Washington Mutual Savings Bank is living out a nightmare: Two employees of its brokerage affiliate have been arrested on charges of stealing an elderly bank customer's life savings.
The brokers, who work in Eugene, Ore., for the thrift's Murphey Favre Inc., were charged with first-degree theft and first-degree burglary last week.
Local police say the men burglarized the home of a 98-year-old bank customer, stealing more than $800,000 of securities. They were nabbed after one of the duo was caught in an attempt to sell the stolen securities, police said.
The case is clearly a black eye for Washington Mutual, which has owned the century-old Murphey Favre brokerage since 1982. Local news stories about the arrest have triggered a wave of phone calls from concerned clients, a federal probe is under way, and the company is likely to face intensified regulatory scrutiny.
Washington Mutual and Murphey Favre officials said they had no knowledge of the alleged crime until police contacted them after the arrests.
"We were really shocked at the allegations," said Douglas D. Springer, president of Murphey Favre. "If they are true, they go counter to everything this firm believes in."
Indeed, officials of Washington Mutual, which has $17 billion of assets, said the episode underscores one of the difficulties any company would face in operating a brokerage.
"When someone leaves our building and is determined to defraud or steal from another individual, then our systems are just not designed to control that," said Michael L. Amato, senior vice president in charge of Washington Mutual's branch investment sales.
The two men arrested, John Edward Malosh, 33, and Christopher Rickey Millard, 30, have been suspended from the firm pending the completion of an internal investigation, Mr. Amato said.
Mr. Malosh and Mr. Millard joined Murphey Favre in 1993, and until now have had spotless records, according to thrift officials and the National Association of Securities Dealers, which licenses and oversees brokers.
James A. Green, a sergeant with the white-collar crime unit of the Eugene police department, said the brokers were tipped off to the victim's nest egg by a Washington Mutual employee who was simply making a typical referral to an investment rep. This employee isn't a suspect in the case.
Details are murky, but police said one of the brokers subsequently found out about the stash of securities and their location through a series of phone calls to the victim and the staff at the nursing home where she is a resident.
Ironically, the elderly customer - who, according to police, reads The Wall Street Journal every day to track her favorite stocks and bonds - was wary of banks, having lived through the bank failures of the Depression. She kept her securities in a paper sack and a cardboard box in her house, Detective Green said.
After the theft Mr. Malosh, using the name Steve Warren, went to Bidwell & Co., a local brokerage firm, and tried to transfer $190,000 of the stolen bonds into an account under his and "his mother's" name, said John Good, a stockbroker with the company.
But the scam unraveled after Mr. Good contacted the victim to tell her that some of the bonds had been called. After determining that the transfer had not been authorized and the that bonds were likely stolen, Mr. Good called police. The two accused men were arrested four days later.
Mr. Springer, the president the thrift's brokerage unit, said that it has systems to oversee the conduct of its brokers while on the job. He added that in the past Washington Mutual and Murphey Favre had undergone examinations by federal regulators without incident.
Melanie Fein, a partner with the Washington law firm of Arnold & Porter, said the arrests probably will cause banking and securities regulators to take a closer look at Washington Mutual's brokerage activities. But because the investigation has not implicated the bank or the brokerage firm, the regulators will probably go easy on them, she said.
"This case is more common thievery than anything else," Ms. Fein said. "Wherever you have money you are going to have a criminal element, and banks deal with these sorts of people all the time."
Washington Mutual and Murphey Favre also may have to endure a protracted investigation. Police officials in Eugene confirmed that the U.S. district attorney is looking into the case, and that federal charges may be filed.
Officials at the prosecutor's office did not return phones calls seeking comment.