Mutual Savings Bank Conversions Earned Millions in Illegal Stock Gains

WALL STREET– A former executive at investment bank Oppenheimer & Co. pleaded guilty yesterday to a multi-million dollar scheme to gain illegal access to the initial public offerings of as many as 65 mutual savings bank–including six that were former credit unions. 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. 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. 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). 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, for example, has ‘popped’ 80% since its introduction last October. As a result, depositors usually are oversubscribing to new issues, and are often being shut out. The scheme earned the group more than $12.5 million, according to the SEC. Under a plea agreement, Bert Fingerhut has agreed to forfeit $11 million in ill-gotten gains from the scheme. 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 by paying accomplices to open nominee accounts for their benefit.