Newegg is being sued by 4 banks for an alleged Ponzi scheme

Flickr via Jason Howie. Click for original.
(Image: © Jason Howie via Flickr)

Newegg, a popular online computer parts and accessories store, faces a lawsuit filed by four South Korean banks alleging the vendor conspired with hardware manufacturer Moneual to defraud banks of hundreds of millions of dollars, the Los Angeles Times reports.

The lawsuit, which was filed in the US District Court in Los Angeles, also points the finger at ASI Corp, a large tech distributor in the US, claiming both it and Newegg made fraudulent orders for home theater PCs (HTPCs) from Moneual, which in turn used the fake orders to gain financing from banks. Newegg and ASI Corp both received kickbacks from Moneual for going along with what amounts to a Ponzi scheme, the lawsuit alleges.

LAT reports that Moneual was able to obtain more than $3 billion in loans from 10 South Korean banks through falsified purchase orders. The company defaulted on many of them and found itself owing around $500 million. Moneual's chief executive, Hong-seok Park, was sentenced in 2015 to 23 years in prison for the fraud.

Now two years later the banks are targeting Newegg. The banks claim Newegg and ASI were both privy to the scheme, as Moneual's invoices showed prices for PCs that were 300 times their actual value.

"No such business would have bought the products at such an inflated price, unless it intended to create the illusion of extensive, profitable, high-value commerce between it and its supplier for the purpose of defrauding lenders into supporting the transactions,” the lawsuit states.

The four banks have asked for a jury trial and monetary damages, claiming that $230 million is still owed as a result of the fraudulent loans.

Update

Newegg has provided a statement through Matt Strathman, its legal counsel in North America.

"Newegg prides itself on conducting business fairly, ethically and honestly.  The company vehemently denies the allegations in the complaint filed last week, and Newegg intends to vigorously defend itself against those unfounded charges," Strathman said.