CLEVELAND — The owner of an Elkhart payroll company refuses to answer the allegations in the first of several lawsuits from banks and former clients, citing an investigation being conducted by a U.S. district attorney.
Owner and former CEO Najeeb Khan and Interlogic Outsourcing Inc. have been the subject of multiple lawsuits since July, when an Ohio bank claimed it could lose hundreds of millions of dollars after Interlogic overdrafted its account and didn’t repay the money. Cleveland-based KeyBank alleges that it could lose $122 million to $220 million after Khan had Interlogic make a series of wire transfers in early July.
The bank alleges that Khan knew there wasn’t enough money to cover the transfers.
In a separate bankruptcy issue, the company has provided the court with a list of more than 7,000 customers who are owed money. And Khan has asked for more time to respond to a lawsuit in an Elkhart County court filed jointly by about 20 local clients.
Khan filed a response to the bank’s lawsuit on Aug. 27. In answer to most of the allegations in the complaint, he chooses to excercise his right not to self-incriminate.
“The subject matter of the complaint is the basis for at least one investigation currently being conducted by the United States Attorney for the Northern District of Ohio,” he says repeatedly. “Exercising his rights under the Fifth Amendment to the Constitution of the United States, Defendant respectfully declines to answer these allegations on the ground that his answers might tend to incriminate him.”
He also asks that his refusal to answer be treated by the court as a denial of the allegations.
The only things Khan confirms in the filing are a statement that Interlogic is a payroll processing company that is based in Elkhart and does business in Ohio, and a statement that he lives in Michigan and is the owner and former president of the company.
Khan goes on to offer four claims in his defense. He says he shouldn’t be responsible “for any damages caused by KeyBank’s failure to mitigate its own damages” or for “any damages to the extent that KeyBank has unclean hands or consented to” his alleged actions.
He also says the bank’s claims are barred by the statute of limitations and that the U.S. District Court in Northern Ohio has no personal jurisdiction over him.
A request for comment was sent Tuesday to a spokesman for the U.S. Attorney’s Office in the Northern District of Ohio.
In August, Interlogic Outsourcing filed for Chapter 11 bankruptcy protection while negotiations for the sale of the company are under way. The company says it owes between $10 million and $50 million to between 5,000 and 10,000 creditors, but has assets worth only $1 million to $10 million.
The company says it was the victim of a “significant and ongoing scheme of intentional financial mismanagement” by Khan.
On Friday, the company sent the court a 178-page list of creditors. A few have names and addresses given, but most are simply identified as “Customer 1” through “Customer 7251.”
The list also includes the treasurer’s office for several states, including Ohio and Maine, as well as the Ohio Department of Taxation, the Tennessee Department of Labor and the Allen County, Indiana Treasurer.
2nd restraining order requested
Also in August, South Bend firm Jones Law Office filed a lawsuit in Elkhart County court on behalf of a growing list of IOI clients. It accuses Khan of fraud, conversion and constructive fraud.
They claim IOI withdrew funds from the clients’ bank accounts to pay wages and make payroll-related state and federal tax payments, but failed to actually make any of those payments. They say the company made false statements to gain access to clients’ funds, that it knew those payments wouldn’t be made and that it continued to lie in emails later sent to clients.
The court issued a temporary restraining order against Khan after hearing that the plaintiffs risked losing any chance of recovering their losses if he were allowed to sell his assets to satisfy KeyBank’s claims. The order expires Thursday.
On Tuesday, Jones Law Office asked the court to issue another temporary restraining order against Khan, either until an Oct. 1 court hearing can be held or they are given the chance to question Khan and his wife under oath.
The law office says in the filing that Khan has refused to produce his personal budget, as the court ordered, and has failed to completely disclose a list of property and funds. Attorneys say they learned of an airplane that was sold for $290,000 and about the impending sale of a helicopter.
They say they asked KeyBank if the funds from the sale of the airplane are being held in escrow, but the bank failed to respond. They say if KeyBank is accepting property from Khan, then the plaintiffs’ interests are in direct conflict with those of KeyBank.
“Khan and Counterclaim Defendant KeyBank have been united and acting in concert since the filing of this lawsuit,” the request states,” and the Plaintiffs’ interests are in no way protected by KeyBank.”
Also on Tuesday, attorneys for Khan asked the court for an extension to the time he has to file an answer to the lawsuit. They asked that the Sept. 5 deadline be reset to Oct. 8, saying they need more time to investigate the claims.