Material Event Form 8 K

Item 8.01. Other Events

FTE Networks, Inc. ("FTE" or the "Company"), today issued a shareholder update. The full text of the letter from interim CEO Michael P. Beys follows.

Dear Shareholders:

On behalf of FTE and its subsidiary, US Home Rentals, LLC ("USHR" and along with FTE, the "Companies"), I would like to provide an update on the status of FTE and USHR's various litigations, as described in previous shareholder updates of March 25, 2022, May 23, 2022 and August 15, 2022. These litigations have been a primary focus of management's activities and a critical aspect of our work to preserve value for you, our shareholders. As the years have passed, the prospects to achieve a recovery for shareholders have diminished, but we continue our work to achieve the best outcome possible.

As you know by now, FTE has been the victim of two major frauds, and we have been seeking remedies against the bad actors involved in each of the frauds to extract value and compensation from the major parties that are liable for the damages caused by these frauds.

First, between 2016 and early 2019, Michael Palleschi and David Lethem, the Company's then-CEO and CFO, perpetrated a scheme to defraud the Company out of tens of millions of dollars, with the alleged, knowing participation of its outside auditor at the time, Marcum, LLP, (the "Palleschi/Lethem Fraud"). This fraud ultimately led to the near destruction of the Company and numerous criminal and civil litigations.

Second, starting in October 2019, as the Company was still recovering and looking to rebound from the Palleschi/Lethem Fraud, the Company's USHR subsidiary acquired a residential real estate portfolio from Vision Property Management ("VPM"), which turned out to have limited net value because its unscrupulous previous owners had amassed an insurmountable amount of high-cost debt, engaged in predatory housing practices which had triggered a litany of claims and state attorney general investigations, and failed to service and maintain the homes in the portfolio over an extended period of time.

At the center of this transaction was Suneet Singal, who has been charged with fraud in unrelated matters by the U.S. Department of Justice ("DOJ") and the U.S. Securities Exchange Commission ("SEC"), working with VPM's previous owners Alex and Antoni Szkaradek, Tom Coleman of Innovativ Media Group ("Innovativ"), current FTE director Joseph F. Cunningham, a prior FTE director, FTE's previous Interim CEO Stephen M. Goodwin and several other Singal affiliates and agents, as part of what the Companies have alleged is a fraud and racketeering conspiracy that has harmed FTE and its shareholders (the "Singal/Szkaradek Fraud"). All of these alleged co-conspirators received shares in FTE, which the Company is now seeking to claw back.

In the case of the Palleschi/Lethem Fraud, Palleschi and Lethem plead guilty to the charges against them as more fully described below. The primary source of value to FTE, however, are claims against Marcum LLP, which was the Company's outside auditor and is alleged to have participated in the fraudulent acts perpetrated by Palleschi and Lethem.

Specifically, the Company was among the plaintiffs that recently brought a $700 million lawsuit against Marcum, which alleges that Marcum and Alan J. Markowitz, the Marcum partner who was responsible for auditing FTE's financial statements, materially assisted the fraud by helping falsify certain liabilities and revenue, allowed FTE to ignore material proposed adjustments in violation of applicable accounting standards and generally turned a blind eye to the fraud. The complaint asserts a dozen claims for fraud, other torts and breach of contract claims by several plaintiffs and seeks hundreds of millions in damages, of which $400M are attributable to FTE. The defendants brought a motion to dismiss the complaint, which was heard and argued on May 15, 2024 and is pending decision.

The SEC has brought related administrative charges against Markowitz for his participation in the FTE fraud,¹ and last year the SEC brought similar charges against Marcum for related, "systemic quality control failures" and professional standards violations, resulting in deficiencies "impacting Marcum's entire public company audit practice."²

The second source of potential value relates to the Singal/Szkaradek Fraud which has also resulted in numerous criminal and civil litigations. The Singal/Szkaradek Fraud may even have involved the knowing participation of Inmost Partners LLC ("Inmost") and Direct Lending Partners ("DLP"), USHR's major real estate creditors, with whom the Companies are in several active litigations. Among other things, Inmost and its affiliates DSA Agent LLC and DS Agent LLC are alleged to have disposed of numerous assets in the USHR portfolio, without the Companies' consent, which the Companies believe the lenders did not have proper title or claim to, and damaging the overall net value of the Company's real estate assets. For its part, DLP is alleged to have engaged in predatory lending practices in illegally obtaining certain creditors rights against the Companies, as part of a series of transactions to refinance tens of millions of debt owed by our predecessors, which was unlawfully foisted on the Companies as part of the Singal/Szkaradek Fraud.

¹ https://www.sec.gov/files/litigation/admin/2023/34-96995.pdf

² https://www.sec.gov/litigation/admin/2023/34-97773.pdf

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