Greenwich Banker Under FDIC Investigation

May 25, 2011
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An elected Greenwich official, Fred DeCaro III, is under investigation by the Federal Deposit Insurance Corp. for alleged bank fraud. DeCaro III was chairman of a community bank called USA Bank from 2008 till its seizure by the FDIC in July 2010.

The bank, which serviced the wealthy enclaves of Fairfield County and parts of Westchester County, New York, was founded by his father Fred DeCaro Jr. who is also part of the investigation focusing on alleged lending abuse and possible securities fraud. Dealflow Media, The Distressed Debt Report, was first to report the FDIC’s investigation into the father-son banking duo.

At the center of the investigation are moves DeCaro III allegedly executed to make defaulting loans appear performing when the bank was under the gun to raise risk-based capital levels or face being shut down by regulators. In 2008 DeCaro III was elected the Republican Register of Voters for the city of Greenwich; a part-time position that pays $30,000 a year without benefits but affords him an office in Town Hall.

DeCaro Linkedin photo

One founding bank investor, a successful real estate developer Ruth Jones of New Canaan, told regulators DeCaro III played the role of bagman when loans were not performing.

Jones, who says she helped raise more than $3 million for the bank and invested $1 million in it, eventually received 27 construction loans for 12 properties from the bank, including second and third loans. Jones showed investigators second lien account statements with a balance due in April 2009 of $172,655 which was magically paid down to only $55 one year later. Jones states she did not pay off these loans but thinks someone directed by the banks executives made the balances ‘go away’.

Jones also said her name was forged on lending documents and that she was unaware of certain loans taken out in her name. The forgery was acknowledged by DeCaro Jr. in this notarized letter, which also says the bank employee forging Jones’ name was fired.

Fred DeCaro III did not return calls for comment.

“At one point I was behind in my mortgages. I was short several thousand dollars in order to bring them current. Fred DeCaro III delivered the needed cash to my house in a brown paper bag and told me to make the payment so he didn’t have to report the mortgage as delinquent to the FDIC or the stockholders,” Jones wrote in a June 2010 whistleblower letter to New York State Deputy Superintendent of Banks. Jones confirmed she also testified about the bank chairman’s action to the FDIC last August and again this February with special agent Mike Rexrode of the FDIC’s Inspector General’s Office.

Greenwich Republican Town Committee Chairman Jim Campbell, who is also a real estate executive, did not return emails and calls for comment about DeCaro III’s alleged bank fraud while an elected official for the Republican party. But his father, DeCaro Jr., did say he thought his son did a good job running the bank after he was removed as its chairman. DeCaro III lives in Cos Cob with his wife and two daughters and still holds his elected job. His LinkedIn profile says he’s returned to his work as a self-employed computer-tech consultant. Prior to being made chairman of the bank he had no executive banking experience.

Founding investors in the publicly traded bank said DeCaro Jr. first mislead them by selling them shares based on his ability to get a federal charter. It’s unclear if his removal from Greenwich-based Patriot Bank in 2003 was the root of the federal charter being denied but he ended up only able to obtain a New York State bank charter and was never granted access to open branches in Connecticut.

Maurizio Carusone, a New York restaurateur, was one of the first to file claims against DeCaro and USA Bank in New York State court. As far back as 2008 his legal documents show he claimed DeCaro convinced him to take out unnecessary second liens against some of his real estate to afford an initial investment of $60,000 in USA stock.

Carusone said in an interview that he held a community meeting for potential shareholders at his restaurant where DeCaro Jr. made forward looking statements promising a multi-branch bank which also would have a mortgage banking business. Neither of the promises ever came to fruition and the FDIC issued a $125,000 fine against DeCaro Jr. and a $15,000 fine against DeCaro III in mid-2008. The FDIC fine did not detail what bank violations warranted the fines or include an admission of guilt by either DeCaro. DeCaro III remained chairman after the fine.

In 2006, within the first year of the bank launch the DeCaro’s had raised $20.4 million through a broker issued stock sale to over 2,600 investors. Boutique investment bank Laidlaw sold and distributed the stock for USA Bank. It was initially priced at $6 a share but dropped after it went public and never recovered. FDIC balance sheet reports showed the bank never earned a profit. The FDIC seizure wiped out all shareholders.

High net-worth investor Robert MacArthur, who lost nearly $200,000 in USA Bank stock and Jones, whose family invested near one million in the bank, both question if the DeCaros sold off stock when they knew the bank was failing. It’s unclear how much stock either DeCaro sold off before the bank failed. MacArthur has written letters to shareholders to see if there is interest in a shareholder class action suit against the DeCaro’s or the stock issuer Laidlaw.

“DeCaro Jr. used the Bank as his private funding source, as can be seen from bank activities conducted by Mr. DeCaro. He realized gains for himself at the expense of stockholders. I believe the actions of both Laidlaw and DeCaro, resulted in a total loss for all non-insider stock holders of USA Bank,” MacArthur said.

In April, Jones, wrote U.S. Rep. Jim Himes, about her testimony for the FDIC investigations and provided a letter from DeCaro admitting her name had been forged on some loan documents.

She also explained how $500,000 was taken from one of her million plus construction loans without her approval and used to pay off the debt of one of DeCaro’s family who’d done work on one of her spec homes.

Emails seen by CtWatchdog from Jones to the bank show she never authorized the $500,000 drawn from her loan because the work was shady and not complete. The home—a multi-million dollar spec home—wasn’t able to be finished because of this and is currently part of a fraud dispute in bankruptcy court. Jones claims she had to file chapter 11 bankruptcy reorganization because USA Bank and its executives didn’t execute the funding commitments they made for her real estate projects and she was left without funds to complete them. USA bank even blocked her from getting loans at other local banks by putting liens on her property after she challenged their accounting of interest payments.

Jones received a letter from Himes’ office letting her know they will look into how to help.

Elizabeth Kerr, Himes’ spokeswoman, said the Congressman sent a letter, last week, to the FDIC and the New York State Banking Commission asking them to detail the status of any investigations they have into USA Bank and its executives on behalf of his constituents.

FDIC spokesman, David Barr said investigations usually take 18 months and would not comment further on an active investigation.

“In an interview, Fred W. Gibson, deputy inspector general at the FDIC, which works with the Federal Bureau of Investigation to investigate crime at financial institutions, said the probes involve failed banks of all sizes in cities across the U.S.,” the article states.

http://www.banktech.com/blogs/228300017

This has turned into a criminal investigation

DeCaro Jr signed fraud letter

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2 Responses to Greenwich Banker Under FDIC Investigation

  1. […] also has an article on the USA Bank […]

  2. Teri on May 31, 2011 at 12:05 pm

    http://www.teribuhl.com/2011/05/30/former-bank-president-was-afraid-to-whistleblow-on-usa-banks-decaro/

    And now we learn the founding bank president, Peter Keller, was afraid to go to the FDIC about DeCaro’s lending abuse. Instead he quit…but as a board member and director isn’t he legally accountable to report fruad to the regulators if he’s aware of it?





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