Savings-Bank flotation fraudster pays back $11 million
WASHNGTON DC – The Securities and Exchange Commission (SEC) has charged a former Wall Street executive and three others with securities fraud, for perpetrating a decade-long scheme to defraud savings banks and their customers in connection with banks' conversion from mutual to stock ownership.
Bert Fingerhut led a sophisticated scheme to circumvent federal and state banking regulations, in order to make lucrative stock purchases in bank conversions, the SEC claims. From January 1997 through January 2007, Fingerhut's group generated a total of more than $12 million in fraudulent profits from secondary market sales of bank stock illegally obtained in 65 public offerings.
The other three defendants, Fingerhut's nephew, a childhood friend and his brother, played active roles in the scheme and profited from it. The SEC alleges the defendants made numerous misrepresentations in stock subscription agreements and order forms to carry out their fraudulent scheme. The complaint also alleges the conspirators used fake identification cards and other documents in order to deceive the banks.
The scam revolved around the flotation of a number of US mutual banks. Using fake documents to prove in-state residency and with funds provided by Fingerhut, he and his co-conspirators opened accounts at hundreds of mutual banks across the US. When those banks went public and offered depositors the opportunity to buy stock before the open market at a preferential rate, Fingerhut would fund his colleagues' purchase of stock options.
This breached federal law, which makes each depositor who purchases stock sign an agreement confirming they are not intending to transfer their purchasing rights to another party – something Fingerhut's collaborators did more than 60 times.
Fingerhut took most of the operating profits while ensuring his partners turned a profit, albeit a significantly smaller one. Over the course of 10 years and 65 mutual conversions, Fingerhut and his team collected $12 million.
Fingerhut pled guilty to the criminal charges and, in connection with his guilty plea, agreed to pay a total of $11 million in forfeiture, representing his own illegal profits from the scheme. In contrast to Fingerhut's repayment, the combined forfeiture of his co-conspirators was just $589,000.
All four of the defendants in the civil case agreed to settle the SEC charges by consenting, without admitting or denying the complaint's allegations, to the entry of permanent antifraud injunctions.
"When banks convert from mutual ownership by their depositors to stock ownership by shareholders, the depositors are supposed to get first priority to purchase stock. Here, the defendants defrauded banks and depositors around the country and, in effect, jumped ahead of that line. As a result, they lined their pockets with money that should have gone to legitimate depositors. Spanning 10 years and 65 stock offerings, this is the most extensive bank conversion fraud we have ever seen," said Mark Schonfeld, director of the SEC's New York regional office.
The decision over whether affected depositors will launch a civil action suit against Fingerhut is still pending.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Bank of Communications moves early to meet TLAC requirements
China Construction Bank becomes last China G-Sib to release TLAC plans
Most read
- Top 10 operational risks for 2024
- Japanese megabanks shun internal models as FRTB bites
- Market for ‘orphan’ hedges leaves some borrowers stranded