John Elsner, formerly of Houston, and Larry Page, of Katy, have been sent to prison for 51 months and 15 months respectively following their convictions to commit wire fraud involving a fraudulent invoice scheme.
Page pleaded guilty in December 2018 and Elsner in January 2019.
Elsner was the General Manager and President of Logistical Solutions International (‘LSI’), which had its head office in the Galleria area. Page was the VP of Finance. LSI provided corporations with logistical support and training services that facilitated the stay of international visitors on assignment. The company started in 1999 and their first client was ExxonMobil. Their largest market was Iraq and their other big client was Fluor.
The fraud scheme was pretty simple. LSI began factoring invoices with Spinnaker Financial in 2002. Spinnaker would purchase an LSI invoice for 85% when it was issued. It was LSI’s responsibility to bill the customer and collect the monies. The remaining 15% was split between LSI and Spinnaker, depending on how old the invoice was when it was paid. Invoices not paid reverted back to LSI
Beginning in 2011 and continuing through June 2015, Elsner and Page created false invoices that were factored with Spinnaker but never sent to the clients. For a while they were able to cover their tracks by applying payments of newer invoices to the older, outstanding invoices. This practice is known as ‘Teeming and Lading’.
Page, the CFO, kept an Excel spreadsheet that had a tab for an ‘Internal balance sheet’ and one for ‘External balance sheet’ that contained adjustments to account for the fabricated invoices.
In total, Spinnaker was defrauded out of $4 million.
In October 2014, LSI opened an office in Oxford, England and Elsner moved his office there. He hired an outside firm to seek equity investors or individuals interested in buying LSI. Elsner neglected to tell either the outside firm or the potential investors about the false invoices.
Two investors gave loans worth $1.5 million to LSI. They were not repaid.
Elsner was ordered to pay $5.6 million in restitution and will be required to serve three years of supervised release, following his release from prison. Page was also ordered to pay $5.5 million in restitution and was ordered to serve one year of supervised release, after his prison term.