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FOR IMMEDIATE RELEASE
May 28, 2003
FORMER BESTBANK EXECUTIVES INDICTED FOR FRAUD
DENVER – John W. Suthers, United States Attorney for the District of Colorado, Phillip B.J. Reid, Special Agent in Charge of the Federal Bureau of Investigation’s Denver Office, James D. Vickery, Special Agent In Charge of the IRS-Criminal Investigation, Denver Field Office, and Samuel M. Holland, Assistant Inspector General for Investigations, FDIC, announced today that a federal grand jury in Denver has returned a 95-count sealed indictment charging five individuals and two related companies with fraud in connection with the failure of BestBank, located in Boulder, Colorado.
BestBank was declared insolvent by the Colorado State Banking Commission and the FDIC in July of 1998, making it one of the largest bank failures in the United States in the last 10 years. Depositors’ losses exceeded $200,000,000. The FDIC’s bank insurance fund covered all depositors’ losses except for $27,000,000 of deposits which exceeded the $100,000-per-account insurance limit.
Named in the indictment unsealed on May 28, 2003 are:
EDWARD P. MATTAR, III, age 63, of Deerfield Beach, Florida
MATTAR was owner, Chief Executive Officer, and Chairman of the Board of BestBank
THOMAS ALAN BOYD, age 50, of Niwot, Colorado
BOYD was President and a Director of BestBank
JACK O. GRACE, JR., age 50, of Hermosa Beach, California
GRACE was Chief Financial Officer and a Director of BestBank
GLENN M. GALLANT, age 45, of Fort Lauderdale, Florida
GALLANT was an owner and operator of CENTURY FINANCIAL
DOUGLAS R. BAETZ, age 52, of Key West, Florida
BAETZ was an owner and operator of CENTURY FINANCIAL
CENTURY FINANCIAL SERVICES, INC., of Oakland Park, Florida
CENTURY FINANCIAL GROUP, INC., of Oakland Park, Florida
MATTAR, BOYD, GALLANT, and BAETZ each received more than $5,000,000 during the course of the alleged fraudulent scheme. Each of them faces a possible mandatory minimum sentence of 10 years to life in federal prison. GRACE faces up to 30 years in federal prison. CENTURY FINANCIAL faces fines of up to twice the amount gained from committing the offense.
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 allegedly 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 alleges 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 indictment includes an asset forfeiture count, which seeks $100,000,000 to compensate victims for the loss as a result of the bank’s failure.
“In a situation when a bank’s insolvency is caused by fraud, it is important that the government respond by prosecuting those responsible in order to preserve confidence in our national banking system,” United States Attorney John Suthers said. “The defendants in this case personally made a tremendous amount of money at the expense of Americans who rely on our banking system. It is critical we attempt to get some of that money back, and send those responsible to prison,” Mr. Suthers said.
“Today’s arrests should send a clear message that the FBI, working with its federal law enforcement partners, will vigorously investigate allegations of financial malfeasance, such as this one, where banking officials misappropriated corporate funds for substantial personal gain,” said Phillip B.J. Reid, Special Agent in Charge of the Denver FBI office.
“Today’s indictment sends a loud message that business practices, like bank fraud, are not acceptable,” said James D. Vickery, Special Agent In Charge for the IRS Criminal Investigation, Denver Field Office. “Financial institutions and their officers will be held accountable. The victims here today are not just the depositors of Best Bank, but all members of our community,” said Vickery.
“The indictment is the product of a complex investigation involving multiple agencies over a long period,” said Samuel M. Holland, Assistant Inspector General for Investigations for the FDIC. “It sends an important message to those who would attempt to unlawfully manipulate the nation's banking system. It would not have been possible to reach this point without the leadership of the United States Attorney's Office for the District of Colorado, to whom we express our appreciation.”
The charges alleged in the indictment include: Bank Fraud, False Bank Reports, and Wire Fraud which carry potential maximum penalties of not more than 30 years in prison and/or a $1,000,000 fine. Money Laundering carries a potential maximum penalty of not more than 20 years in prison and/or a fine of $500,000. Conspiracy and Securities Fraud both carry a potential maximum penalty of up to 5 years in federal prison and/or a $250,000 fine. Tax Evasion carries a potential maximum penalty of up to 5 years in prison and/or a $100,000 fine. Failure to File a Tax Return carries a potential maximum penalty of not more than 1 year in prison and/or a $25,000 fine. Continuing to Commit a Financial Crime carries a potential maximum penalty of not less than 10 years and up to life in federal prison, and/or a fine of not more than $10,000,000.
The case was investigated by the Federal Bureau of Investigation (FBI), the Criminal Investigative Division of the Internal Revenue Service and the Federal Deposit Insurance Corporation (FDIC). The case is being prosecuted by Assistant United States Attorneys John Haried and Michael Carey, along with Department of Justice Trial Attorney Dorothy Mares.
These charges are only allegations and the defendants are presumed innocent unless or until proven guilty.
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