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John Murphy sentenced to 97 months in $93.7 million fraud scheme

John Murphy, of Nesconset, leaves federal court in

John Murphy, of Nesconset, leaves federal court in Central Islip, after being sentenced to 8 years and 1 month in federal prison Tuesday, Aug. 18, 2015. Credit: Ed Betz

A Nesconset man was sentenced to 8 years and 1 month in federal prison Tuesday after apologizing for orchestrating a $93.7 million bank fraud scheme that he said "began with the best of intentions."

John Murphy, 65, who headed Oak Rock Financial in Bohemia, pleaded guilty in 2013 to a single count of bank fraud in which he vastly exaggerated the value of the returns on the loans his company had made.

In federal court in Central Islip, Murphy acknowledged his actions had led to "a desperate attempt to cover up. I sincerely regret my actions. I apologize to the court, my family, my friends, my business associates."

Murphy's attorney, Stephen Scaring of Garden City, had asked in court papers for a sentence below the minimum 61/2 years he said was called for in federal guidelines. Scaring wrote: "John Murphy did not set out to enrich himself at the expense of the banks. Indeed, he honestly believed at the time of the fraud that he would be able to 'right the ship' and prevent a financial implosion, to the ultimate benefit of all involved -- his company, its employees, creditors, and clients. While his deceit was reckless and perhaps foolhardy, it was not undertaken with the intent to harm others."

But Eastern District federal prosecutor Michael Canty had called for a sentence as high as 10 years and 4 months under the guidelines. In his court papers Canty said Murphy had a vested interest that was not so compassionate in falsifying Oak Rock's books. Rather, Murphy wanted to continue to receive his own substantial income, Canty said. Court papers say Murphy was being paid $500,000 to $600,000 a year.

Murphy's company operated as a middleman serving businesses that worked on consumer credit, such as automobile dealers, furniture retailers and restaurants. Oak Rock would get loans from banks and private investors and, in turn, lend that money at a higher rate to businesses that needed short-term financing before they could collect payments from their own customers.

The company prospered, paying out returns of as much as 10 percent to its investors, until the financial collapse of 2008, when many of Oak Rock's business customers began to fail to make their loan repayments, according to court records.

As a result, Murphy has admitted, he began to falsify the status of his customers' loans by exaggerating the amount of loan repayment in records sent to the banks that had made the original loans to Oak Rock.

Some of the techniques Murphy used were "changing delinquency dates to make it appear that the loans were current" and "copying data from timely paid accounts so that the defaulting loans appeared timely paid and stable," Kelly Currie, the acting U.S. attorney for the Eastern District, said in a statement.

In imposing the sentence, U.S. District Judge Leonard Wexler noted that there were more than 30 people in court who supported Murphy, including victims of his scheme. But Wexler also said he had gotten letters from investors who were not so forgiving and who said they had lost much of their savings.

Wexler also sentenced Murphy to 5 years' supervised release and ordered him to make restitution of the $93.7 million. The judge noted that given Murphy's financial situation it was unlikely the victims would be repaid more than a token amount.

Afterward, Scaring and Canty declined to comment.

Wexler said he was sentencing Murphy to 8 years and 1 month -- the low end of the prosecutor's interpretation of the guidelines and the high end of Scaring's recommendation.


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