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Archives for May 2011

30 May

Former Bank President was Afraid to Whistleblow on USA Bank’s DeCaro

Greenwich bankers, from once publicly traded USA Bank, are under criminal investigation for their role in lending abuse and possible securities violations. I detailed in an investigative report last week at Dealflow’s The Distressed Debt Report how Fred DeCaro Jr. and his son were allegedly allowed to violate the business plan that earned them a FDIC approval for years before they were seized on July 9th, 2010. Now we learn the bank’s founding president, Peter Keller of New Canaan, CT, backed out of whistle blowing with another board member, at the last minute because he was afraid of the DeCaro’s retaliation.

According to The Distressed Debt Report, one of the founding investors and board members, Sal Pane, went to the FDIC within the first year of bank operations (September 2006) with documented evidence of lending abuse and securities violations. We now learn according to Maurizio Carusone, a founding investor, and Sal Pane that Peter Keller and the banks V.P. of residential lending Tom Calabro, agreed to go with Pane for his whistle blower interview. They all met the night before to talk about their testimony but Pane says at around 9 a.m. ,while waiting outside the FDIC office, he received a message from Keller that he was backing out.

“Peter said I can’t, I’m sorry but you have more money than me and I can’t afford a lawsuit by DeCaro,” according to Pane.

Pane ended up attending the meeting as the sole board member (with his attorney) and brought with him 17 boxes of documents detailing bank fraud and securities violations. Still, it took the FDIC over a year to issue their first cease and desist order. A move that forced DeCaro Jr. out as chairman but allowed the bank to put his son Fred DeCaro III, with no banking experience, in to replace him. It’s unclear how much opperationally changed after the C&D. DeCaro Jr. was eventually fined $125,000 and Keller only $1,500 in mid-2008 but by then Keller had moved on to secure a job as Vice President of Retail Sales for another publicly traded community bank – The Bank of New Canaan.

According to an April 2006 proxy statement sent to shareholders, Keller was paid $117,769 plus an additional $100,000 consulting fee for services rendered in 2005 prior to the approval of the Bank’s organization certificate. Of the five people paid for services involved in founding USA Bank Keller received the highest payout. The proxy statement also shows he received the 2nd lowest amount of shares, 20,000, issued to founding board members. Keller’s salary, as President of the bank was $180,000 a year; equal to that of the Chairman Fred DeCaro Jr.

Keller did not return emails to his work and phone calls to his home for comment.

Investors in USA bank say Keller was lucky to get a bank license from Connecticut’s banking commissioner after his time at USA Bank; his FDIC fine was one of the smallest of all the board members. But according to his LinkedIn profile and publicly filed bank documents he was never made a member of the board at New Canaan Bank and took a lesser position. After three years, Keller left Bank of New Canaan, this April for undisclosed reasons, to do a similar job at First Niagara Bank. His LinkedIn profile omits his work at USA Bank.

Pane did sue USA Bank and DeCaro Jr. after he resigned as a non paid board member in November 2006. Court documents show he’d been granted discovery from USA Bank and depositions of DeCaro; he beat the Bank’s motion to dismiss. But after the FDIC seized the bank, in July 2010, his legal claims against USA Bank became null. Pane can still sue DeCaro Jr. personally and his attorney said that’s the game plan.

According to my story in The Distressed Debt Report, Keller was not named as a person of interest in the FDIC investigations but then I haven’t interviewed every single person the FDIC has. No charges have been filed yet against any of the executives or board of directors of failed USA Bank. The FDIC said they don’t comment on active investigations.

You can buy a single copy of my investigation at DealFlow Media here.

UPDATE 5-31-11: Peter Keller has finally written back to say he has no comment on USA Bank.

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6 May

SEC Thinks Bear Stearns Mortgage Traders Need Investigating

It appears the Securtities and Exchange Commission has been reading my reporting on Bear Stearns mortgage traders cheating their clients out of bilions and double dipping on profits. Today, Jody Shenn at Bloomberg reports he’s heard J.P. Morgan received subpoenas asking for information on how Bear Stearns mortgage team sold back failed loans to mortgage originators and didn’t pass the monies back to the investors in their mortgage bonds.

