The top executives of New York-based sponge company SpongeTech Delivery Systems were arrested this morning on federal allegations they lied about the company’s revenue, created ficticious companies to pose as large customers and then attempted to cover up their scheme when they were questioned by the Securities and Exchange Commission.
SpongeTech CEO Michael Metter, 58, and CFO Steven Moskowitz, 45, are being detained by federal authorities until their arraignment later today. The Internal Revenue Service is also involved in the case, a federal source said.
“The defendants in this case — Spongetech’s highest corporate officers — are charged with executing a bold scheme to portray Spongetech as a company that was performing at a level far above reality,” US Attorney Loretta Lynch said in a statement. “As detailed in the complaint, the audacity of their scheme was matched only by their obstructive efforts during the course of the SEC’s investigation.”
Prosecutors claim that SpongeTech create five fake companies that the spongemaker claimed were large customers in order to boost its sales. The five companies are SA Trading Co., USA Asia Trading, Dubai Export Import Co., New Century Media and Fresco Sales Corp.
The complaint echoes a story The Post published in September following a failed attempt to locate those five companies, which Spongetech claimed in SEC filings accounted for as much as 99 percent of their sales.
The federal complaint alleges that Metter and Moskowitz similarly tried to thwart the SEC’s investigation by providing false sales records about the five customers. As part of their ruse, SpongeTech execs are accused of creating fake Web sites and purchase orders in order to prove the firms’ existence to the SEC. The feds also claim that some of the companies had “incorrect or nonexistent ZIP codes. ”
Metter and Moskowitz each face up to five years in prison on the conspiracy charges.