Following a guilty plea entered into in May, on December 6th Craig Jerabeck was sentenced to fourteen months in prison.
Jeb Tyler and Jason Guck have also been convicted, and are scheduled to be sentenced on December 12th and 19th respectively.
Update 13th December 2018 – Jeb Tyler has been sentenced to fourteen months in prison.