Authorities on Wednesday arrested a Long Island-based apparel wholesaler after he allegedly lied about the worth of his business to secure more than $5 million worth of loans.

This story first appeared in the May 13, 2010 issue of WWD. Subscribe Today.

Kwong Hung Lam, 47, pleaded not guilty to bank fraud at his Wednesday afternoon arraignment in U.S. District Court in Brooklyn. He was released to home detention on $500,000 bond and ordered to surrender his passport.

According to a criminal complaint, Lam, also known as Eric Lam, was the owner and president of New Century Enterprise Inc., an apparel distributor headquartered in Farmingdale, N.Y. Between 2006 and 2009, Lam used the business’ inventory and accounts receivable as collateral for a line of credit he received from Bank Leumi USA, the U.S. subsidiary of Israeli banking firm the Leumi Group, according to the complaint.

The U.S. Attorney’s Office alleges that by September 2009, Lam had borrowed about $5.8 million from the bank on the representation that the collateral was worth $9 million. Prosecutors allege that after Lam abruptly halted the business’ operations the following month, representatives at Bank Leumi found the inventory was worth less than $100,000 and that the balance of the firm’s accounts receivable had been falsified and was unrecoverable. According to the complaint, the bank has sold about half the remaining inventory for about $22,000 to date.

If convicted, Lam could face a maximum prison sentence of 30 years, prosecutors said.