SEC Charges Former Wall Street Executive and Three Others in Multi-Million Dollar Scheme to Defraud Savings Banks and Their Depositors in Dozens of Stock Offerings
All Four Defendants Agree to Settle SEC Charges
FOR IMMEDIATE RELEASE
Washington, D.C., May 16, 2007 - The Securities and Exchange Commission today 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 alleges 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, Bert 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, said, "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, said, "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 defendants named in the Commission's complaint are:
Bert Fingerhut, age 63, a resident of both Aspen, Colo. and Palo Alto, Calif. From 1965 through 1983, he was associated in different capacities with Oppenheimer & Co., Inc. ("Oppenheimer"), then a registered broker-dealer. Among other positions, he was Director of Research and Executive Vice President and a member of both the Management and Executive Committees of Oppenheimer. From 1983 through 1988, he worked as an analyst for Odyssey Investors, Inc., a registered broker-dealer formerly affiliated with Oppenheimer.
Robert Danetz, age 62, and a resident of both Teaneck, N.J. and Roxbury, N.Y. He is a retired school teacher.
Bruce Fingerhut, age 38, and a resident of Alexandria, Va. He is a freelance opinion poll researcher.
Stephen Danetz, age 65, and a resident of New York, N.Y. He is a real estate attorney.
The Commission's complaint alleges as follows:
Federal and state banking regulations are designed to ensure that when a bank converts to stock ownership, each of the bank's depositors has a fair chance to purchase stock before other interested investors do so. Because the demand for shares issued by a converting bank often exceeds the number of shares the bank is selling, banking regulations restrict the number of shares that any one depositor may acquire and prohibit depositors from agreeing to transfer their shares to anyone else before the shares are issued. The demand for such shares often also causes the shares to trade in the secondary market at a high premium to the initial purchase price. Accordingly, the chance to purchase shares from a converting bank is often a very lucrative investment opportunity.
The defendants deliberately evaded these and other applicable banking regulations and offering terms contained in the converting banks' prospectuses that imposed maximum purchase limits and prohibited the transfer of depositors' purchase rights. These priority purchase rights allow the depositors to purchase up to a certain number of shares at a relatively low price, and shares are allocated among depositors according to various criteria if an offering is oversubscribed. To ensure that only depositors benefit from their priority purchase rights, federal and state banking regulations prohibit depositors from transferring ownership of their purchase rights or from entering into any agreement regarding the sale or transfer of shares purchased in the offering.
Bert Fingerhut funded the opening of accounts in his own name and the names of his nominees at mutual savings banks throughout the country. When any of the banks undertook a conversion, he secretly funded his nominees' stock purchases, controlled the sale of his nominees' shares and retained most of the trading profits. He also had the nominees submit stock order forms in which they falsely certified to the banks that they were purchasing the stock for their own account and had no agreement to transfer the shares or the proceeds of their sale. Bert Fingerhut caused his nominees to make these material misrepresentations in 65 public stock offerings by banks. The 65 offerings were oversubscribed, and the defendants' misconduct therefore limited the amount of stock available to legitimate depositors, some of whom received less stock than they requested or were completely shut out. Bert Fingerhut and his nominees made over $12 million from the scheme at the expense of other depositors.
Robert Danetz and Bruce Fingerhut knowingly played key roles in carrying out the scheme, and reaped large profits of their own from their misconduct. They did most of the legwork to set up the nominee accounts and acted as nominees in numerous offerings. For years, they traveled the country opening as many accounts as possible, sometimes using phony identification cards and bogus utility bills to satisfy certain banks' in-state residency requirements. As nominees, they both knowingly made misrepresentations in each of the subscription agreements they signed. Stephen Danetz, a lawyer, also willingly participated as a nominee for Bert Fingerhut and knowingly made misrepresentations in one of the most profitable conversions targeted by the scheme. In addition, he was involved in discussions with Bert Fingerhut and Robert Danetz that led Robert Danetz to make false statements to the Commission's staff in an earlier investigation into a similar, unrelated scheme that targeted the conversion of NewAlliance Bancshares, Inc.
The United States Attorney's Office for the District of New Jersey ("USAO") has filed criminal charges against Bert Fingerhut for the same conduct. Earlier today, Bert Fingerhut pled guilty to the criminal charges and, in connection with his guilty plea, agreed to pay a total of $11 million in forfeiture, representing his own illegal profits from the scheme.
All four of the defendants in the civil case have agreed to settle the SEC charges by consenting, without admitting or denying the complaint's allegations, to the entry of permanent antifraud injunctions. In addition, Bruce Fingerhut will disgorge his ill-gotten gains of $181,269, plus prejudgment interest, and pay a civil penalty in the amount of $150,000. Stephen Danetz will disgorge his ill-gotten gains of $137,975, plus prejudgment interest, and pay a civil penalty in the amount of $120,000. Because Bert Fingerhut has already agreed to forfeit an amount equivalent to his ill-gotten gains in conjunction with his guilty plea in the parallel criminal case, the consent judgment in the SEC case does not require disgorgement of those same ill-gotten gains. The Commission's claims for civil penalties against Bert Fingerhut and Robert Danetz will remain pending.
The Commission's investigation is ongoing. The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the District of New Jersey, the Federal Deposit Insurance Corporation, the Internal Revenue Service, the Federal Bureau of Investigation and the U.S. Postal Inspection Service in this matter.
# # #
For further information contact:
Mark K. Schonfeld
Associate Regional Director
George N. Stepaniuk
Assistant Regional Director
New York Regional Office
U.S. Securities and Exchange Commission
Additional materials: Litigation Release No. 20118