States Attorney's Office District of Connecticut
|February 23, 2010||
FORMER NEW YORK RESIDENT SENTENCED TO FEDERAL PRISON FOR ROLE IN BANK IPO SCHEME
Nora R. Dannehy, United States Attorney for the District of Connecticut, announced that RON KREISEL 31, of Los Angeles, California, formerly of Monsey, New York, was sentenced today by United States District Judge Janet Bond Arterton in New Haven to three months of imprisonment, followed by two years of supervised release, for his participation in a scheme to illegally invest in and profit from mutual savings banks that converted to publicly traded entities. Judge Arterton also ordered KREISEL to pay a fine in the amount of $2500 and to perform 300 hours of community service. On March 26, 2009, KREISEL pleaded guilty to one count of conspiracy to commit bank fraud.
According to court documents and statements made in court, KREISEL worked for Chaim Citronenbaum, of Monsey, who 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. KREISEL first worked as an office employee but subsequently took on an expanded role including opening accounts, buying stock, and transferring stock to an account operating as “The Citronenbaum Foundation,” which 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.
KREISEL, together with and at the direction of Citronenbaum, opened accounts at numerous mutual savings banks, including several based in Connecticut. However, because KREISEL and Citronenbaum did not live in Connecticut and certain mutual savings banks require by charter that depositors be state residents, KREISEL and Citronenbaum 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, KREISEL and Citronenbaum 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. KREISEL and Citronenbaum 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.
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, KREISEL and 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. KREISEL and Citronenbaum 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.
KREISEL personally profited $229,396 from this scheme, and he forfeited this amount to the Government. KREISEL also has been required to resolve any tax liability with the Internal Revenue Service.
On January 13, 2010, Citronenbaum was sentenced to 36 months of imprisonment, followed by two years of supervised release, for his participation in this scheme. Citronenbaum also was ordered to pay a fine in the amount of $10,000, and to forfeit $1,683,903 to the Government.
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 Attorney Michael S. McGarry.
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