John Mensch, LI bus company owner, sentenced to 18 months in prison for nearly $10M bank fraud

The owner of a Long Island school bus company who used a check-kiting scheme to defraud banks out of nearly $10 million was sentenced to 18 months in federal prison Wednesday.

John Mensch, 55, of Quogue, owner of the former East End Bus Lines, will also be required to pay $9.3 million in restitution to a pair of banks he admitted defrauding.

"Mensch kept a failing business afloat by manipulating the banking system and exploiting the trust that financial institutions place in their customers," Joseph Nocella Jr., U.S. attorney for the Eastern District of New York, said in a statement. "By cycling worthless checks through multiple bank accounts, the defendant obtained millions of dollars in funds that did not exist, creating the illusion of financial stability while concealing the company’s insolvency."

Mensch had sought to avoid prison, arguing he carried out the scheme after falling victim to predatory lenders. The defense said incarceration could destroy Mensch’s current bus businesses and limit his ability to repay the victim banks.

Prosecutors allege between October 2017 and September 2018, Mensch and other company executives passed a series of bad checks between business accounts set up in Suffolk and Orange counties, withdrawing the cash from one financial institution before the check bounced at the other, a scheme known as check kiting. The company had near-immediate access to the money since it had obtained expedited checking privileges, prosecutors said.

The executives also moved the funds in reverse to give the appearance the nonexisting money was in the accounts, prosecutors said. About $8.6 million was stolen from the former Bridgehampton National Bank, which has since been acquired by Dime Commercial Bank. Nearly $750,000 was taken from Wallkill Valley Federal Savings & Loan in upstate New York.

The fraudulently obtained funds were used to keep East End Bus Lines, which provided transportation for students on Long Island and elsewhere, afloat during difficult financial times, defense attorneys said. In a presentencing memo, defense attorney Robert Anello, of Manhattan, said a dispute over a 2016 contract with its biggest client, the William Floyd school district, led to a $2.2 million loss for East End Bus Lines at a time when it was expanding to upstate New York and forced the company to seek financial support from predatory lenders with direct access to its bank accounts. The proceeds of the scheme were to cover the cash withdrawals from lenders, some of whom have faced their own legal repercussions, Anello told U.S. District Judge Nusrat Choudhury at sentencing Wednesday.

"He made the biggest mistake of his life when he was desperate," Anello said.

Prosecutors argued Mensch’s criminal conduct was instead "driven by greed." He paid himself a salary of more than $368,000 in 2017 and increased his pay to over $383,000 in 2018, the same year East End Bus Lines filed for Chapter 11 bankruptcy. He also transferred significant assets, including his existing businesses, to his wife’s name, Assistant U.S. Attorney Adam Toporovsky argued.

"This is someone who was taking very good care of himself at the expense of the bank," Toporovsky said.

Choudhury, who said she does not believe Mensch was motivated by greed but rather hoped "to avoid financial ruin," determined the scope of the nearly yearlong fraud warranted incarceration.

"This was a massive scheme that involved writing and depositing over 1,850 checks," Choudhury said.

The 18-month imprisonment is far below the 46 to 57 months recommended under federal guidelines by prosecutors. Choudhury said the guideline sentence included a "loss enhancement" that steepens the penalty for significant financial crimes. The judge said the enhancement treats white-collar criminals "with a severity normally reserved for violent crimes."

Mensch, who declined to comment as he exited the courthouse, apologized to the more than two dozen supporters who attended his sentencing and said, "I carry the weight of what I did in my heart."

"I wish I had not taken the money from the banks that I knew I was not entitled to at that time," he told the judge.

Mensch, who remains free on bond, will surrender to authorities at a later date.

By Grant Parpan

grant.parpan@newsday.com@GrantParpan

Grant Parpan covers Suffolk County courts and federal courts for Newsday. A Long Island native, he joined Newsday in 2022.