5Linx founder Craig Jerabeck admits to fraud; agrees to testify against other founders

The criminal case against the three men who created the once-thriving local company 5Linx took a dramatic turn Tuesday when one of the three admitted to a wire fraud conspiracy and agreed to testify against the other two.

Craig Jerabeck, one of the founders of the 5Linx multi-level marketing company, pleaded guilty Tuesday to the wire fraud conspiracy and also to the filing of a false tax return.

Jerabeck and two other of the company founders — Jason Guck and Jeb Tyler — were arrested early last year and accused of looting the company and its investors of millions through shell companies and unearned bonuses. The three were scheduled for trial in federal court in mid-September; that trial date is still set for Guck and Tyler.

On Tuesday, however, Jerabeck admitted to crimes different than those contained in the indictment against him last year. He pleaded guilty to the fraud conspiracy, maintaining that he, Guck, and Tyler — or companies they created — pocketed about $2.3 million from a Florida vendor selling 5Linx products, including identity theft protection.

"We understand that Mr. Jerabeck didn't get all this money himself," Assistant U.S. Attorney Richard Resnick said in court. "It would be all three defendants."

That money, transferred by "interstate wire transmission," should have gone to 5Linx, its investors, and stockholders, Jerabeck admitted.

5Linx, a so-called multi-level marketing business, was once one of Rochester's fastest growing companies. In 2014, New York Comptroller Thomas DiNapoli reported that a state pension fund investment in the company had reaped a $6.7 million return — four times the initial investment.

The company uses a structure similar to Mary Kay Cosmetics and other multi-level marketing firms. The company uses "independent contractors" to sell its products. Through a pyramid-like structure, those contractors who recruit others to sell products climb higher in the ranks, making more money.

Through the years, 5Linx had peddled products ranging from internet-based TV to coffee to health supplements. The company is still in business, though much smaller than during the years of its success.

Jerabeck also pleaded guilty Tuesday to filing a false tax return in 2012. In his plea agreement, he also acknowledged that there were other tax returns containing "material false information." Those returns cost the government more than $118,000, according to the plea agreement.

U.S. District Judge David Larimer told Jerabeck that his plea would be hard to undo.

"Today is D-Day," Larimer said. "You can't change your mind to plead. You can't change it tomorrow. ... You can't change it some time next month."

Under the recommended sentencing guidelines, Jerabeck faces a sentence of 51 to 63 months. A sentencing date has not been set. He is now free, as are Tyler and Guck.

If Jerabeck provides "substantial cooperation" against his co-defendants, prosecutors could ask for a reduction in his sentence.

Under his plea, Jerabeck will surrender a lakefront home he has on Canandaigua Lake at 90 East Lake Road in Middlesex, Yates County. Prosecutors are allowing Jerabeck to first try to sell the home; his attorney, James Nobles, said there is about $900,000 equity in the house.

Should Jerabeck be unable to sell the home by late August, federal authorities can seize the property.

In court, Nobles said, Jerabeck has no assets of significance other than the home.

"There aren't really any other assets," Nobles said.

"I wish there were," Jerabeck said.

GCRAIG@Gannett.com

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