Ex-Allou CEO Jacobowitz gets 15 Years for Fraud

By Robert E. Kessler
August 1, 2007

The former chief executive of what was once one of Long Island's largest companies was sentenced yesterday to 15 years in prison for heading a decade-long fraud that kept the company afloat, but ended up costing creditors and stockholders $177million.

Herman Jacobowitz, the head of Brentwood-based Allou Healthcare, a distributor of health and beauty products and drugs, was ordered by U.S. District Judge John Gleeson in Brooklyn to make restitution of that money and to forfeit another $130million.

Jacobowitz's brother Aaron, who headed a number of unrelated companies that were used to launder money in the scheme, was sentenced to 10 years in prison by Gleeson, who ordered him to share in paying the hundreds of millions of dollars in forfeitures and restitution.

It is unlikely that creditors and stockholders will get much money back, because both brothers claim to be destitute.

A third brother, Jacob, the company's former executive vice president, is scheduled to be sentenced later in the week. Their father, Victor, also was arrested in connection with the investigation but has been considered too ill to face court appearances.

The Jacobowitz family is prominent in the Williamsburg Hasidic community, and the courtroom was packed with supporters.

Before he was sentenced, Herman Jacobowitz pleaded for mercy, wept, stamped his feet and cried out, "I'm sorry. ... It's on my mind day and night."

Their attorneys argued Herman and Aaron Jacobowitz should receive a reduced sentence because of their charitable work.

But Gleeson said he had little sympathy for their claim, calling it "utterly meritless," because the money they gave in charity had been gained through fraud.

While imposing the maximum sentences of 15 and 10 years that were agreed to under the plea-bargain, Gleeson said the two brothers were fortunate because if they had been convicted at trial he would have imposed a much more severe sentence because of the gravity of their offenses.

The Allou operation amounted to "12 years of fraud engaged in on a large scale on a daily basis," Gleeson said.

Richard Haddad, an attorney for the consortium of banks the Jacobowitzes defrauded, also had little sympathy for the plea for mercy based on charitable contributions. "Anyone can give away other people's money," Haddad said.

The overall fraud scheme involved continually inflating the company's assets and revenue, according to an investigation by inspectors from the U.S. Postal Inspection Service.

Eastern District federal prosecutor Richard Faughnan declined to comment after the sentencing.

Until its bankruptcy in April 2003, Allou employed 300 people, had yearly revenue of half a billion dollars, was listed on the American Stock Exchange and was the 16th largest publicly traded company on Long Island.

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