Conference 7.286::dcu

505.0. "Cape Cod Times article on 1986 Report" by GUFFAW::GRANSEWICZ (I'm voting for REAL CHOICE candidates next week) Fri Mar 20 1992 00:27

    
    [Permission to forward or re-post this note is granted.  However, the
     original note header and names at the end of the note must be
     retained.  The contents of the note may be shared with any DCU member.]
     
   [Re-printed without permission from the Cape Cod Times, March 19,1992]

	    "Digital had tip-off in '86 about bad loans to Cape"
			By Susan Milton
			   Staff Writer

	  Millions of dollars of risky Cape real estate loans were first 
	investigated in 1986 by the Digital Equipment Corp., according to
	investigators at the international computer company.

	  Checking out a tip about the Cape loans, the investigators were
	surprised to learn that the primary lender was their own credit union,
	the Digital Employees' Federal Credit Union, based in Maynard.

	  Their report, intended as a warning, was rejected by credit
	union leaders, the former Digital employees said.

	  Now the credit union has lost millions of dollars because of such
	loans, now known to be faked and channelled through the closed
	Barnstable Community Federal Credit Union in Hyannis.

	  Due to the loan losses, the Hyannis credit union was taken over 
	a year ago and closed last June by federal regulators.  Last April,
	the Digital credit union fired Richard Mangone, its president since
	1983.

	  Mangone and other Barnstable credit union insiders secretly siphoned
	millions of dollars in loans shared by the two credit unions between
	1987 and 1990, according to two civil lawsuits.

	  Digital's 1986 report has resurfaced to draw new attention to the
	$345 million credit union, the largest in New England, and its parent 
	computer company.

	  The Cape Cod Times has learned:

	  o The Federal Bureau of Investigation has supoenaed and obtained the
	    1986 report.

	  o The 1986 investigation and report was denied last week by Digital
	    credit union chairman, Mark Steinkrauss, also Digital's director
	    of investor relations.  He described "an informal inquiry" in 1986
	    that revealed Mangone was serving on the Barnstable credit union 
	    board that developed and sold the large loans to his own credit 
	    union.

	  o A Digital lawyer, by letter and telephone, last year warned two
	    former Digital employees to keep quiet about the company's 1986
	    investigation of Cape loans.

	  Those early loans, all repaid, included $2.8 million for the 41-lot
	Yankee Village commercial/residential subdivision in Brewster and a 
	$2.7 million mortgage for the Sands Motor Lodge and Greenbrier Motel
	on Route 132 in Hyannis.

	  Later, between 1987 and 1990, Mangone led the Digital credit union
	to invest another $18 million in 12 similar loans for Cape motels
	and real estate projects, all now in foreclosure.

	  The 1986 report has resurfaced during a campaign that will decide
	the future management of the Digital credit union, created as an 
	employee benefit for Digital employees.

	  Under fire for months over the Cape loans and other operating 
	policies, the entire Digital credit union board, many of whom are
	high-level Digital managers, is being replaced.

	  The unusual election, involving 81,000 voters at various worksites
	in 83 countries, was mandated last November at a special meeting
	called by rebelling depositors.  The ballots were mailed March 14,
	with results due at the credit union's April 23 annual meeting.

	  At the heart of the campaign are the Cape Cod loans.  The primary 
	focus according to board critics, is not the fraud nor the credit
	union's losses.  It was the board decision in 1985 to make such 
	loans at all.

	  "The issue is that our credit union funds were being funnelled
	into what many consider to be risky investments, land development
	on the Cape.", said candidate Phil Gransewicz, a Digital engineer
	and board critic.

	  Digital investigators, also credit union members, had the same 
	reaction in 1986.  That is why the 1986 report was an early warning 
	to the board about its lending policies.

	  Confirmation about Digital's 1986 investigation came from two 
	former Digital employees.  Although known to Digital, both men asked 
	the Cape Cod Times not to publish their names.

	  In further confirmation, Digital lawyer William Sutton's letter
	warned against disclosing information about a 1986 investigation.
	Sutton contacted the two former employees, first by telephone, then by
	Express Mail, just before the November debate over the board's removal.

	  Because of such warnings, each refused to comment on the 1986 
	investigation and report.  But the two former employees said there was
	no reason to protect Sutton's letters, which puizled and angered them.

	  The report, one former employee said, was not about Digital at all,
	but about the credit union, a seperate corporate entity, which had shown
	no interest in the report's contents in 1986.

	  He asked, "Why is Digital keeping this from the (credit union)
	membership which has a right to know if people (board members) running
	for office were delinquent in their duties or not?"

	  Sutton did not respond to a request for comment.  In a later letter 
	to the two men, he said his purpose was not to intimidate the two former
	employees but to remind them of their legal and professional 
	obligations.

