States Attorney's Office District of Connecticut
|January 14, 2010||
LEADER OF BANK IPO SCHEME SENTENCED TO THREE YEARS IN FEDERAL PRISON
Nora R. Dannehy, United States Attorney for the District of Connecticut, today announced that CHAIM CITRONENBAUM, 53, of Monsey, New York, was sentenced yesterday, January 13, by United States District Judge Janet Bond Arterton in New Haven to 36 months of imprisonment, followed by two years of supervised release, for his leadership of a scheme to illegally invest in and profit from mutual savings banks that converted to publicly traded entities. Judge Arterton also ordered CITRONENBAUM to pay a fine in the amount of $10,000, and to forfeit $1,683,903 to the Government. On May 11, 2009, CITRONENBAUM pleaded guilty to one count of conspiracy to commit mail fraud and to defraud the Internal Revenue Service, and one count of mail fraud.
According to court documents and statements made in court, CITRONENBAUM devised a scheme to open accounts at numerous mutual savings banks in anticipation of the banks eventually converting to publicly-traded entities in order to purchase shares of stock when the banks converted to stock form. CITRONENBAUM and others opened and controlled accounts in CITRONENBAUM’s name, in the names of other individuals, and in the names of various entities, including a “foundation” that facilitated the avoidance of taxes.
Federal and state banking regulations require converting mutual banks that are conducting Initial Public Offerings (“IPOs”) to give eligible depositors priority rights in purchasing the newly issued shares, and these priority rights or “subscription rights” that are non-transferable, allow depositors to purchase shares at the “subscription price” or “offering price” generally set at $10.00.
CITRONENBAUM and others opened accounts at numerous mutual savings banks, including several based in Connecticut. However, because CITRONENBAUM and his co-conspirators did not live in Connecticut and certain mutual savings banks require by charter that depositors be state residents, CITRONENBAUM and his co-conspirators opened some accounts using false addresses and false employment information for themselves, and sometimes used names and social security numbers of other individuals to open accounts.
In addition to opening accounts at mutual banks using false information, CITRONENBAUM and his co-conspirators sought to profit through the purchase of stock they were not entitled to buy. They sought to accomplish this by recruiting other individuals to be “investors” and finance stock purchases, and recruited account holders at mutual savings banks so they could use their subscription rights. CITRONENBAUM and others entered into illegal arrangements with the investors and account holders whereby the co-conspirators and the investors would provide funds to finance the purchase of shares in the various IPOs and then share the profits generated by the purchase of and subsequent sale of the shares. CITRONENBAUM also falsely told certain investors that their profits would be free of taxes.
Federal regulations prohibit mutual bank depositors from selling or transferring their IPO subscription rights or entering into agreements or understandings to sell or transfer the shares prior to the offering.
On certain transactions, CITRONENBAUM forged account holders’ signatures on stock order forms and submitted the fraudulent forms via mail or commercial interstate carrier to the banks for the purchase of shares.
After purchasing the shares, CITRONENBAUM transferred the shares to brokerage accounts so that the shares could be sold for a profit in the open market, generally at prices above the IPO price. On a number of transactions, the shares were sold through a brokerage account in the name of “The Citronenbaum Foundation,” thus avoiding the proper reporting to the Internal Revenue Service of the profit. CITRONENBAUM and others then arranged for and made payments to the account holders whose subscription rights had been used to buy the stock, and arranged for and made payments to other investors who helped to fund the purchases.
CITRONENBAUM made a profit of $1,683,903 from this scheme, all of which he must forfeit. CITRONENBAUM also must resolve any tax liability with the Internal Revenue Service.
This matter was investigated by the Internal Revenue Service – Criminal Investigation Division and the United States Postal Inspection Service. The case was prosecuted by Assistant United States Attorneys Michael S. McGarry and Calvin B. Kurimai.
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