| 4 indicted in fraud of credit Union
By John H. Kennedy
The Boston Globe, Sept 23, 1992, page 69
Four men were indicted yesterday on charges they contributed to the
nation's second largest credit union fraud that thrust the Barnstable
Community Federal Credit Union into insolvency last year.
US Attorney A. John Pappalardo announced the indictments of two former
credit union directors, a lawyer that counseled the institution and a
developer. All four men pleaded innocent yesterday in US District
Court in Boston.
From 1985 until the credit union was declared insolvent last year, the
men allegedly engaged in schemes that defrauded the credit union out
of more than $30 million through multimillion dollar loans from the
Barnstable credit union and the Digital Employees Federal Credit Union
based in Maynard.
Federal regulators allege in a separate civil lawsuit that the fraud
amounts to $47 million, and said insiders treated the Hyannis-based
institution as their own private piggy bank.
Assistant US Attorney Victor A. Wild, a prosecutor in the case, said
the Barnstable case was the country's second largest credit union
fraud and the largest one that, involved real estate fraud."
The investigation continues and "we expect to present additional
matters to the grand jury including additional individuals," Wild
said.
Arrested by the FBI in Boston and on Cape Cod were Richard D. Mangone,
48, of Norwell, the first chairman of the Barnsable credit union and
the former president of the Digital credit union; James K. Smith, 50,
of Barnstable, a Cape Cod builder and former vice chairman at
Barnstable; Robert Cohen, 58, of Newton, a lawyer who counseled
Barnstable credit union officials; and Ambrose L. Devaney, 48, of
Rockport, a real estate broker and investor.
All four men were charged with bank fraud, conspiracy, money
laundering and unlawful receipt by a bank officer. They were released
by US Magistrate Lawrence P. Cohen on $50,000 unsecured bond each. The
government had requested $500,000 bond.
The 43-count indictment centers on about 17 loans in which the Digital
Employees Federal Credit Union with Mangone as president, approved
loan partiapation agreements and provided as much as 90 percent of the
money on loans processed and serviced by Barnstable, according to
court documents.
Mangone, Smith and Devaney are accused of using "straw" borrowers and
fraudulently disguising their ownership interest in real estate trusts
set up to apply for the loans. Cohen prepared documents and performed
closings for the credit union, authorities said.
The loans, gained through phoney purchase and sale agreements and
bogus financial statements, were often obtained in amounts far
exceeding the actual price paid for the real estate, the indictment
said. Smith and Magone, accused of controlling the lending at
Barnstable, jointly obtained property with other partners, the
indicment said. The properties were often "sold" again to new trusts
the men controlled, effectively meaning Smith, Mangone and Devaney
continued to obtain larger loan funds on the same properties, officials
said.
Two other credit union insiders not named in the indictment but
described in the civil suit as helping defraud the Barnstable credit
union were Michael D. O'Neil, a lawyer and former chairman and Bruce
N. Harris, former chairman of the credit union. The civil suit filed
last year in federal court in Boston by the National Credit Union
Administration, did not name Devaney as a defendent.
Three of the four men arrested declined comment. Cohen's lawyer, Jack
Zalkind, said the govemment will "never show he knowingly and
willingly" engaged in criminal activity.
Robert George, a lawyer for O'Neil, who was not among those indicted
yesterday, said his client's position "now and always will be he
wasn't involved in any wrongdoing at the credit union."
Deposits at Barnstable credit were insured up to $100,000 per account
by an industry-funded program and no depositors were believed to have
lost money as a result of the alleged scam.
The Digital credit union which fired Mangone in April 1991, is
financialy healthy despite the alleged fraud a lawyer for the credit
union said.
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| This is from an internal Digital memo based on the original press
release from the US District Attorney's Office.
Author: DCU
Date: 08-Oct-1992
Posted-date: 09-Oct-1992
Subject: news release
Boston, MA
September 22, 1992
NEWS RELEASE
"Thomas A. Hughes, Special Agent in charge of the Boston office of
the Federal Bureau of Investigation (FBI) and Kenneth Claunch, Chief
Criminal Investigator, Internal Revenue Service (IRS), Criminal
Investigation Division, announced today the arrests of four men on
charges relating to a scheme to defraud the Barnstable Community Federal
Credit Union (BCCU) and the Digital Employees' Federal Credit Union
(DEFCU).
James Smith, age 50, 65 Chole Ct., Barnstable, MA; Richard D.
