In early December 2021, John Klein, a former majority shareholder and executive of an unnamed pharmaceutical company, was charged with embezzling millions of dollars from his company to pay for personal expenses.
According to the complaint, Klein took $3.9 million from a customer in 2016 and deposited it into an account he had control over, using the money to pay for personal expenses such as credit card payments, property taxes, and his child’s private school tuition. The entire time he was allegedly using the money for his personal benefit, the company was representing in financial statements that the money had not been collected.
According to the Department of Justice (DOJ), Klein hired a chief financial officer who created a profit and loss statement showing the pharmaceutical company’s sales and corresponding receivables. According to that unnamed individual, Klein provided information that included an account receivable of approximately $3.9 million from a prescription drug distribution company that had not been collected.
Following a January 2017 Board Meeting of the pharmaceutical company, with Klein’s knowledge and approval, a bad debt reserve was placed against the uncollected receivable in the financial statements. The Board Meeting minutes noted “Discussion ensued concerning the Company’s yearend receivables associated with the gel products. [CFO] provided detail around the three accounts that comprised the receivables, [the Drug Distribution Company] … and the various issues associated with those accounts. The Board of Managers next discussed whether to pursue these collections as a legal vs. business matter. The Board of Managers next discussed business procedures to ensure that this doesn’t happen again, including credit and background checks for large sales.”
However, upon review of a pre-existing pharmaceutical company bank account controlled by Klein, that $3.9 million was transferred into the bank account in May 2016. In a June 2016 email, Klein acknowledged that the invoices related to the roughly $3.9 million had been paid in full.
After further review, the company bank account also showed that following the wire transfers of approximately $3.9 million, Klein made numerous personal expenditures out of that account, as noted above to include credit card payments for his himself and his wife, payment of property taxes, and tuition payments for his child’s private school.
While the company was unnamed in the complaint, U.S. News and World Report notes that Klein’s online biography and other court filings indicate he was the CEO of Cambridge Therapeutic Technologies. Cambridge was headquartered in Teaneck, New Jersey and packaged and distributed pharmaceuticals.
Former Cambridge CEO Mark Adams said the company went out of business due to Klein’s actions, “We are thankful to the U.S. attorney’s office and the FBI for doing such a thorough investigation and holding Klein accountable for his years of fraud,” Adams wrote. “Hopefully the victims can move forward and overcome the damage he has done to so many.”