SEC Charges Wall Street Executive Over Decade-Long Fraud

by Glen Shapiro, LawAndTax-News.com, New York

18 May 2007

The US Securities and Exchange Commission on Wednesday charged a former Wall Street executive and three other individuals with securities fraud, for perpetrating a decade-long scheme to defraud savings banks and their depositors in connection with the banks' conversion from mutual to stock ownership.

The SEC's complaint alleged that Bert Fingerhut spearheaded a sophisticated scheme to circumvent federal and state banking regulations in order to make lucrative stock purchases in bank conversions.

From January 1997 through January 2007, Mr Fingerhut's scheme generated a total of more than $12 million in fraudulent profits from secondary market sales of bank stock illegally obtained in 65 public offerings.

The other three defendants were nominees for Bert Fingerhut who knowingly played active roles in implementing the scheme and profited from their efforts: Robert Danetz, a childhood friend of Bert Fingerhut; Bruce Fingerhut, Bert Fingerhut's nephew; and Stephen Danetz, Robert Danetz's brother.

The complaint alleges that the defendants made numerous misrepresentations in stock subscription agreements and order forms to carry out their fraudulent scheme. The complaint also alleges that Robert Danetz and Bruce Fingerhut acted as undisclosed nominees and used phony identification cards and other documents in order to deceive the banks. All four of the defendants have agreed to settle the SEC charges.

Mark K. Schonfeld, Director of the Commission's New York Regional Office, announced this week that:

"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. As a result, they lined their pockets with money that should have gone to legitimate depositors. Spanning 10 years and 65 stock offerings, this is the most extensive bank conversion fraud we have ever seen."

David Rosenfeld, Associate Regional Director of the New York Regional Office, added:

"The conduct in this case was particularly egregious. The defendants ran this scheme as a shrewdly calculated business enterprise, serially defrauding banks and reaping millions in illegal profits at the expense of innocent depositors."

The Commission's investigation is ongoing.

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