Feds promise to 'go after everyone' involved in CyberNET deception

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By Ed White

The Grand Rapids Press

GRAND RAPIDS -- The former president of CyberNET Group is the first to face criminal charges, but authorities are promising to "go after everyone" who participated in a scheme to reap nearly $100 million from banks.

James Horton was joined by at least five co-conspirators at CyberNET, according to charges filed Monday in federal court.

The co-conspirators, identified only as "principals" one through five, signed loan agreements, stuffed computer boxes with bricks to fool creditors and even rented mail boxes outside Michigan to feed the deception, the government said.

"The borrowed money was either used to enrich CyberNET (executives) or to repay earlier loans," according to the charges.

Horton, 54, is accused of conspiracy, bank fraud and money laundering. He pleaded not guilty but waived his constitutional right to have a grand jury review the charges, a sign that a plea agreement is likely.

Prosecutors began seeking Horton's cooperation in December 2004, just weeks after the fraud was exposed, CyberNET shut its doors and founder Barton Watson committed suicide.

"He was near the top of the pecking order," Assistant U.S. Attorney Tim VerHey said of Horton, "but he didn't act alone."

Watson's widow, Krista Kotlarz-Watson, also is under scrutiny by the FBI.

Horton declined comment after his arraignment. He received a salary, lived in a Watson-owned home and got free use of luxury cars, according to the government.

Asked why it took nearly 18 months for criminal charges, VerHey said unraveling alleged fraud is no quick task.

"We're talking 90-plus banks and nearly $100 million. ... We're going to go after everyone who was criminally responsible," he said outside court.

There is no dispute that lenders were tricked into making loans for equipment that did not exist. Banks were told to send the money to CyberNET's suppliers, but those suppliers, such as Teleservices Group, were shell companies created to commit fraud, authorities said.

Besides a role in the broad conspiracy, Horton is accused of providing false financial information to Huntington Bank, which provided a $17 million line of credit, the government said.

In November 2004, after federal agents seized records and other property from CyberNET, Horton transferred $700,000 to his bank account to hide it from authorities, according to the charges.

Away from the criminal case, the remains of CyberNET, also known as Cyberco, are being picked over in U.S. Bankruptcy Court.

The sale of company assets has produced slightly more than $1 million -- just a fraction of the tens of millions in claims filed by creditors.

A trustee is considering lawsuits against CyberNET lenders, who recovered much of their money before the fraud was publicly exposed. There may be attempts to collect the money and share it with other jilted creditors.

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