On August 13, Joel J. Margulies, former head of marketing and investor relations at All American Pet Company (AAPT) and Starship Snacks, was convicted of securities fraud, wire fraud, identity theft, and illegally transferring a firearm after a seven-day trial in Manhattan federal court, according to court records.
Margulies, 75, of Murfreesboro, Tennessee, also pled guilty to one count of conspiracy to distribute cocaine the day after the trial.
Margulies is scheduled to be sentenced by U.S. District Judge Jed Rakoff on December 16.
He is free on bond.
The Starship indictment
In October 2017, Margulies and co-conspirators Lisa Bershan and Barry Schwartz were charged with participating in a conspiracy to commit securities and wire fraud in connection with a scheme to defraud investors in Starship.
Schwartz pled guilty to one count of conspiring to commit securities fraud and wire fraud in August 2018. He agreed to a sentencing range of 41 to 51 months in prison, a fine of $15,000 to $150,000, and restitution of $2,163,214.
Schwartz is scheduled to be sentenced on December 12.
Bershan pled guilty to nine counts and agreed to cooperate with the government in December 2018. She also agreed to forfeit all property and proceeds traceable to the offenses.
Bershan is scheduled to be sentenced on November 22.
The superseding indictment against Joel Margulies
The government filed a superseding indictment against Margulies in December 2018.
The superseding indictment alleged that Bershan, Schwartz, and Margulies conspired to defraud investors in AAPT and Starship, that Margulies committed identity theft, and that Bershan and Margulies conspired to distribute narcotics and illegally transfer a firearm.
The trial of Joel Margulies
According to the government, Margulies played a critical role in two fraudulent schemes that involved lying to investors to get money.
“This is a case about lies and stealing.”
-Assistant U.S. Attorney Negar Tekeei
Altogether Margulies and his co-conspirators stole around $3 million.
All American Pet Company
Bershan and Schwartz created All American Pet Company (AAPT) in 2003.
The company’s products included dog food, pet wipes, and portable dog food bars. AAPT began shipping products to customers in 2005.
It conducted an initial public offering under stock ticker symbol AAPT in 2007.
Bershan and Schwartz hired Margulies in 2009.
Schwartz obtained a patent for a process of creating semi-moist dog food in 2016.
The AAPT scheme
According to prosecutors, the criminal scheme began in 2013.
The company was not doing well and Bershan, Schwartz, and Margulies “hatched a plan to raise money by getting loans from investors” according to Assistant U.S. Attorney Negar Tekeei.
They targeted a group of European investors, offered high interest rates, and promised that the loans would be repaid quickly.
They also claimed that Bershan was wealthy and would pay back investors if the company didn’t pay them back.
In 2014 and 2015, the trio raised $500,000 from investors based on misrepresentations including that Bershan had a bank account with a balance of $6.9 million, that she would personally guarantee the loans, and that she had paid back taxes owed to the IRS.
Bershan, Schwartz, and Margulies misappropriated AAPT investor funds for their own use.
Margulies received $18,000 from the scheme.
AAPT victims testify
Simon Gershon testified that he invested $160,000 in AAPT in 2012.
Martin Voightmann, a teacher at a vocational school, testified that he bought $45,000 worth of AAPT shares in 2013. He also loaned $75,000 to AAPT in 2014. The loans were personally guaranteed by Bershan. They were never repaid.
Ronald Bredlow, a retired commercial airline pilot, testified that he loaned $54,000 to AAPT in 2014 and 2015. The loans were never repaid.
Margulies creates fake documents
Margulies created fake bank statements to show potential investors that Bershan had the means to pay them back.
He used a real account number from one of his own accounts on some of the fake statements.
One of the fake statements listed Bershan as the beneficiary of an estate account in the name of her parents Rita and Hy Bershan at Wells Fargo bank.
A Wells Fargo employee testified that the account did not exist.
The FBI found a Word version of the document on Margulies’ laptop.
Margulies also created a fake letter from the IRS to Bershan stating that it had accepted her offer in compromise.
An IRS employee testified that it had rejected Bershan’s offer in compromise, and that the letter was fake.
Bershan gave the fake bank statements to an attorney named Andrew Saulitis and asked him to write a letter about the estate account. Saulitis wrote a letter stating that Bershan had an estate account at Wells Fargo with a balance of $8 million.
Margulies added language to the letter stating that $600,000 of the funds would be set aside as collateral for $600,000 of outstanding promissory notes.
The letter was addressed to a German investment advisor named Eckard Kirsch.
Kirsch testified that his firm did consulting for AAPT and they were asked to raise money for the company to expand its operations.
