DENVER – LAWFUEL – US Law News – Troy A. Eid, United State…

DENVER – LAWFUEL – US Law News – Troy A. Eid, United States Attorney for the District of Colorado, Richard C. Powers, Special Agent in Charge of the Federal Bureau of Investigation’s Denver Office, Terry L. Stuart, Special Agent In Charge of the IRS-Criminal Investigation, Denver Field Office, and Jon T. Rymer, Inspector General for the FDIC, announced that EDWARD P. MATTAR, III, age 67, THOMAS ALAN BOYD, age 54, and JACK O. GRACE, JR., age 54, were found guilty today of conspiracy and fraud related to the failure of Boulder based BestBank, by Senior U.S. District Court Judge Richard P. Matsch following a Trial to the Court. On August 29, 2005, co-defendants DOUGLAS R. BAETZ, and GLENN M. GALLANT, were convicted by a jury of fraud related to the BestBank failure. No sentencing date has yet been set for the defendants.

Judge Matsch found all three defendants guilty of one count of Conspiracy (Count 1), six counts of bank fraud (Count 26, 27, 28, 29, 30, 31), two counts of false bank reports (Count 53 and 54), and six counts of wire fraud (Count 58, 59, 60, 61, 62, 63, 64).

Conspiracy carries a penalty of not more than 5 years in federal prison, and a fine of up to $250,000. Bank fraud, false bank reports, and wire fraud, carry a penalties of not more than 30 years in federal prison, and up to $1,000,000 fine, per count.

When BestBank failed in July of 1998, its largest asset was a portfolio of subprime credit card accounts with a reported value of more than $200,000,000. Subprime credit card borrowers are high risk borrowers with poor credit histories. The credit card accounts were funded by BestBank using money from depositors. BestBank attracted depositors by offering above market interest rates.

From 1994 through July 1998, the defendants engaged in a business operation that made more than 500,000 BestBank credit card loans to subprime borrowers. In July of 1998, the Colorado State Banking Commissioner and the FDIC determined that the value of the subprime credit card loans maintained as an asset on the books of BestBank was overstated because delinquent loans were fraudulently made to appear non-delinquent. BestBank’s liability to its depositors exceeded the value of its other assets, making it insolvent.

According to the indictment, BestBank entered into agreements with CENTURY FINANCIAL and BAETZ and GALLANT to market BestBank credit cards to subprime borrowers. CENTURY FINANCIAL sold $498 travel club memberships, marketed first through Universal Tour Travel Club and later through All Around Travel Club (AATC). In almost every instance, those who signed up for the travel club did not pay cash for their membership. Instead, BestBank and CENTURY FINANCIAL offered to finance a travel club membership for subprime borrowers using a newly issued BestBank VISA credit card. The credit limit for the subprime borrowers as provided by the bank was $600. BestBank also charged fees, which immediately brought the borrowers close to the credit limit. Less than half of those who signed up for the travel club received their membership materials.

The indictment stated that the defendants carried out a fraudulent scheme in several ways. Most people did not pay the mandatory $20 service fee required before the account was funded. Over 50 percent of the subprime borrowers’ accounts were non-performing.

BestBank and CENTURY FINANCIAL, in many instances, did not send the subprime borrowers their credit card or monthly statements. The indictment further alleges that BAETZ, GALLANT, and CENTURY FINANCIAL fraudulently concealed the subprime borrowers’ non-performance and delinquency rates by reporting non-performing accounts as performing. Allegedly, BAETZ and GALLANT paid $20 to some accounts so they would appear to be performing when in fact they were not. The defendants also face asset forfeiture, which seeks $100,000,000 to compensate victims for the loss as a result of the bank’s failure.

“I want to thank the federal investigators and prosecutors for their outstanding work in obtaining a conviction in this complex criminal matter,” said United States Attorney Troy Eid. “The defendants in this case caused the FDIC and other victims a substantial loss – over $200,000,000, and now 5 people have been held criminally accountable.”

“Today’s verdict demonstrates that individuals who cause harm to our nation’s financial institutions ultimately will face justice. I commend the agents from the FBI, IRS and FDIC OIG and the Assistant US Attorneys in Denver for their outstanding efforts and perseverance in the investigation and prosecution of this case,” said FDIC Inspector General Jon T. Rymer.

“This case reaffirms the Bureau’s commitment to protecting our financial infrastructure,” said Denver FBI Special Agent in Charge Richard C. Powers. “This was a complex case, which involved numerous agents and investigators from many agencies. Their hard work is well reflected in today’s convictions.”

“The Internal Revenue Service works closely with its federal partners to ensure that financial institutions and their officers are held accountable for their fraudulent actions,” said Terry L. Stuart, Special Agent in Charge, IRS-Criminal Investigation, Denver Field Office. “This case involved complex financial forensic investigation, which is something the IRS was able to provide in this investigation.”

This case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation, and the Federal Deposit Insurance Corporation. The case was prosecuted by Assistant United States Attorney’s John Haried and Michael Carey.

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