WASHINGTON - On paper at least, the Federal Deposit Insurance Corp. seems due for the Christmas present of a lifetime: nearly $820 million - fines and restitution from people convicted after bank investigations - ordered by the courts in the six months through Sept. 30.
But Santa won't be showing up with the check anytime soon. Though the most recent semiannual report from FDIC's Office of Inspector General details how much is owed to the agency, it cannot predict how much those convicted will be able to pay. Even under the most optimistic assessments, the agency will probably receive only a fraction of what it is due.
Indeed, the FDIC estimates that it receives an average of only 12 cents for every dollar of restitution ordered. Though not an impressive ratio, it is a good one for the federal government. A General Accounting Office study released last year said Uncle Sam receives only 4% of the large-dollar restitution payments it is owed.
A spokesman for the FDIC said the low repayment rate is due in part to judges signing restitution orders without determining ability to pay. For instance, many targets of restitution orders are prison and unlikely to earn much there or after release.
Nowhere is this clearer than in the cases of the Terry L. Church and Michael Graham, who were executives of First National Bank of Keystone, which collapsed in 1999 because of massive fraud. Ms. Church, the former senior executive vice president and chief operating officer, was ordered in May to pay $812.7 million to the FDIC and sentenced to more than 27 years in jail. Mr. Graham, the former head of Keystone Mortgage, was ordered in December 2001 to pay $515 million and sentenced to more than a dozen years in prison.
The two account for the vast majority of the jump in FDIC restitution ordered over the past year. But neither is likely to come close to paying off the debt. In fact, by Nov. 30 neither had paid the FDIC a dime.
Those high restitution penalties, in fact, seem likely to lower the FDIC's 12% recovery average, which was calculated before their orders went into effect.
The FDIC inspector general opened 23 investigations and closed 12 in the six months through September; 113 investigations were still under way on Sept. 30.
During the six months, FDIC investigations led to indictments or criminal charges against 14 people and the conviction of 17, the inspector general reported.
FDIC Inspector General Gaston L. Gianni Jr. is looking into whether bank fraud has risen in recent years.
"We haven't drawn any conclusions yet," said Fred Gibson, counsel to the inspector general, in an interview last week.
The report's section on investigations reads like a rogues' gallery of recent bank failures. The report also details the conviction of several former officers and directors of Hartford-Carlisle Savings Bank, which collapsed in January 2000.
This September, Dick A. Thierer, the bank's former president, pleaded guilty to seven counts of bank fraud as well as eight counts of falsifying records and making false statements. His two brothers and fellow board members, Darin L. Thierer and Donn K. Thierer, also pleaded guilty to bank fraud, the report said. (The report did not disclose names of those convicted, but it provided descriptions that enabled American Banker to identify them.)
Other highlights of the report:
- o In August a former executive vice president of First State Bank in Harrah, Okla., was sentenced to five years in prison and ordered to pay $3.5 million for his role in a bank fraud scheme. He and a cattle broker who was a customer of the bank pleaded guilty last year to trying to defraud it by creating 11 fraudulent nominee loans. The report named neither person.
- o In September a former official of two banks in Morristown, Tenn., was sentenced to 15 months of incarceration and ordered to pay restitution of $47,563 after pleading guilty in June to charges of bank fraud, receiving kickbacks on loans, and filing false income tax returns.
- o In June an indictment was unsealed charging the husband and wife owners of a construction company with bank fraud. The report said they submitted false invoices to Community Bank in Blountsville, Ala., for "work that was never performed" or for "personal construction work performed for the bank's chief executive officer, relatives of the chief executive officer, and the bank's vice president of construction and maintenance."
FDIC employees and contractors were also in the mix. The report said that a former employee of a company hired by the Resolution Trust Corp. (an agency later incorporated into the FDIC) to manage assets pleaded guilty in September to theft of funds from the FDIC. The contractor used his position as an asset specialist to negotiate and sell FDIC assets to "entities with whom he had undisclosed agreements to collect additional payments and fees." He received $700,000 in kickbacks from the scheme, costing the FDIC an estimated $1.2 million.In June, a former FDIC examiner was sentenced to five years' probation and ordered to pay back nearly $15,000 after pleading guilty to converting FDIC funds to her own use by submitting false claims to the agency for reimbursement of relocation-related expenses.
