Speculators Charged With Stalking CU Conversion Candidates

WALL STREET -
Three more speculators were charged last week with illegally gaining access to lucrative initial public offerings of mutual savings banks-including several former credit unions-in a scheme that netted them more than $3 million.

The charges and subsequent settlements with the Securities and Exchange Commission confirmed what many in the movement had suspected for years-that outside investors are scheming to gain membership to CUs that are rumored to be considering a conversion to mutual savings banks in order to qualify for preferential access to IPOs.

In cases where a credit union converts to mutual savings bank, then to stock form, long-time members get first crack at buying stock, with depositors of the MSB served next, then the general public.

Steven Bisker, a Virginia attorney who has fought to thwart several credit union conversions, said the case proves the supposition wrong that credit union members are benefiting from the eventual sale of stock in their institutions.

He pointed to recent cases showing a small minority of CU members participating in the eventual IPO of their credit union-turned-mutual savings bank and asserted that the biggest beneficiaries in such IPOs have been managers and directors and Wall Street speculators.  The ones who are making the money are the insiders, plus the professional investors who know what it's all about,   said Bisker.

Among the deals accessed by the group were: First Pactrust Bancorp (Pacific First FCU), which went public in August 2002; Synergy Financial Group (Synergy FCU) which went public in September 2002; Rainier Pacific Financial Group (Rainier Pacific CU) October 2003; and Citizens Community Bancorp (Citizens Community FCU), which issued stock twice in a so-called two-step conversion (2004 and 2006).

The SEC said that because the stock offerings were oversubscribed, the defendants' fraud harmed legitimate credit union members and MSB depositors who received fewer shares than they otherwise would have.  For more than a dozen years, the defendants lined their pockets with money that should have gone to legitimate depositors,  said Mark. Schonfeld, director of the SEC's New York regional office.

A civil suit filed by the SEC shows that Mark Ristow, a 62-year-old Indianapolis real estate investor, paid his 41-year-old cousin Andrew Crabb and his 49-year-old sister-in-law Susan Gitlin to take out deposits-often with phony addresses-in hundreds of institutions targeted to go public.

In one instance, the group created a phony business they tried to use to gain membership in Affinity FCU, a $1.4-billion New Jersey CU that was rumored at one time to be considering a switch to bank. In another, the group was turned away from a Miami credit union, believed to be Eastern Financial Florida CU, but then created a fake Florida address at a post office box that qualified them for membership.

While Crabb and Gitlin would take out membership or make deposits in their own names, they were acting as illegal nominees, or  straw men,  for Ristow, who eventually gained ownership to all the IPO shares the two qualified to buy. At one point, the group had more than $1 million on deposit in 150 mutual savings banks, according to the SEC.

Ristow pleaded guilty last week to criminal fraud charges in the illegal access to 23 savings bank IPOs, including five offerings involving former credit unions, and agreed to forfeit $3.1 million of profits. At the same time, he and his accomplices agreed to settle civil charges brought by the SEC.

This is the second time in five months a group was cited for illegally accessing lucrative MSB deals involving credit unions. Last May, a former Wall Street executive, Burt Fingerhut was charged with a similar scheme gaining access to IPOs of dozens of mutuals, including eight former credit unions-among them First Pactrust Bancorp, Synergy Financial and Rainier Pacific.

And last year a dozen speculators were charged with earning millions of dollars by illegally accessing the 2004 IPO of New Haven Savings Bank.