NEWARK, N.J.-
A former Wall Street investment banker on Wednesday admitted organizing a conspiracy involving initial public offerings that federal authorities said cheated depositors in 65 mutual banks of more than $12 million over the past 10 years.
Three others also were also accused of participating in the scheme authorities said was designed to circumvent federal and state regulations when mutual banks convert to publicly traded companies.
“The investigation continues, and we fully expect to make more arrests of those who participated in this fraudulent scheme,” said Assistant U.S. Attorney Karl H. Buch, who handled criminal charges against two of the defendants. All four reached civil agreements with the Securities and Exchange Commission without admitting wrongdoing.
SEC Regional Director Mark K. Schonfeld called the scheme “the most extensive bank conversion fraud we have ever seen.”
“When banks convert from mutual ownership by their depositors to stock ownership by shareholders, the depositors are supposed to get first priority to purchase stock. Here, the defendants defrauded banks and depositors around the country and, in effect, jumped ahead of that line,” Schonfeld said.
Because the 65 stock offerings were oversubscribed, the defendants’ misconduct limited the amount of stock available to legitimate depositors, some of whom received less stock than they requested or were completely shut out, the SEC said.
Bert Fingerhut, who retired about age 40 as a general partner of New York-based Oppenheimer & Co. Inc. in 1984, admitted being the ringleader and pleaded guilty to a single conspiracy charge. He has agreed to forfeit about $11 million in illegal proceeds.
Also pleading guilty was a childhood friend of Fingerhut’s, Robert Danetz, a retired New York City school teacher. He admitted opening accounts at the mutual banks in his name and in Fingerhut’s name, using Fingerhut’s money. He agreed to forfeit about $800,000, Buch said.
The money will to the government, with a federal judge ruling that it would be “impractical” to determine the losses suffered by tens of thousands of depositors, Buch said.
Depositors in a mutual bank are its owners, and they are entitled to buy shares when the bank has an IPO. By amassing and selling shares, Fingerhut and his coconspirators defrauded legitimate depositors and violated rules that restrict the number of shares that can be offered to depositors and bar transferring shares, authorities said.
Fingerhut, 63, of Aspen, Colo., and Palo Alto, Calif., and Danetz, 62, of Teaneck, face up to five years in prison and a $250,000 fine when sentenced Sept. 6 by U.S. District Judge Peter G. Sheridan.
Fingerhut lawyer Larry A. Mackey said his client cooperated fully with the government in its investigation.
In a statement issued by his lawyer, Fingerhut said, “I am terribly ashamed by my misconduct. I fully accept that what I did was wrong. I apologize to my family and friends.”
Since he retired from Wall Street, Fingerhut, a former member of the executive committee and research director at Oppenheimer, “dedicated his life to preserving wild places and outdoor education,” his lawyer said. The SEC said Fingerhut worked as an analyst for Odyssey Investors Inc. through 1988.
Making settlements with the SEC, in addition to Fingerhut and Danetz, were Bruce Fingerhut, 38, of Alexandria, Va., a nephew of Bert Fingerhut; and Stephen Danetz, 65, of New York, a brother of Robert Danetz.
The SEC said Bruce Fingerhut, an opinion poll researcher, agreed to disgorge $181,269 in ill-gotten gains and pay a $150,000 penalty, while Stephen Danetz, a real estate attorney, will disgorge $137,975 in ill-gotten gains and pay a penalty of $120,000. The two men, like Robert Danetz, acted as undisclosed agents for Bert Fingerhut, the SEC said.
The SEC has not determined how to allocate the disgorgement funds, said George N. Stepaniuk, assistant regional director.
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