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Allied’s Schwartz Gets Bail in $87 Million Fraud Case

Charles K. Schwartz, founder of Allied Health Care Services Inc., was granted $2 million bail after his arrest last week in an alleged $87 million equipment-leasing fraud.

Schwartz, who has been in custody since Sept. 2, can be released on home detention with electronic monitoring, U.S. Magistrate Judge Madeline Cox Arleo ruled today in federal court in Newark, New Jersey. He must also undergo mental-health treatment, Arleo said at a bail hearing.

Prosecutors charged Schwartz with mail fraud, claiming he falsely told lenders from 2002 until July 2010 that Allied would use their money to lease medical equipment. Instead, prosecutors said, he defrauded lenders with a phony-invoice scheme involving another company. He faces as many as 20 years in prison.

Three creditors -- Republic Bank of Chicago; Key Equipment Finance Inc. of Superior, Colorado; and Kingsbridge Holdings LLC of Lake Forest, Illinois -- filed an involuntary bankruptcy petition against Allied on Aug. 19. Allied lawyer Gary K. Norgaard today wrote to creditors: “Allied does not intend to take further action to contest the involuntary petition.”

Schwartz’s attorney, John Whipple, had no immediate comment after the bail hearing.

U.S. Bankruptcy Judge Morris Stern in Newark yesterday ordered the appointment of an interim trustee to operate Allied, of Orange, New Jersey, until Sept. 24. The interim trustee, Eric R. Perkins of McElroy, Deutsch, Mulvaney & Carpenter LLP, declined comment.

Texas Capital

At least 10 lenders sued Schwartz in lawsuits around the U.S. in recent months, including Texas Capital Bancshares Inc.

A Federal Bureau of Investigation arrest complaint said Schwartz worked with a “co-schemer” identified as UC-1, who owned a New Jersey vendor of medical equipment called Company 1.

Schwartz got phony invoices from Company 1 that said it supplied medical equipment to Allied, according to the complaint. Lenders would give money to Company 1 to buy the equipment, and Schwartz would lease the equipment from lenders and make periodic payments, according to the FBI.

Company 1 actually provided no equipment to Schwartz or Allied, according to the FBI. Instead, UC-1 transferred the money to company named C&C that Schwartz controlled, the FBI said. UC-1 kept 3 to 5 percent of the money “for his role in the scheme,” according to the FBI.

$87 Million in Checks

Schwartz caused checks totaling more than $87 million to be sent from Company 1 to C&C, according to the FBI. The arrest complaint quotes conversations between Schwartz and UC-1 last month, including a call about bank examiners who wanted to see Company 1’s stock of ventilators.

“If it gets to the point that he wants to see where you bought them from, you give ‘em the same bull---- story you gave the bank when they came and wanted to see where you bought them from,” Schwartz told UC-1, according to the FBI.

Schwartz later told UC-1 that banks fell for an aspect of the scheme “hook, line and sinker,” according to the FBI.

The case is U.S. v. Schwartz, 10-mj-8208, U.S. District Court, District of New Jersey (Newark).

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