FBI Uncovers Alleged TARP Fraud

by REIT Wrecks on March 22, 2010

The FDIC closed 7 more banks on Friday, bringing the 2010 total to 37.  On the Friday before last, the FDIC bagged 2 New York City banks, the first FDIC takeunders in New York City since 1999.  One of these was a small privately held firm named Park Avenue Bank, which had been operating under a cease and desist order since February 2009.   Park Avenue Bank had just four branches in Manhattan and Brooklyn.

Interestingly, one of Park Avenue Bank’s owners is David Lichtenstein, who became famous for orchestrating the disastrous acquisition of Extended Stay Hotels in 2007.  Lichtenstein agreed to buy the chain from Blackrock for $8 billion, layering on so much debt in the process that the company couldn’t even pay its phone bill.

Back In 2004, Lichtenstein acquired Park Avenue Bank with Charles Antonucci, who was appointed President.  With Lichtenstein’s help, Antonucci set about expanding the bank’s commercial real estate portfolio, and that ultimately became his undoing.  The New York Sate Bank Banking Superintendent slapped the bank with a Cease and Desist order, and two weeks ago the bank was shut down by the FDIC.  Last week, in connection with the failure, Antonucci was arrested and charged with criminal fraud for attempting to steal $11 million from the Troubled Asset Relief Program.

The FBI is accusing Antonucci, who was hauled out of bed with just enough time to don a red St. John’s sweatshirt, of self-dealing, bank bribery, embezzlement and fraud.  According to prosecutors, Antonucci created sham transactions in order to  be approved for TARP bailout money, but once it became clear that he was under scrutiny, he withdrew the bank’s application.  Shortly afterward, he resigned as President.

Prosecutors say Antonucci created the “functional equivalent of Monopoly money” in order to convince federal authorities he should qualify for TARP money.  But Federal authorities say Antonucci actually wanted to obtain millions of dollars in TARP funds for his own use, in part so he could obtain a controlling interest in the bank.

Why he would want control of a failing lender is beyond me, but it may be due to the fact that he was using it as his own personal piggy bank.  Earlier, a New York area car dealership sued Park Avenue Bank claiming that it was forced to pay off a loan by giving away Cadillacs to bank employees and their families, including Antonucci.  Antonucci got a $75,000 2008 Cadillac Escalade and his wife got a 2010 Cadillac SRX valued at $50,000, the lawsuit alleged. 

After his arrest, Antonucci was released on $2 million bail, but nobody seems to know whether she drove him home in her SRX, or his Escalade.

Federal prosecutors also accused him of approving approximately $8.5 million worth of overdrafts at the bank to companies controlled by a co-conspirator who was a close associate of his.  In return, the co-conspirator, whose identity was not released, allowed Antonucci to use his private plane at least 10 times for personal trips, including flights to Phoenix to attend the Super Bowl, to Augusta, Ga., to watch the Master’s golf tournament, and to Florida to see relatives.

Lichtenstein’s involvement in all of this not entirely clear, and he has not been accused of any wrong doing, but prosecutors hint there is more to come.   At the same time that the bank was under review by the state banking superintendent, Lichtenstein approved an $11 million infusion into Park Avenue Funding LLC, a company run by Lichtenstein and closely associated with Antonucci.  Among other endeavors, Park Avenue Funding makes loans to Park Avenue Bank and its customers. This included 10 loans to Solomon Dwek, the central figure in a $50 million bank fraud and New Jersey political corruption scandal.

If lending to a shaky bank such as this sounds a wee bit risky, it is. But it’s a lot less risky if you can do it with other people’s money.  Lichtenstein used shareholder money from a non-traded REIT he controls, Lightstone Value Plus I REIT, to make the 2008 investment, just one month after Bear Stearns collapsed.  Park Avenue Funding then used at least some of that money to take first loss positions in certain Park Avenue Bank loans, partially insulating the Bank from its loan losses.  As of the end of February, at least $4.75 million of Park Avenue Funding LLC’s positions had been wiped out by short sales, and the FDIC expects a tax payer loss of approximately $50 million from the takeover.  Stay tuned, because that’s a lot of Cadillacs for a bank with just $500 million in assets.

commercial real estate

see: U.S. v. Antonucci, 10-cr-507, U.S. District Court, Southern District of New York (Manhattan)

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