THREE DEFENDANTS INDICTED IN $10 MILLION FRAUD AT PILSENíS UNIVERSAL FEDERAL SAVINGS BANK THAT RESULTED IN ITS 2002 FAILURE
CHICAGO Ė Three defendants were indicted on federal charges relating to the failure of Universal Federal Savings Bank, a community bank that served the south side Pilsen community from 1923 until it was closed in June 2002. Indicted were Antonette M. Navarro, Universalís chief operations officer; her brother, Terrence M. Navarro, a certified public accountant, and Adam B. Resnick, a Universal Bank customer and a client of Navarroís accounting firm. Resnick and Antonette Navarro allegedly engaged in a check-kiting conspiracy that caused the bank to lose more than $10 million in the six months preceding its failure, and Resnick alone allegedly spent approximately $9 million in proceeds on gambling. The six-count indictment was returned by a federal grand jury late yesterday and made public today, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Richard K. Ruminski, Acting Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Samuel M. Holland, Assistant Inspector General for Investigations in the Federal Deposit Insurance Corporationís Office of Inspector General.
Universal, located at 1800 S. Halsted, subsequently was sold to Chicago Community Bank. Before Universal closed, it had assets of $51 million and its deposits were insured by the FDIC.
Resnick, 32, of Buffalo Grove, was charged with two counts of aiding and abetting misapplication of bank funds and one count each of conspiracy to misapply bank funds and to make false entries in the bankís financial records, wire fraud, and making false entries in bank records. Antonette Navarro, 36, of LaGrange, was charged with two counts of misapplication of bank funds and one count of each of conspiracy, bank fraud and making false entries in bank records. Terrence Navarro, 37, of Northbrook, a C.P.A. and principal in the now-defunct accounting firm of Navarro, Elisco and Associates (NEA), was charged with one count of making false entries in bank records. The indictment also seeks forfeiture of at least $10 million from Resnick and Antonette Navarro.
All three will be arraigned at a later date in U.S. District Court.
According to the indictment, NEA had a checking account at Universal, with Terrence Navarro and Resnick, Navarroís business associate and client, as authorized check signers. Universal had its own checking account, known as a correspondent account, with America National Bank and Trust Co. of Chicago (ANB), which provided correspondent banking services to Universal, such as paying checks drawn on Universal, collecting on checks drawn on other banks and paying settlement obligations to the Federal Reserveís interbank system. Universalís correspondent account was the means by which checks deposited at Universal, and checks drawn on Universal accounts that were presented at other banks, were cleared.
The indictment alleges that from December 2001 through June 2002, Resnick and Antonette Navarro conspired to misapply millions of dollars of Universalís funds and to make false entries in its financial records with intent to defraud the bank and deceive its chairman. Throughout the sixmonth period, Resnick allegedly engaged in a check kite between the NEA account at Universal and Universalís correspondent account at ANB by depositing approximately 138 insufficient fund (NSF) checks drawn on NEAís account, totaling more than $200 million, into Universalís correspondent account at ANB. Resnick allegedly called Antonette Navarro and told her the amount of the checks deposited into Universalís account, and without reviewing the checks and in direct violation of Universalís policies relating to the availability of funds, Navarro caused the funds to be immediately available in NEAís account at Universal by means of a journal entry. Resnick withdrew some or all of the immediately available funds, and then covered the previous NSF checks plus the withdrawn funds by depositing even larger amounts of NSF checks drawn on NEAís Universalís account into Universalís correspondent account at ANB.
As part of the conspiracy, when the amount credited to the NEA account exceeded the amount that Resnick actually deposited into the Universal account at ANB, Antonette Navarro concealed the discrepancy for Resnick. For example, on Jan. 23, 2002, Navarro caused the NEA account to be credited for approximately $1.54 million, but Resnick deposited only about $450,000 into Universalís account at ANB. Navarro allowed the NEA account to be credited for the full $1.54 million, without charging any interest, until March 30, 2002, when Resnick made an NSF deposit at ANB that Navarro used in part to repay the more than $1 million for which Resnick had received credit seven weeks earlier. Similarly, on March 12, 2002, Navarro credited the NEA account for $1.5 million, but Resnick deposited only $1,238,601 into the account at ANB. NAVARRO allowed the NEA account to be credited for the full $1.5 million, without charging any interest, until on or about May 3, 2002, when Resnick made an NSF deposit at ANB that Navarro used to repay the more than $260,000 for which Resnick had received credit seven weeks earlier, the indictment alleges.