	  In a telephone interview last week, Steinkrauss downplayed the 1986
	events by saying, "I'll say again - and I am in a position to know,
	there was no investigation.  There was no report.  There was no 
	subpoena.  There was none."

	  He did remember meeting with Digital management in 1986 over an 
	anonymous phone call.  He said the call "suggested some sort of 
	impropriety and I'm not even sure it was with (Digital credit union)
	but with Barnstable."

	  Told about Sutton's reference to the 1986 investigation, Steinkrauss
	then recalled there had been "an informal inquiry but all the 
	references were to the Barnstable credit union."

	  Steinkrauss suggested that the newspaper was being fed distorted 
	information by board candidates who were politicking or trying to 
	tarnish past or present board members.  He also suggested that the 
	likely sources about the 1986 investigation had ulterior motives.

	  He said, "I can't tell you the circumstances under which they left,
	(their jobs) because that would be a violation of trust."

	  One former employee said they retired early, by choice, when 
	Digital offered to buy out their pensions.  Known, not anonymous,
	sources started the investigation.  Both men said that an in-depth
	investigation resulted in a lengthy report about the early loans.  
	The Cape Cod Times also confirmed, through non-Digital sources, that
	the report had been obtained by the FBI by subpoena from Digital.

	  Through the 1986 inquiry, Steinkrauss added, the Digital credit
	union board did learn its president, Richard Mangone, was also 
	serving on the Barnstable board.  The board asked Mangone to sever 
	his Barnstable relationship, Steinkrauss said, because "he was 
	drawing his salary, after all, from DCU."

	  Mangone complied, but continued to make weekly visits to the 
	Barnstable credit union to prepare the fraudulent loan applications
	that he then presented and sheparded through a deceived Digital credit
	union board, according to a pending lawsuit.

	  Steinkrauss even visited the Cape investments on trips to the Cape,
	he said.  He is among four Digital credit union board members who 
	own second homes or timeshare units on the Cape.  He did not know if 
	other board members made similar visits.

	  In another change after the 1986 report, the Digital Credit Unions
	participation, usually 75% to 90%, was concealed.  Its participation
	was denied, in 1987 and early 1991 by Mangone and other Barnstable 
	credit union officials interviewed then by the Cape Cod Times.  The
	loan's were recorded in the Barnstable credit union's name.

	  The Digital credit union is now suing Mangone, as well as Robert 
	Cohen of Newton, former counsel for both credit unions; Cohen's
	Wellesley law firm, Cohen & Kushner; Rockport developer Ambrose 
	Devaney; Barnstable developer and credit union founder James K. Smith;
	and Centerville appraiser Paul C. Brown.

	  Its suit claims that each man played a role in a scheme to locate
	properties, fake loan and legal documents, recruit "straw borrowers",
	inflate property values and siphon money for personal use.

	  About last year's revelations, Steinkrauss said, "I know that I was
	deeply saddened to see that the trust we had put in Mr. Mangone was
	broken.  It was a blow to all of the board and all of the staff and
	certainly all the membership at Digital (credit union)."

	  Claiming $47 million of fraud at the Barnstable credit union, 
	federal regulators are suing Mangone, Smith and Cohen, as well as 
	former Barnstable credit union leaders Michael O'Neil, a lawyer now
	living in Scituate, and Bruce Harris, now living in Florida.

<><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><><>

    Why is it that the DCU membership has to learn about our credit union
    from a Cape Cod newspaper instead of from DCU management and the board
    of directors?

    -- Ward

Shortly before the special meeting, some promises were made as to the appearance
of a "smoking gun" at the meeting.  This article makes reference to people being
ordered to keep their mouths shut about something at the meeting.

Just for my edification, does .0 represent that smoking gun?

    Re .0:

>	    "Digital had tip-off in '86 about bad loans to Cape"
>			By Susan Milton
>			   Staff Writer
>
>   "... candidate Phil Gransewicz, a Digital engineer and board critic."
    
    This lady has a gift for understatement. 8^)
    
    Seriously though, I'm glad she's still digging even though I take no
    delight in what she's finding.

    
    RE: .4
    
    Yes, that should have been:
    
     "... candidate Phil Gransewicz, a great Digital engineer and witchhunter."
    
    Darn press...
    
    	:-) :-) :-) :-) :-) :-) 
    

    
    RE: .3
    
    Think about it.  It probably won't take too much to arrive at the
    correct conclusion...

>	  He asked, "Why is Digital keeping this from the (credit union)
>	membership which has a right to know if people (board members) running
>	for office were delinquent in their duties or not?"
    
    Yes, why?  Inquiring minds want to know....
    
    
>	  In a telephone interview last week, Steinkrauss downplayed the 1986
>	events by saying, "I'll say again - and I am in a position to know,
>	there was no investigation.  There was no report.  There was no 
>	subpoena.  There was none."

