Most folks do not understand how our economic system really works. What is a bank? What is a security? What is a corporation? Folks who have general ideas about what the concepts mean tend to be misinformed. As an example, most folks believe that banks use deposits to issue loans. They do not. Banks can fabricate loans ex-nihilo so long as they pay interest on the loans they create. Once the loan has been issued, the bank issues a deposit to the borrower and creates a liability in its own ledger. If all goes well, the bank makes money because the interest paid by the borrower is greater than that charged by the Federal Reserve.
So, what if I created a bank just to issue worthless loans to my pals? Well, then you end up in prison. The system is actually quite easy to abuse, but the thing you have to understand is that they will catch up with you eventually. In this case, the bank was closed after accruing $66 million in non-performing loans issued to bank insiders. The government, of course, believes that they used the bank apparatus to fabricate money they had no intention of ever repaying.
The charges
The indictment names a lot of individuals who were involved in the fraud and the conspiracy to commit the fraud. Essentially, they are accused of embezzling at least $31 million from the bank, using fake or over-appraised collateral to back loans, making material misrepresentations to the federal government during an active investigation into the bank’s insolvency, and whatever else you can think of, including making transfers without properly recording them.
In this case, the bank’s executives and personnel are charged with embezzlement which specifically relates to property that is already in your possession but which you can only use for specific purposes. Folks are generally charged with embezzling from their own clients or companies. In this case, the embezzlement was from a federal bank from which the executives were authorized to issue loans. The loans were paid out to bank insiders within a network, and of course, there was no effort made to repay the loans. Now that the bank is defunct and insolvent, the federal government is looking over the bank’s ledger. With many discrepancies in the bank’s accounting, the federal government believes that the bank executives milked that cow until it was completely dry.
With the money likely gone, the only way the men can make restitution for the crime is with prison time. Often, they would be required to pay back the money and considerably more to repay the government for the investigation and attach a criminal fine to their conduct. However, in this case, it is unlikely that anyone will have anywhere near enough money to repay the debt.
Bank fraud is one of the worst forms of fraud you can commit, especially as an insider with access to federal reserve funds.
Talk to a Chicago White Collar Defense Attorney
If you have been charged with a federal fraud crime in Chicago, the attorneys at David Freidberg can help defend you from the charges and ensure that you are not overcharged by an overzealous prosecutor speculating on what may have happened. Call today at (312) 560-7100 and we can begin preparing your defense today.