Michael Palleschi, the former chairman and CEO of FTE Networks, Inc., was sentenced to 12 years in prison for his role in a scheme that involved inflating company revenue, hiding liabilities and expenses, and embezzling funds. The sentence was handed down by U.S. District Judge Colleen McMahon. Palleschi had previously pleaded guilty in August 2023 to charges including conspiracy to commit securities and wire fraud, making false statements in SEC filings, improperly influencing audits, securities fraud, wire fraud, and aggravated identity theft.
“FTE’s financial statements were fraudulent, harming FTE’s investors and undermining confidence in our markets,” said U.S. Attorney Jay Clayton. “Our Office is committed to personal accountability in white-collar crime and Michael Palleschi’s sentence reflects that commitment.”
According to court documents and public statements made during proceedings, FTE Networks operated as a telecommunications company based in Naples, Florida, with offices also in Manhattan. Its stock began trading on the New York Stock Exchange as of December 2017. Between 2014 and 2019, Palleschi served as both chairman of the board and chief executive officer.
From 2016 through early 2019, Palleschi and others at FTE issued around 70 convertible notes totaling more than $22 million to private lenders. These notes allowed conversion into common stock upon demand or default—a feature requiring recognition of related liabilities on financial statements. Instead, only principal amounts and interest expenses were recorded by FTE; significant liabilities from conversion features were omitted. Efforts were made to conceal these omissions by providing fake documents to accountants—including forged board resolutions authorizing the notes’ issuance—and falsifying signatures of directors and transfer agents.
The fraudulent accounting led FTE to understate its debt derivative liabilities for fiscal years 2017 and 2018 while failing to recognize associated losses.
In a separate scheme described by prosecutors, more than $13 million in fraudulent revenue was reported by FTE under Palleschi’s direction. This included over $10 million attributed as “unbilled” revenue supposedly earned from services never provided to a large customer. Additionally, about $2.6 million was recognized as an unsupported account receivable; when auditors raised concerns about this entry, a fake email was created purporting that payment would be expedited for work completed between 2016–17.
These practices resulted in overstated accounts receivable on financial statements—by up to approximately 477% for certain periods—impacting quarterly reports throughout 2016–18.
Palleschi also misused corporate assets for personal benefit such as unauthorized use of the company jet and issuing unauthorized stock.
At sentencing Judge McMahon stated: “this was a fraudulently run operation from the beginning.”
Alongside his prison term, Palleschi (age 50) received three years of supervised release with orders to pay over $13.5 million in restitution plus forfeiture exceeding $546 thousand.
U.S. Attorney Clayton commended the Federal Bureau of Investigation for its efforts on the case and thanked the Securities & Exchange Commission for their assistance.
The prosecution was handled by Assistant U.S. Attorneys Peter Davis and James McMahon from the Securities and Commodities Fraud Task Force within the Southern District of New York.
