PHILADELPHIA – United States Attorney Jacqueline Romero announced that Joseph Smith, 57, formerly of Fishkill, was sentenced to three years and six months in prison, three years of supervised release, and ordered to pay $2,100,450 in restitution by Unites States District Court Judge Gerald Pappert for his scheme to defraud prospective franchisees of more than $2.1 million, collectively.
In February 2022, Smith, the owner of New York Bagel Enterprises, Inc., (“New York Bagel”), which operated in Pennsylvania and other states, pleaded guilty to charges of conspiracy to commit wire fraud and tax evasion in connection with a scheme to defraud potential franchisees. According to court documents and statements made in court, Smith and Dennis Mason, charged separately, made numerous misrepresentations to individuals interested in buying a New York Bagel franchise. These misrepresentations included: a guarantee that New York Bagel could get financing for the prospective franchisee, the actual costs to open a franchise, the number of franchises that were already open or opening, and the profitability of existing franchises. Smith and Mason charged prospective franchisees fees ranging between $7,500 and $44,500 to gain rights to open stores. When some prospective franchisees learned of the misrepresentations and demanded their money back, Smith refused to refund these fees. As a result of the fraud, Smith and New York Bagel sold more than 160 franchises and obtained more than $2.1 million in franchise fees.
From 2014 through 2016, Smith deposited more than $1.3 million in franchise fees into New York Bagel bank accounts which he controlled. The defendant spent these funds on personal items unrelated to the business, including rent for his home, travel, car payments for personal vehicles, and living expenses. Smith did not file corporate or individual income taxes for these three years or pay the taxes he owed to the IRS.
Mason previously pleaded guilty to related charges and was sentenced to three years in prison in April 2022.
“Individuals seeking to own and operate business franchises are seeking opportunity and financial stability for themselves and their families; they deserve honesty and forthrightness in their business dealings so they can make informed decisions,” said U.S. Attorney Romero. “Mr. Smith took advantage of his position to swindle millions of dollars from people seeking legitimate business opportunities, and for that crime, he will now spend years in prison.”
“Mr. Smith’s scheme served no purpose other than to mislead and defraud prospective franchisees,” said IRS Criminal Investigation Special Agent in Charge Yury Kruty. “Furthermore, he took steps to hide his earnings from IRS, thus shirking his tax liability. The sentence he received is a victory for all Americans who play by the rules.”
“Joseph Smith peddled what looked like a great opportunity to potential franchisees,” said Jacqueline Maguire, Special Agent in Charge of the FBI’s Philadelphia Division. “But once they signed on the dotted line, they learned he’d been peddling something else instead. Smith treated their franchise fees like found money. It was a clear-cut case of fraud and this sentence puts him behind bars and provides some justice for his victims.”
