Big Loan by BNE Probed for Fraud
Clued in by evidence including the heavy-handed use of Wite-Out on loan documents, lawmen have started looking into apparent irregularities in the biggest sour loan yet uncovered in the Bank of New England bailout.
Investigators are "looking at the loan draws, and its anybody's guess where that will lead," said one source who is familiar with the loan, which was made to a resort on Cape Cod.
No charges have been filed in the case, which involves $34 million for a ritzy subdivision and golf course that went bust along with thousands of other projects during the collapse of the region's real estate market.
But suspicion of fraud in the biggest bad loan by the biggest failed bank in the region adds urgency to the Justice Department's probe into fraud in the collapse of baks in the region.
In its effort to stem fraud losses in the region, the Justice Department formed the New England Bank Fraud Task Force. The department said moving quickly would enable authorities to recover restitution from wrongdoers, and to do it more effectively than was the case in the Texas thrift and bank debacle.
The U.S. attorney's office in Massachusetts recently secured a conviction against a former officer of Bank of New England on fraudulent loans that cost the bank $600,000. The loan officer, Lewis Donald Shattuck, is due for sentencing later this month. He faces up to five years in prison and up to $250,000 in fines on each of 40 counts.
Now the lawmen are eager to nail some bigger miscreants.
Opportunity for Fraud Existed
That goal should not be too elusive. The booming real estate market of the mid-to-late 1980s provided a fertile ground for crime, government prosecutors said.
Local media have reveled in the seemingly over-ambitious visions of the golf course developers and have focused on their high-flying lifestyle.
Now, a debate over whether the failure of the developers' project was cause by economic factors or fraud provides another parallel to Texas.
More than one source said the Federal Bureau of Investigation and an assistant U.S. attorney from the district of Massachussets are focusing on invoices that were submitted to draw down lines from Bank of New England bank by Falmouth Woods Development Corp., the defunct development firm headed by Stephen and Patricia Harrison.
Transcripts of sworn statements by an employee of the developer, that were taken on behalf of the bank prior to its failure under the weight of bad real estate loans, reportedly have been forwarded to the authorities.
Inflated Job Costs
The documents were crudely altere in order to exaggerate the cost of work by thousands of dollars per job, the employee admitted.
U.S. Attorney Wayne A. Budd, whose office has made a priority of bank fraud prosecutions, declined to say whether an investigation of the Falmouth Woods loans is underway.
It was Budd's office that brought in the conviction against Mr. Shattuck, whos was found guilty of making fraudulent loans, taking kickbacks, and falsifying records.
In addition numerous officers of ComFed Savings Bank, the largest failed thrift in the state, have been convicted in a mortgage scam.
Whereabouts of Developers
Bruce Ramsay, of Peabody & Brown, who represented the Harrisons before local zoning and planning authorities, said he hasn't seen his former clients in over a year and didn't know where to reach them.
He said Mr. Harrison was working for a New Orleans-based developer, and that the couple now reside in Florida.
He said the project was the victim of a slow approval process during which the market went soft and baks changed their standards for loans.