More than a year after the massive bank bailout started, officials announced the first fraud case Monday against an executive charged with trying to game the government's help.
A Manhattan federal prosecutor, two bank regulators and other agencies allege that Charles Antonucci lied in Park Avenue Bank's application for Troubled Asset Relief Program funds, among other allegations against the former chief executive.
The charges, which carry maximum penalties on conviction of 260 years in prison and $7.7 million in fines, highlighted a sore point in the Tarp story. In announcing Antonucci's arrest at a press conference Monday, officials signaled that other prosecutions are in the works.
"Our actions today will not be the last against a Tarp applicant," said Neil Barofsky, the special inspector general for the $700 billion bailout program, who warned fraud perpetrators: "You will be tracked down, you will be caught and you will be brought to justice."
The government's complaint against Antonucci portrayed an executive who, rather than focus on repairing his troubled bank, engaged in an extensive web of shady dealings designed to mislead the authorities and enhance his own wealth. (The $520 million-asset Manhattan bank failed on Friday).
Officials said Antonucci claimed he had invested $6.5 million of his own money in the bank, trying to persuade regulators of Park Avenue's improved capital standing and bolstering its case to win $11.2 million in Tarp funding. The infusion of Antonucci's money appeared to make him the majority owner of the parent Park Avenue Bancorp Inc.
But his investment, according to the complaint, was really of money the bank had lent to Antonucci's business associates outside the bank, which they redirected to Antonucci and he put back into Park Avenue.
The "round-trip transaction has become a one-way ticket to a federal courtroom," said Preet Bharara, the U.S. attorney for the southern district of New York, who called the purported capital the "functional equivalent of Monopoly money."
Antonucci was arrested at his home in Fishkill, N.Y., on Monday morning. He appeared before a magistrate judge, and was later released on $2 million bail. "We just received the charges today, we're studying them and until we have completed that review, we're not in a position to make any comment," said Charles Stillman, Antonucci's attorney and a partner at Stillman, Friedman & Shechtman.
The misconduct alleged against Antonucci did not begin, however, with the alleged fraud in his Tarp application. His suspect dealings went back at least to 2006, when authorities say Antonucci made an associate the president of another company he owned, Easy Wealth Group. He then ordered the associate to have Easy Wealth borrow $400,000 from Park Avenue and to give $70,000 of the proceeds to Antonucci. Easy Wealth later defaulted on the loan, leaving Park Avenue with a big loss.
The complaint also says that Antonucci approved more than $8 million of overdrafts by an alleged co-conspirator who, in exchange, authorities said, gave Antonucci extensive use of his private plane. Officials said the defendant also defrauded a Florida church that invested more than $100,000 in a Park Avenue account. The church thought the investment would help it build a new church, but, the complaint said, Antonucci and another alleged conspirator kept the money for themselves.
The complaint against Antonucci was brought in conjunction with the Federal Bureau of Investigation, the New York State Banking Department, U.S. Immigration and Customs Enforcement and the Federal Deposit Insurance Corp.'s inspector general.
Barofsky signaled hope that the charges would deter fraudsters from future wrongdoing. But some observers said they doubted that a lot of other bailout fraud cases would be brought.
Frank Bonaventure, a former senior official in the Office of the Comptroller of the Currency and in the Maryland attorney general's office, said bankers have given extra care to the integrity of their applications.
They "are very careful in how and what they say on any application, be it state or federal, and they're all attuned to the fact that intentional misstatements can carry criminal penalties," said Bonaventure, now a principal at Ober Kaler in Baltimore. "So I would be surprised to see much more of this."
Ross Delston, a former FDIC assistant general counsel, disagreed, however. Prosecutions are likely to increase, he said.
"Once a close look is given to the asset side of the bank, it's easy to see that there was gross negligence or intentional misconduct in the way loans were made," said Delston, now a Washington lawyer in private practice. "During the last banking crisis, there was a default position by the regulators that some sort of fraud or malfeasance had occurred. … Given the default position … historically, I think it would make sense to assume that there are investigations going on. … It's not a matter of possibility. It's a matter of probability."