FDIC calls USA Bank Borrowers in to Testify Against DeCaro

It looks like the FDIC is finally building a case against the DeCaros for their role in the failure of USA Bank. Borrowers who spoke out in my DealFlow stories about alleged lending abuse and forged mortgage documents were subpoenaed by the FDIC two weeks ago. Ron Scheckter, James Scheckter, and Maurizio Carusone have all confirmed they will testify latter this month against the father-son team who the Office of Inspector General says ran USA Bank into the ground.

Last week Lisa Chamoff of Greenwich Time inaccurately reported that the FDIC already had a case against Fred DeCaro III. DeCaro III was the bank president when the FDIC seized the institution last summer and is also an elected official in charge of Republican voter registration in Greenwich, CT.

A FDIC spokesperson confirmed there has been no officers and directors suit filed against the DeCaros or any other USA Bank board members. But after the Office of Inspector General wrote a report on the lack of FDIC oversight of the failed bank it appears the FDIC decided to get their rear in gear and prepare for a civil suit. I reported on the OIG’s findings in July at The Distressed Debt Report which detailed how the board and the DeCaro’s lied to its bank regulators and violated lending limits.

USA Bank borrowers who have spoken with the FDIC say senior attorney Jose Rivas is leading the investigation. Rivas LinkedIn profile says he joined the FDIC last year from the big bank regulator the Office of the Comptroller of the Currency.

The federal regulator has three years to file a civil claim against executives of failed banks in a move to recover some of the millions they have to pay out of the FDIC insurance fund after they seize a bank. Unfortunately this money doesn’t go back to burned borrowers or investors in these failed banks. We usually don’t see the FDIC file a suit unless it thinks the alleged bank fraudsters have money stowed away to recover or there is a large directors and officers insurance policy. In the case of USA Bank I previously reported the insurance policy was minimal so if we see the FDIC file it means they think DeCaro and board members like Zeisler & Zeisler attorney Jim Verrillo or New Canaan bank executive Peter Keller have deep pockets.

On Friday, the FDIC filed a suit against the board of Georgia-based Alpha Bank & Trust. The suit came over a year after Alpha Bank investors had filed similar charges laying out a clear case of the bank’s board lying to investors about the health of the bank while they continued to encourage more investments. Unfortunately for these Georgia investors after the FDIC becomes the receiver for a failed bank they can supersede prior legal claims against the bank executives.

Attorney Kevin LaCroix wrote last year, “The FDIC may yet of course attempt to assert its right to priority over the claims of the plaintiffs have asserted, and even assert its own claims, based on its status as the bank’s receiver.” LaCroix believes the federal regulator can do this because of their rights under FIRREA.

Net Net this means investors in failed banks who sue first can end up with hefty legal bills and a big zero if their litigation plan isn’t clever enough to circumvent FDIC claims. Which is what happen to Sal Pani, the original USA Bank whistleblower who went to the FDIC in the fall of 2006 (less than a year after the bank was founded) to warn them of executive lending abuses and fraud. It took the FDIC four more years to shut down the DeCaro’s who meanwhile enticed around 3,000 main street investors to pump their life saving into the bank’s penny stock. Earlier this year Pani dropped his suit against USA Bank and the DeCaro’s although he says if there is a criminal fraud suit brought he’d think about restarting litigation.


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