Lakeville Man Sentenced for Operating $80 Million Ponzi Scheme with Bank Money

Corey N Johnston, age 41, of Lakeville, was sentenced to a total of six years for operating a Ponzi scheme that defrauded 18 lenders in Minnesota and several other states. According to the government, the lenders suffered losses in excess of $79.9 million. United States District Court Judge David S Doty sentenced Johnston to 72 months in prison on one count of bank fraud and one count of filing a false income tax return. Johnston was charged on August 6, 2010, and pleaded guilty on September 2, 2010.

Johnston will also be ordered to pay restitution. In his plea agreement, Johnston admitted that from 2005 through March of 2009, he oversold participation in large commercial and personal loans arranged by him through his company, First United Funding ("FUF"). Loan participation is a common banking practice through which a bank pays the original lender all or a portion of the subject loan and then assumes that loan, along with its associated risk. From that point on, the bank, not the original lender, receives the loan payments from the borrower, as if the bank had made the loan in the first place.

Johnston's scheme involved selling more than 100-percent participation in at least ten different loans arranged through FUF. In other words, he purportedly sold loan participation to banks after already selling that same participation to other banks. In each instance, Johnston failed to disclose that the total participation exceeded 100 percent of the original loan, making it impossible for the participating banks to receive the money expected. For example, Johnston oversold loan participation for a project known as White Out Way Investments.

The original White Out Way loan, arranged through FUF, was for $7 million. Johnston sold 100-percent participation in that loan to Western National Bank. At the same time, however, he convinced several other banks to participate in the loan, including 100-percent participation by The National Bank in Bettendorf, Iowa, as well as partial participation by four other lending institutions. In all, Johnston solicited and received $23.65 million from six banks for that one $7 million loan.

In addition, Johnston oversold loan participation for a project known as JM Land Development II. The original JM Land Development loan was for $8 million, and once again, Johnston sold 100-percent participation in the loan to Western National Bank. However, he simultaneously obtained full loan participation from Choice Financial, The National Bank, and Hillcrest Bank, along with partial participation from four other banks. Johnston solicited a total of $38.65 million for an $8 million loan.

Six additional lenders also were defrauded during the course of this scheme by overselling participation in other loans. Johnston used some of the proceeds of the fraud to repay other loans and perpetuate the scheme. He also diverted fraud proceeds for his personal use as well as for use by family members. Furthermore, Johnston failed to report the fraudulent income on his 2005 federal income tax return.

That failure resulted in an underpayment of taxes to the United States in 2005 of approximately $508,905. This case was the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service-Criminal Investigation Division, and the Federal Deposit Insurance Corporation. A receiver also was appointed by the Hennepin County District Court in a related civil case. The case was prosecuted by Assistant United States Attorney Robert M Lewis.

 

Black sells Florida mansion for $25-million

Conrad Black has sold his mansion in Palm Beach, Fla., and moved to New York to wait out the final stages of his prolonged battle to overturn convictions for fraud and obstruction of justice.

Lord Black unloaded the ocean-front mansion this week, selling it for $25-million to an unidentified couple from California.

 

ANGLO IRISH Bank may recover less than half of the €2.8 billion owed to the bank by businessman Seán Quinn and his family, chairman Alan Dukes

ANGLO IRISH Bank may recover less than half of the €2.8 billion owed to the bank by businessman Seán Quinn and his family, chairman Alan Dukes said yesterday.

Anglo was confirmed on Thursday as the joint owner of Quinn Insurance, with US-based Liberty Mutual, and is currently working on a five-year business plan for the Quinn Group, in which the lender seized control of the equity on April 14th.

On RTÉ Radio 1 yesterday morning, Mr Dukes said the financial institution would be able to reduce “very substantially” the provision it has made against the company. Anglo made provisions of €2.2 billion against the Quinns’ €2.8 billion of loans.

However, he said a great deal would depend on how successful the insurance division and other companies within the group could be developed.

“I would clearly like to be able to meet the full provision but it’s unlikely that in a period of five years that we would be able to make a net return of €2.8 billion out of that,” he said.

He estimated that the bank would probably make “less than half” of the money back, but said without the arrangement Anglo would not be able to make as much money back for the taxpayer.

“We’re reducing the risk on the money that we’re owed because we have access to a stream of income that we wouldn’t have access to without this arrangement,” he said.

Mr Dukes said there had been substantial restructuring of debt in companies throughout the Quinn Group.

“We have secured the lifting of guarantees in favour of other companies in the group, which were a burden on the insurance company,” he said.

Seán Quinn and his family have blamed the accountants who have run Quinn Insurance for the last year for the €706 million in losses uncovered at the company. The Quinn family claimed the company had €1.1 billion in assets and €464 million in property when the administrators were appointed.