J.P. Morgan won’t confirm the SEC subpoena for Bloomberg but I can confirm the regulator has been investigating the actions of the bank since I first broke news on the problems at TheAtlantic on Jan 25th. I even reported the SEC’s actions to Max Keiser the day my news broke after I received calls from people familar with the case saying the SEC office in Colorado had reached out to them because they wanted to know what kind of documents and whistleblowers they had accumlated to prove their accusations.

No charges have been filed against JP Morgan or the Bear Traders, now making millions at other banks, but let’s not forget they also have the Manhattan D.A. on their tail.

TheAtlantic’s Dan Indiviglio, a terrifc editor who worked on my Bear Stearns coverage, said it best :

As I stated before, these fraud allegations should actually be fairly easy to prove or disprove — unless evidence has been destroyed. If a double-dipping scheme took place or if securities provided were different than indicated, the process either did or did not violate deal covenants. There’s not a great deal of gray area allowed when actual money changes hands. We aren’t merely talking about insurers claiming they didn’t have all the information they needed; we’re talking about insurers claiming that deal documents specified that funds should have been provided to them that these Bear execs kept for their bank, or that the securities sold did not adhere to the criteria deal documents specified.

Unfortunately, I don’t see the Bear traders, led by Tom Marano, sweating these investigations until a federal regulator actually shows the strength to charge them for what most of you who write me think is very clear criminal fraud.

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5 May

NIR Group Investors Voting to Oust KPMG as Fund Liquidator

The battle to oust hedge fund manager Corey Ribotsky continues in face of a loss to view details of the fund’s PIPE investments and valuation methods. An important investor lawsuit was dismissed by a New York state appellate court last week, which placed a hard stop on existing court orders granted to NIR investor, Steven Mizel, to inspect NIR Group books. However, liquidators for NIR Group’s offshore investors convinced the Cayman Islands Grand Court that all investors in the fund have rights to vote who controls liquidation of the Master Fund because there is worry the NIR Group assigned liquidator, KPMG, won’t act in the best interest of fund investors.

On March 30th Ribotsky wrote investors he’d place the fund into a voluntary liquidation and assigned KPMG-Cayman Islands the liquidator for the Master and Onshore fund. A Cayman Island judge granted offshore investors PriceWatershouseCoopers an independent liquidator. Then on April 26th court documents filed in the Grand Court of the Cayman Islands show PWC filed to remove KPMG as the manager of the Master fund because they have a conflict of interest and cannot act as independent auditors. I reported for DealFlow Media this week, KPMG wrote to investors on April 28th they would remove themselves as managers if a vote of more than 50 percent warranted it but defended their independence.

The KPMG joint liquidators, Simon Whickerand Kris Beighton, did express they were seeking to have legal beneficial control over the assets portfolio, which would mean no transaction can be undertaken without their express authority. But because Ritbotsky created an interwoven ownership structure of master fund assets, that includes other NIR Group entities that are not the feeder funds, KPMG says it continues to push for allowing Ribotsky to manage the fund during liquidation and earn fees. Investors in the fund told me Ribotsky, who never completed a NYU law degree, appears to have masterminded a complex hedge fund structure for job preservation.

Onshore and Offshore investors have until May 6th to vote KPMG out as the manager. The court stated any NIR Group staff, or investors with a connection to funds management, are not allowed to vote. A letter to investors states the offshore fund controls 65% of the vote and the onshore investors have a 35% vote in the master fund. NIR Group has written in investor letters most of the total fund assets sit in the Master fund.

Tension between investors and the funds management is mounting because recent documents sent by the fund show that Ribotsky is the largest investor in the Master fund and thus controls the voting rights. Some investors think Ribotsky should not be allowed to earn fees during liquidation if he is also a large investor in the fund. One investor in the onshore fund wrote KPMG last week expressing Ribotsky should not be allowed to vote on who manages the fund during the liquidation because part of his total assets under management included the fees he made off investors and reinvested in the fund. Fees that Forbes first reported were at the heart of Mizel’s litigation which claimed they were earned through asset inflation and fraud. KPMG told investors in an April 28th letter a set of completed audited financial statements for the funds hasn’t been done since December 31st 2007.

The offshore investors have until May 23 to present any reply evidence and investor comments to the court. The final hearing is scheduled for May 27th in the Grand Court of the Cayman Islands.

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