Bershan told them she was expecting a large inheritance, and offered to use it as collateral for the loans.
Kirsch testified that he received a copy of the fake Saulitis letter, and that he shared the information with potential investors.
Bredlow testified that he received a copy of the fake Saulitis letter and the fake IRS letter.
Kirsch was Bredlow’s financial advisor.
Bershan and Margulies raise additional funds for AAPT
In 2016, Bershan and Margulies attempted to raise additional funds for AAPT based on misrepresentations including that Nestle had approached AAPT about licensing its patent, and that Nestle wanted to acquire AAPT.
Margulies created a fake letter with the name and purported signature of a Nestle employee that was sent to AAPT investors.
The letter suggested that Nestle was interested in acquiring AAPT’s patent.
A Nestle employee testified that it was fake.
The FBI found a Word version of the letter on Margulies’ laptop.
The Starship scheme
According to prosecutors, Bershan and Margulies hatched a new plan to raise money from investors.
They created a snack food company to develop and market caffeinated chocolate snacks.
Margulies took an active role in the scheme. They targeted a group of investors from Long Island. Margulies was the primary point of contact for many investors.
From 2015 to 2017, Bershan, Schwartz, and Margulies raised more than $2 million from investors based on misrepresentations including that investments in Starship were guaranteed against losses, that Starship was in talks to be acquired by Monster Beverage Corporation, and that Starship had successfully developed its signature product.
Bershan and Schwartz used Starship investor funds for personal expenses including plastic surgery, luxury housing, and retail purchases.
They also paid Margulies $90,000 from investor funds.
Starship investors testify
In October 2015, Margulies sent an email to investors announcing that a deal had been reached for a one to one share exchange of Starship stock for Monster stock. Monster traded at around $150 a share at the time.
The FBI found a Word document about the acquisition on Margulies’ laptop.
Monster Beverage Corporation confirmed that no one from Starship had any communications with any decision makers at Monster.
Thomas Cohen, a fur broker, testified that he bought $75,000 worth of Starship shares in 2016.
Testimony of Simon Gershon
Simon Gershon testified that he invested $25,000 in Starship.
In December 2015, Bershan invited Gershon and his wife to a New Years Eve party that Bershan and Schwartz were supposedly attending with executives from Monster near Times Square. Bershan promised to send a Town Car to pick them up at their home on Long Island. The car never showed up, and when Gershon reached out to Margulies he stonewalled him.
Gershon testified that he discussed Starship with other people including his brother Ronny Gershon, and his sister-in-law Faith Rosenthal.
In May 2016, Bershan gifted $24 million in shares to Gershon’s family.
She also gifted 25,000 shares to Ronny Gershon.
“You bought a Starship ticket. Enjoy the ride.”
-Joel Margulies
In July 2016, Gershon told Margulies that one of his coworkers was trying to get people who bought AAPT shares to participate in a lawsuit. They were suspicious because Bershan had left and started a new venture.
Margulies responded to Gershon in a rambling email calling him ungrateful, despicable, and a “pussy”. He also defended AAPT and Starship and said that Americans are greedy.
Gershon testified that he purchased AAPT dog food bars at Walmart in 2013, but the bars were moldy and he returned them.
Gershon’s sister-in-law Faith Rosenthal testified that she invested $391,000 in Starship in 2015 and 2016. She received fake samples of Starship products. Rosenthal never recovered any of her investment.
The gun charge
Bershan and Margulies used misappropriated Starship investor funds to buy a gun for Bershan in November 2016. Margulies bought the gun in Tennessee and shipped it to Bershan in New York. Bershan apparently requested it because Ronny Gershon threatened her.
The drug charge
Bershan and Margulies also used Starship investor funds to buy cocaine for their own personal use.
Margulies arranged to have cocaine shipped from California to his home in Tennessee and to Bershan in New York.
Authorities found cocaine in Margulies’ home when he was arrested in 2017.
Marguliesʼ defense
Margulies did not testify or call any witnesses.
According to his attorney, Brent Horst, Margulies grew up in New York and worked in advertising and the infomercial business before he met Bershan and Schwartz in LA in 2009.
They originally hired him to do marketing for AAPT.
Horst said that Margulies invested $40,000 of his own money in the company and argued that he wouldn’t have done that if he knew it was a fraud.
According to Horst, Margulies fell in love with Bershan and it clouded his judgement. She lied to him about Monster and he wanted to get rich “like everyone else”. She also ran up $170,000 in charges on his credit card.
Horst admitted that Margulies was the point person for Starship investors.
According to Horst, Margulies did not lie to investors because he believed what he was telling them about Monster.
Horst said that Margulies is the biggest victim in this case.