They said it was inevitable the reported losses would be “substantial” because the administrators were putting aside far greater amounts of money to meet claims than was the norm in the industry.

Separately it has emerged that Irish Nationwide Building Society, which is merging with Anglo Irish Bank Corporation, will close all of its 49 branches by May 17th.

Nationwide began closing branches on April 14th, a spokeswoman for the company confirmed. The building society sold its €3.6 billion of deposits to Irish Life and Permanent in February.

Icelanders Cast Ballots in Vote That May Reject Depositor Deal

Icelanders cast their ballots today in a referendum that polls indicate will result in the nation’s second rejection in as many years of a $5 billion depositor accord with the U.K. and Netherlands.

Three polls this week show opposition to the so-called Icesave agreement has grown to more than 50 percent. The bill, which sets the terms for covering British and Dutch depositor losses triggered by the 2008 failure of Landsbanki Islands hf was rejected by President Olafur R. Grimsson in February.

“Nowhere does it say that Iceland is legally obliged to pay for this ridiculous Landsbanki adventure,” said Stefan Gunnarsson, a shop assistant in downtown Reykjavik. “If a court finds that we are legally responsible, so be it. Until then: No thanks.”

Iceland needs to settle the dispute to restore relations with international investors and heal diplomatic ties with the British and the Dutch as it seeks European Union membership. The depositor accord will go to the European Free Trade Association Court should voters reject the agreement.

Grimsson said in a Feb. 23 interview he rejected the accord because Iceland’s legal obligation to pay is “unclear,” adding the matter shows that European banking laws haven’t been “thoroughly thought out.” The referendum allows the people to decide “whether private citizens, taxpayers, should be obliged to repay the losses created by a private bank,” he said then.

The referendum “will be a wakeup call for the citizens in other countries,” Gunnarsson said. “They’ll realize that there’s no fairness in pushing bank losses onto taxpayers when things go sour, but pocketing the gains when everything is going well. A big fat ‘no’ from Iceland will drive that point home.”

‘Muddy Waters’

The government had hoped an Icesave deal would end Iceland’s isolation after the collapse of its three largest lenders in 2008 sent the country into its worst economic slump since its independence in 1944. The failure of Landsbanki, which offered high-yielding internet accounts to attract foreign depositors, threatened to leave 350,000 British and Dutch depositors in the lurch.

“The Icesave referendum taking place this weekend could easily muddy the waters,” central bank Governor Mar Gudmundsson said in a speech on April 7. A no vote “would impede foreign borrowing and delay capital account liberalization, although it is not clear how strong or persistent these effects would be.”

The cost of insuring against an Icelandic default is little changed since Grimsson’s Feb. 20 veto. Credit default swaps on five-year debt traded at 235 basis points on April 7, compared with 240 basis points on Feb. 18, according to CMA data available on Bloomberg. That’s less than half the rate of insuring against defaults in Ireland and Portugal.

IMF Reliance

Iceland has relied on a $4.6 billion bailout led by the International Monetary Fund and on capital controls to prevent a sell-off of the krona. The caps, which the central bank estimates are stopping investors from selling about $3.6 billion in krona assets, have allowed the trade surplus to support the exchange rate and limit import price gains. The central bank has cut rates 15 times in two years as inflation eased to within the bank’s 2.5 percent target.

Not all Icelanders are opposed to the Icesave deal. Hulda Sigurdardottir, a shop manager who works in the capital, said she’ll vote yes because she wants Iceland to be able to move on.

“I’d like the uncertainty out of the way,” she said. “Iceland needs to put this behind it and move on. By agreeing to Icesave Icelanders will be taking a step in that direction.”

Portugal last night became the third European Union country after Greece and Ireland to formally request an emergency bail–out which could cost Britain £4.4 billion.

The country's caretaker prime minister José Sócrates said the measure had been taken after the stricken nation had run out of options.
Economists last night put the UK's involvement in a Portuguese bail–out at up to a potential £4.4billion.
After months of resisting having to apply for a bail–out from the EU and the International Monetary Fund, Portugal's cost of borrowing has reached unsustainable levels.
Addressing the nation last night Mr Sócrates, said: "I have always said that asking for aid would be the final way to go, but we have reached the moment."
It is understood that the rescue fund could be as high as £70 billion, or €80 billion.

Sources close to the Treasury said last night that Britain would take part in any Portugal–related discussions involving the EU's 27 member states. However, the type of bail–out is yet to be discussed and therefore the extent of the UK's exposure was impossible to gauge, the sources said.
It is understood that a bilateral loan from the UK to Portugal has not been requested and that the Treasury does not foresee any circumstances under which such a request would arise.