Former Bank Executive Sentenced to 15 Years in Prison for Fraud Scheme
|U.S. Attorney’s Office September 11, 2012|
PHILADELPHIA—Joseph M. Braas, 46, of Lititz, Pennsylvania, was sentenced today to 180 months in prison for his role in a fraud conspiracy that caused the Bank of Lancaster County, which was chartered in 1863 and is one of the five oldest banking organizations in the country, to cease its independent existence. As a result of the fraud, hundreds of jobs were lost. Braas was chief operating officer of Equipment Finance LLC (EFI), when he and his co-defendants—Michael J. Schlager, Mary C. Stankiewicz, Misty L. Kroesen, Curtis A. Kroesen, John Wiley Spann, Harold W. Young, and John S. Tomberlin—engaged in a sophisticated loan fraud scheme that caused losses of approximately $53 million at EFI. In addition to the prison term, U.S. District Court Judge Paul S. Diamond also ordered Braas to pay restitution in the amount of $53 million.
“The financial fraud and mismanagement which led to the financial crisis did not only occur at megabanks and corporations,” said Zane David Memeger, U.S. Attorney for the Eastern District of Pennsylvania. “Corporate executives at all levels of business and banking had a responsibility to their customers and employees, and today’s sentence reflects the commitment of my office to seek justice and punish those executives who place their own personal financial interests above those of their customers and employees.”
EFI was a logging industry lender that was based in Lititz. The company provided funding for the purchase of forestry and land clearing equipment. In March 2002, EFI was acquired by Sterling Financial Corporation, a former financial services company that was headquartered in Lancaster, Pennsylvania. At that time, EFI became a wholly owned subsidiary of the Bank of Lancaster County N.A., which in turn was a wholly owned subsidiary of Sterling. As a result of the fraud scheme, Sterling Financial was eventually liquidated.
From 2001 through 2007, the defendants, five of whom were EFI employees at the time, orchestrated a pervasive scheme to steal money by looting the accounts of EFI and falsifying EFI’s books. Braas and Michael J. Schlager, a senior vice president at the time, led the conspiracy and directed other employees of the company, including Mary C. Stankiewicz, Misty L. Kroesen and Curtis A. Kroesen to make false entries in EFI’s books, create false documents for EFI’s files, and undermine the audit process conducted by Sterling’s inside and outside auditors. During the years of the conspiracy, the EFI employee defendants made EFI appear more profitable than it actually was and made it appear that EFI was exposed to less risk than it was and thereby succeeded in keeping their jobs, making increasingly higher salaries and bonuses, and continuing to obtain funding for EFI from BLC and its other creditors.
The non-employee defendants include John Wiley Spann, a logging equipment dealer based in Alabama, and two owners of an insurance company in Andalusia, Alabama, Harold W. Young and John S. Tomberlin. Spann participated in the fraud scheme in a number of ways, including assisting the employees of EFI to create numerous bogus loans, forging EFI loan documents and auditor confirmation letters, and paying nominal borrowers to sign false EFI loan documents. For helping to manage the EFI loan fraud, Spann illegally compensated himself with between $80,000 and $100,000 per year in EFI funds. Tomberlin signed a bogus EFI loan contract in exchange for a payment from Spann of $10,000.
Young and Tomberlin also assisted Spann in looting EFI’s insurance escrow account. Although no EFI borrower had purchased insurance from their company, South Central Agency (SCA), Young, and Tomberlin permitted Spann to create bogus SCA insurance invoices and send them to EFI. EFI then mailed checks to SCA, which were deposited into SCA’s accounts. In total, over $1 million was sent from EFI to SCA for these non-existent policies. For allowing Spann to use their invoices and accounts, Young and Tomberlin charged Spann 20 percent of the EFI money that flowed through their accounts. Young disbursed the rest of the stolen money at Spann’s direction.
Sentencing hearings are scheduled for the remaining co-defendants as follows: Michael Schlager on September 12, 2012; John Wiley Spann on September 14, 2012; Mary Stankiewicz on September 27, 2012; Misty and Curtis Kroesen on October 15, 2012; Harold Young on January 21, 2013; and John Tomberlin on March 26, 2013.
The case was investigated by the FBI and the U.S. Postal Inspection Service and is being prosecuted by Assistant U.S. Attorney Judy G. Smith.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.