WALL STREET -
The case reinforces suspicions among credit union executives and volunteers that speculators and other well-heeled outsiders are easily able to gain access the lucrative stock offerings of converted credit unions at the expense of long-time members.
Federal prosecutors and the Securities and Exchange Commission said that 63-year-old Bert Fingerhut, his nephew Bruce Fingerhut, his lifelong friend Robert Danetz and Danetz's brother Stephen Danetz, conspired to gain depositor status at dozens of mutual thrifts around the country in the expectation the mutuals would convert to stock form. "I am terribly ashamed by my misconduct," Fingerhut said in court, of the 10-year scheme.
Bert Fingerhut put up the money and earned more than $11 million from the scheme, while Robert Danetz and Bruce Fingerhut traveled the country to set up nominee accounts at the various mutuals, sometimes using phony identification cards and fake utility bills to satisfy in-state residence requirements.
Stock Offerings Oversubscribed
The 65 stock offerings were all oversubscribed, meaning a limited amount of stock was available for legitimate depositors, some of whom received less stock than they requested or were shut out altogether.
Among the 65 offerings were the 1999 IPO for Jade Financial (IGA FCU); the 2002 IPO for First PacTrust Bancorp (Pacific First FCU) and of Synergy Financial (Synergy FCU); the 2003 IPO for Rainier Pacific Financial Group (Rainier Pacific CU); the 2004 IPO for K-Fed Bancorp (Kaiser Permanent Amployees FCU) and of Atlantic Coast Federal (Atlantic Coast FCU); the 2005 IPO for Heritage Financial Group (AGE FCU) and the 2006 IPO for Viewpoint bank (Community CU).
Federal and state regulations are designed to ensure that when a mutual savings bank converts to stock that depositors get the first crack at buying the stock before outside investors. The Fingerhut scheme bypassed those regulations in order to obtain as much of the stock as possible.
Mutual bank conversions have proven to be hot investments, as newly issued stocks are generating substantial profits. The most recent IPO of a credit union convert, Viewpoint Bank has "popped" 80% since its introduction last October. As a result, depositors usually are oversubscribing to new issues, and are often being shut out.
Lining Their Pockets
"The defendants defrauded banks and depositors around the country and, in effect, jumped ahead in the line," said Mark Schonfeld, director of the SEC's New York regional office. "As a result, they lined their pockets with money that should have gone to legitimate depositors."
The scheme earned the group more than $12.5 million, according to the SEC. Robert Danetz made about $1.1 million; Bruce Fingerhut earned about $181,000 and Stephen Danetz $140,000.
Bert Fingerhut and Robert Danetz each pleaded guilty to one criminal count of conspiracy to commit securities fraud.
Under a plea agreement, Bert Fingerhut has agreed to forfeit $11 million in ill-gotten gains from the scheme. The two men are scheduled to be sentenced Sept. 6.
Prosecutors said they are continuing their investigation into similar frauds in mutual conversions and expect others to be charged later.
This is the second case brought by the SEC over the past year for illegal access to mutual thrift IPOs. Four New Yorkers were charged with earning millions of dollars in profits from the New Alliance Bancshares, the parent of New Haven Savings Bank, by paying accomplices to open nominee accounts for their benefit. The Fingerhut group earned more than $1.5 million in that case and even continued to press the scheme after the other group was arrested and charged with securities fraud. "Even though Bert Fingerhut and Robert Danetz learned of the civil and criminal charges in that case no later than July 2005, they continued their own scheme for another one-and-a-half years and defrauded another fifteen banks," the SEC said in its complaint.