Mangone, age 47, 273 River St., Norwell, MA; Ambrose L. Devaney, age 48,
1 Holbrook Ct., Rockport, MA; and Robert Cohen, age 58, 49 Rowena Rd.,
Newton, MA were arrested this morning by FBI and IRS agents. The
arrests were without incident. The four men were named in each of the
43 counts of an indictment returned by a Federal Grand Jury at Boston,
MA on September 21, 1992. The indictment charges the men with
conspiracy, bank fraud, money laundering, and the unlawful receipt of
money or other benefit by an officer or employee of a federally insured
credit union where that person participated in a transaction with an
intent to defraud the institution. All of the charges relate to the
scheme to defraud BCCU and DEFCU.
The indictment charges that the men participated in a scheme from
1982 to 1991 which resulted in a loss to BCCU in excess of $30 million.
Evidence of the fraud was uncovered after the National Credit Union
Administration (NCUA) declared BCCU insolvent and placed it under
conservatorship on March 13, 1991.
According to the indictment, Smith was a co-founder of BCCU, an
owner of Sands Realty, Inc., and a real estate developer. At various
times at BCCU, he was vice-chairman of the Board of Directors, a vice-
president, and assistant financial officer. Mangone was a co-founder of
BCCU, a Certified Public Accountant, and president of DEFCU from 1983 to
1991. Mangone served as chairman of BCCU's Board of Directors, and as
secretary and treasurer of BCCU. Devaney was a real estate broker and
investor. Cohen is an attorney with offices in Boston and Wellesley,
MA. From 1985 to 1986, Cohen was a member of the Supervisory Committee
of DEFCU.
It is charged that the object of the conspiracy was for Smith,
Mangone, and Devaney to use BCCU and DEFCU to finance their own personal
real estate investments, obtain loans in excess of the amount they
actually spent on their real estate deals; and use their real estate
ventures to generate large tax losses to reduce their taxes. Cohen got
legal fees for his role in perpetrating the scheme, including fees for
services as closing attorney for the real estate transactions. Cohen
also set up a series of `nominee trusts' and `realty trusts' which
Smith, Mangone, and Devaney used to buy and sell properties and obtain
loans. These `nominee' or `realty' trusts are a form of ownership in
Massachusetts in which the name of a trustee rather than the true owner
is used in public records.
The indictment charges that Mangone and Smith exerted influence and
control over BCCU in particular regarding the approval of major loan
applications. Cohen provided documentation to BCCU and DEFCU prepared
in such a way to conceal from BCCU and DEFCU the fact that Smith,
Mangone, and Devaney were the true borrowers in loans totaling millions
of dollars. Cohen used client accounts and law firm accounts as a
conduit to transfer proceeds from fraudulently obtained loans from BCCU
and DEFCU into accounts controlled by Smith, Mangone and Devaney.
Some of the real estate loans were too large for BCCU to fund
itself and it is alleged that Mangone exerted influence on DEFCU to
cause DEFCU to enter into `loan participation agreements' with BCCU.
Under the `loan participation agreements', DEFCU provided as much as 90
percent of the money loaned and relied on BCCU to process and service
the loans. It is alleged that the conspirators set up eighteen
different fictitious real estate trusts to act as the `borrowers' on the
loans. As part of the scheme, it is charged that fraudulent
documentation was prepared disguising the true identity of the owners of
the trusts, the valuations of properties, and the true amounts of loans
going to individual borrowers. The defendants also used people as
trustees who did not have the financial resources to support the large
loans. Fictitious financial statements were prepared and submitted to
BCCU overstating the resources of these trustees. Fraudulent
Certificates of Deposit (CDs) were opened in the name of the trustees to
show financial resources when in fact the defendants and not the
trustees owned the account. The defendants are also charged with making
multiple money laundering transactions to disguise the origins of the
criminally obtained loan proceeds. The money from the fraudulent loans
was shifted into the various accounts controlled by the defendants.
The four men are to be afforded a hearing in U.S. District Court in
Boston today. If convicted, the maximum penalty for conspiracy is 5
years imprisonment and/or a $250,000 fine; money laundering is 10 years
imprisonment and/or a fine of $250,000 or an amount of twice the amount
of the illegal transaction; unlawful receipt by an officer and employee
of a federally insured credit union is 5 years and/or a $10,000 fine;
bank fraud is 5 years and/or $10,000 fine. (For both bank fraud and
unlawful receipt, the penalties for offenses after August 9, 1989 are 20
years and/or $1,000,000 fines.) The indictment and arrests follow an 18
month joint investigation by the IRS and FBI. The investigation into
this matter is continuing. The case is being prosecuted by the U.S.
Attorney's office in Boston.
CHARGES
1 count conspiracy 18 U.S. Code, Section 371
18 counts bank fraud 18 U.S. Code, Section 1344
17 counts unlawful receipt 18 U.S. code, Section 1006
7 counts money laundering 18 U.S. code, Section 1957"
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