New York Man Sentenced to Federal Prison for Participation in Bank IPO Scheme
|U.S. Attorney’s Office December 22, 2009|
Nora R. Dannehy, United States Attorney for the District of Connecticut, announced that STEVEN E. SCHLEIFER, 53, of Monsey, New York, was sentenced today by United States District Judge Janet Bond Arterton in New Haven to 12 months and one day of imprisonment, followed by one year of supervised release, for corruptly obstructing and impeding the due administration of the Internal Revenue laws. SCHLEIFER also was ordered to pay a fine in the amount of $10,000. On September 1, 2009, SCHLEIFER pleaded guilty to the charge, which stems from his participation in a scheme to illegally invest in and profit from the New Haven Savings Bank conversion to a publicly traded entity.
According to court documents and statements made in court, in 2003, the New Haven Savings Bank (“NHSB”) adopted a conversion plan to convert from a privately held mutual savings bank to a public capital stock savings bank and, through this conversion, became a subsidiary of NewAlliance Bancshares, Inc. (“NAB”). As a component of its conversion plan, NHSB offered to sell its shares through a “subscription offering” in which five tiers of buyers would be offered the stock through an IPO. Shares were first offered to current NHSB depositors who maintained a predetermined minimum balance on a preset “record date.” These eligible depositors held “subscription rights.” The maximum number of shares that could be purchased at the initial public offering price of 10 dollars per share, by exercising the subscription rights of one qualified account, was 70,000 shares.
The number of shares requested by “first-tier” depositors was more than the total number of shares offered, thus the IPO was “oversubscribed” and shares were not sold beyond the first-tier level. NHSB depositors were prohibited, by both regulations and the terms of the offering, from selling or transferring their subscription rights or entering into agreements or understandings to sell or transfer the shares prior to the offering.
An associate of SCHLEIFER’s controlled accounts in her own name and in the name of a business entity at NHSB. During the NHSB/NAB conversion, SCHLEIFER’s associate was issued first-tier subscription rights. In early 2004, SCHLEIFER and his associate agreed to buy shares of NAB together. SCHLEIFER and his associate agreed that SCHLEIFER would provide funds to the associate using the associate’s subscription rights, and the two would share the profit from the subsequent sale of the NAB shares.
On March 9, 2004, SCHLEIFER wired approximately $1.17 million to his associate’s account at Citizens Bank. Because the associate had both a personal account and a business account at NHSB, she attempted to purchase 134,500 shares of NAB stock. On April 1, 2004, NAB issued 61,694 shares of stock to the associate and another 682 shares to her business entity, and refunded a total of $776,508 for the shares that were not allocated. Shortly thereafter, SCHLEIFER’s associate wired $776,500 from her Citizens Bank account to SCHLEIFER’s account at Bank of America.
Between April 20 and May 3, 2004, SCHLEIFER directed the sale of the NAB shares that had been allocated through this scheme and profited $137,911.73. As part of the scheme, and in order to disguise the nature of the profits and to avoid the payment of federal taxes, SCHLEIFER instructed his associate to write several checks, not only to him, but also to his family members, in amounts of $11,000 or less in order for the payments to appear as “gifts.”
In April 2005, SCHLEIFER failed to declare any of the $137,911.73. in profit made from the purchase and subsequent sale of the NAB stock on his federal income tax return.
As part of his sentence, SCHLEIFER has disgorged $73,605 in profits from this scheme, and has paid back taxes in the amount of $48,762, plus penalties and interest.
This matter was investigated by the Internal Revenue Service – Criminal Investigation Division, the United States Postal Inspection Service, and the Federal Bureau of Investigation. The case was prosecuted by Assistant United States Attorneys Michael S. McGarry and Calvin B. Kurimai.