    Isn't this statement somewhat contrary to facts that have been established?
    For instance, I assume the following statement is reliable:
    
>	  The Cape Cod Times has learned:
>
>	  o The Federal Bureau of Investigation has supoenaed and obtained the
>	    1986 report.
    
    There is a certain amount of discrepancy here....
    

>   >	  In a telephone interview last week, Steinkrauss downplayed the 1986
>   >	events by saying, "I'll say again - and I am in a position to know,
>   >	there was no investigation.  There was no report.  There was no 
>   >	subpoena.  There was none."

    
    >Isn't this statement somewhat contrary to facts that have been established?
    >For instance, I assume the following statement is reliable:
    
>   >	  The Cape Cod Times has learned:
>   >
>   >	  o The Federal Bureau of Investigation has supoenaed and obtained the
>   >	    1986 report.
    
    I think we have to take into context who said that the FBI was not
    involved.  I will believe a reporter any day over someone who is
    directly involved with the problems at DCU.
    
    This is really ashamed.
    
    	- mark

    re: .8
    Yes, I would say that a newspaper can reliably check the veracity of
    the statement, "The FBI did such-and-such".  Assuming the newspaper
    did its homework (and I assume it did), I think we can rely on the 
    statement.  If the statement could not be verified, I think there
    would have been a qualifier in the newspaper article, or they wouldn't
    have said it at all.  This assumes a basically competent newspaper and 
    reporter, but we're talking pretty basic here.

    
    What greatly concerns me about this article is the absolute posturing
    on the part of a man that Wall Street turns to when it wants to know
    about Digital Equipment Corporation. How much creditibility can you
    give to a man who says in one breath that there was no report and then
    backpeddles off his statement in the same breath?
    
    

RE:-1
Then again perhaps he did not know. Did Digital ever inform the DCU BoD that 
Digital's report was sent to the FBI?  If not then how would he know? He
does not work for Digital Security. Digital may do whatever it pleases with
its security reports.

	But he said "I'll say again - and I am in a position to know,
                                      ^^^ ^ ^^ ^^ ^ ^^^^^^^^ ^^ ^^^^
	there was no investigation.  There was no report.  ***There was no 
	subpoena***.  There was none."

	Had he simply said he was unaware of any report, I'd be more likely
	to give him the benefit of the doubt.

						Tom_K

>Then again perhaps he did not know. Did Digital ever inform the DCU BoD that 
>Digital's report was sent to the FBI?  If not then how would he know? He
>does not work for Digital Security. Digital may do whatever it pleases with
>its security reports.
    
    If he did not know about the report, then he should have not said, 'I
    am in a position to know' (or whatever he said).  If he did not know,
    then he should have said so or plead the 5th or no comment.
    
    	- mark

    Folks, be careful here.  As a <gulp> co-moderator, I need to emphasize that
    speculation as to the integrity of a Digital employee is getting
    dangerously close to infringing on P&P guidelines.  Please, be as nice
    and objective as possible, okay?  Let's avoid the "L" word if we can,
    please, please, please?
    
    Steve

RE: last few

Re-read my note it concerned only the FBI subpoena of the report, not knowledge
of its existence.

"Did Digital ever inform the DCU BoD that Digital's report was sent to the FBI?"

Sorry if I was not clear however me thinks you'al are getting a might touchy

	OK, change my reply as follows:

	But he said "I'll say again - and I am in a position to know,
                                      ^^^ ^ ^^ ^^ ^ ^^^^^^^^ ^^ ^^^^
	there was no investigation.  There was no report.  ***There was no 
	subpoena***.  There was none."

	Had he simply said he was unaware of any report, or unaware of a 
	subpeona, then it would be easier to understand. But I am having
	a hard time understanding how he can say what he said.

						Tom_K

    
    Re: < and I am in a position to know.
    
    What is useful in this statement is that Mark Steinkrauss' own
    words make him responsible.  He either knew *or* should have known.
    
    Steve
     

    re .all
    
    In light of what Mr Steinkrauss has said....AND...his position here at 
    DEC - this is very serious stuff. 
    
    Plus, Mr Sutton's role in all this.....
    
    Now that the FBI has the 1986 report...and access to the two former
    employees...ask yourself, what now must be going on in the minds of these 
    people?
    
    I'm glad I'm not in their sneakers!
    
    This story seems to be expanding over time.
    								-mike-

       If the FBI has the report, does the Freedom of Information Act apply
    to any citizen having access to it?
                                 Denny

Re: .21

I spoke with a Jim Crawford of the Boston FBI office on that very question.

The answer is, no, not while litigation, or susequent appeal(s), is in progress.

And as you might expect, the FBI can't make any statment on the existence of
said litigation.

The procedure is to write to the FBI HQ in Washington D.C. and make a request
for whatever you like, then wait.


Regards

James	:-)