Resnick and Antonette Navarro also allegedly conspired to and did cause the making of false entries in the books and records of Universal to deceive the bankís chairman. In May or early June 2002, the chairman, who was authorized by the bankís directors to investigate the activity in the NEA account, directed Antonette Navarro to give him copies of the fronts and backs of checks drawn on the NEA account. To conceal the check kite, she and Resnick agreed that he would alter the check copies. Resnick and Terrence Navarro falsified the backs of the check copies to conceal the fact that they had been deposited into Universalís correspondent account at ANB. On June 20, 2002, Antonette Navarro allegedly provided the falsified check copies to the bankís chairman, allowing the conspiracy to continue. About a week later, ANB discovered the check kite and ended it. The conspiracy caused a total loss in excess of $10 million. As a result, Universal was declared insolvent and was closed, according to the indictment.
The indictment further charges Resnick with engaging in a fraud scheme to obtain more than $10 million from Universal and ANB, as well as a separate, so-called Ponzi scheme in which he obtained an additional $500,000 from approximately five associates. Resnick allegedly used the fraudulently inflated balances in the NEA account at Universal to write checks to third parties, and to pay for wire transfers to online gambling businesses and casinos in Hammond, Ind., and Las Vegas. Altogether, Resnick spent approximately $9 million in funds credited to the NEA account on gambling, the indictment alleges.
As part of the scheme, Resnick allegedly provided benefits to Antonette Navarro to induce her to continue their arrangement. Among other things, in March 2002, Resnick purchased a new BMW for Navarro with an NSF check for approximately $37,000 drawn on the NEA account. In addition, in April 2002, Resnick and Antonette Navarro entered into an agreement by which Navarro would provide unidentified consulting services for one of Resnickís companies. The agreement called for Navarro to be paid $80,000 per year, in equal monthly installments, plus a $25,000 annual bonus. At that time, Navarroís salary at Universal was approximately $48,000 a year as a full time employee.
In the alleged Ponzi scheme, Resnick told several business associates and their representatives that he was involved in the medical equipment business, and that, if they loaned him money, he would invest their money in his business and repay them substantial amounts of interest in a very short period of time. After obtaining several loans based on these false representations, Resnick allegedly used the inflated balances in the NEA account to repay these initial investments. Following these repayments, some of the investors again loaned him money, which he never repaid, resulting in a loss of more than $500,000 to approximately five investors.
The bank fraud count against Antonette Navarro alleges that she fraudulently deprived Universal of her honest services. At the Universal board meeting on May 16, 2002, in response to questions about the volume of activity in the NEA account, she allegedly presented information about NEA and explained that Resnick, an NEA client, was the reason for the increase in account activity, but failed to disclose: (1) that she had been providing immediate credit and availability for deposits that Resnick had been making into Universalís account at ANB; (2) that Resnick had purchased a BMW for her; or (3) that Resnick had retained her as a consultant and promised to pay her $105,000 per year.
The indictment alleges that, when Universalís chairman started investigating the NEA account in May 2002, Antonette Navarro lied to him about the journal entry deposits into the NEA account, and then, in June 2002, provided him with an altered set of check copies relating to the account.
The government is being represented by Assistant United States Attorney Robert W. Kent, Jr.
If convicted, the crimes charged in the indictment carry the following maximum penalties on each count: wire fraud, bank fraud and making false entries in bank records Ė 30 years in prison and a $1 million fine, and conspiracy Ė 5 years in prison and a $250,000 fine, or, in the alternative, the Court may impose a fine totaling not more than twice the defendantís gross gain, or twice the gross loss to any victim, whichever is greater. The Court also must order restitution, and it will determine the appropriate sentence to be imposed.
The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
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