U.S. Probing Ex-Officials Of Collapsed Bank in DC
WASHINGTON - The U.S. Attorney's Office for the District of Columbia has launched an investigation into conduct by former officials of Madison National Bank, a Washington-based institution that failed last month, according to sources familiar with the probe.
Investigators will be looking for evidence of possible money-laundering violations and involvement in fraudulent Federal Housing Administration loans.
Separately, the Office of the Comptroller of the Currency plans to seek civil money penalties against former Madison directors and officers for "unsafe and unsound banking practices" and violations of law.
The U.S. Attorney's Office declined to comment on Madison, but Leonora Cross, a spokeswoman for the OCC, confirmed the Comptroller's investigation.
Madison, which had assets of nearly $700 million when it failed on May 10, has been the subject of Capitol Hill debate in recent weeks concerning the adequacy of federal bank regulation. Loans to the bank's directors, executives and associates accounted for 80% of its troubled credits.
According to confidential bank regulators' documents reviewed by the American Banker, one former Madison official came under scrutiny by the FBI last year in connection with investigations of possible money laundering.
Bank regulators recommended scrutiny of another senior Madison official by the Securities and Exchange Commission for alleged stock-trading violations and by the Federal Bureau of Investigation for alleged check-kitting. It is unclear whether those investigations are pending.
Roster of Claimed Violations
According to the documents, between 1985 and 1991 there were scores of violations at both Madison National Bank and Madison Bank of Virginia, both subsidiaries of Washington-based James Madison Ltd. Among them:
* Directors received loans in excess of the banks' legal lending limits.
* "Numerous significant" errors were found in each of the banks' call reports.
* The holding company's deposit accounts at its subsidiary banks were overdrawn at least 16 times during a six-month period ending in January of this year.
It could not be learned what individuals will be the subjects of the OCC and U.S. attorney's investigations. Ms. Cross, the OCC spokeswoman, said it is too early to tell which, if any, officials will be fined.
The OCC will also consider whether some of the Madison officials should be barred for life from working for a bank.
Former directors contacted by the paper expressed surprise that an investigation was under way.
"That's newspaper talk," said Ulysses G. Auger, a former director and the company's largest stockholder.
Likewise, a lawyer for real estate investor Dominic F. Antonelli Jr., who was also a Madison director, said he was not aware of the U.S. attorney's probe.
"I have heard everything from Henry Gonzalez to Ho Chi Minhn talking about potential scandal," said lawyer Jim Stanton. "Mr. Antonelli left the bank about a year and a half ago ... I don't think it [the probe] is directed at him."
Possible Role for Ex-Chairman
The two former senior Madison officials who were under scrutiny last year by the FBI and the SEC could not be reached for comment. One of the officials is K. Donald Menefee, the former chairman of James Madison Ltd.
Mr. Menefee was questioned by the FBI for his contacts with to two former Madison customers who are allegedly involved in money laundering. It is unclear whether Mr. Menefee will be a target of the new probes by the OCC or the U.S. attorney.
"It appears that while Menefee was a loan officer, he lent [the] two customers money personally," according to one regulatory document. "The FBI is apparently trying to determine what knowledge, if any, Menefee had of the men's other business dealings."
Meanwhile, John G. Broumas, former chairman of Madison Bank of Virginia, was put under investigation last year by the FBI for alleged check kiting, according to the bank examiners' reports.
In addition, Mr. Broumas allegedly ran about 400 trades of James Madison stock through a brokered account he set up, using names and social security numbers of at least two bank officers. Mr. Broumas received $350,000 in profits from the transactions, according to the examiner's report.
"The matter has been turned over to the SEC for investigation," the examiners said in the document. The bank itself filed a criminal referral form on Mr. Broumas to the FBI, as well.