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Tuesday, August 6, 2013

Officers at failed Wilmette, Illinois bank charged with fraud

Four former directors and officers of a failed Wilmette bank have been charged with defrauding the U.S. government, including using $6.8 million from the bank-bailout program to keep their alleged criminal enterprise running.

It’s the first time that a TARP bank has been charged with running a criminal enterprise, according to the governing body for the Troubled Asset Relief Program, or TARP. Records show other banks that received bailout money have previously been charged with fraud.

Zulfikar Esmail, 70, of Evanston, the bank’s former chairman, was among those formally arraigned today in Cook County Criminal Court for his role in the alleged scheme at $269 million-asset Premier Bank, which failed in March 2012.
The Federal Deposit Insurance Corp. estimated that its failure would cost the fund – which is financed by other banks -- $64 million. In January 2009, Premier received $6.8 million from the U.S. Treasury Department’s Troubled Asset Relief Program, which was supposed to go to only healthy banks. Among other things, the indictment said that the bank misrepresented its financial condition to regulators, making Treasury believe that it was healthier than it was.

Illinois Attorney General Lisa Madigan said Esmail engaged in a “criminal shakedown scheme, soliciting and demanding bribes in connection with applications made for business loans and lines of credit” to open and operate several Michael’s Fresh Market grocery stores in Chicago and the suburbs. The lawsuit, filed by the state of Illinois, alleges that Esmail demanded that his children be given ownership stakes in the stores in exchange for the loans.

Charges against Esmail include financial institution fraud, theft by deception, commercial bribery of a financial institution, and conspiracy to commit a financial crime. He faces a mandatory prison sentence for theft by deception and being organizer of a financial crimes enterprise, which each carry a mandatory prison sentence of six to 30 years. His remaining charges are punishable by four to 15 years.

Other defendants are Shamim Esmail, 65, of Evanston; Robert McCarty, 51, of Geneva; and William Brannin, 53, of Chicago. Charges against them include continuing a financial crimes enterprise and conspiracy to commit a financial crime, each punishable by four to 15 years in prison. They also face charges of theft by deception, which has a mandatory prison sentence of six to 30 years.

The Esmails have been released on a collective $500,000 bond, according to Illinois attorney general Lisa Madigan. McCarty was released on a $400,000 bond and Brannin on a $350,000 bond.

The four have separate lawyers.

“Shamim is not guilty of the charges in the indictment,” said her lawyer, Mark Rotert, of Stetler Duffy & Rotert in Chicago. “We intend to demonstrate that at trial and look forward to clearing her name.”

Attorneys for Brannin and Esmail also said their clients were innocent.

“If criminal cases were proved in press releases, the attorney general would be a champion, but they’re not,” said Chris Gair, the lawyer for Zulfikar Esmail, referring to Madigan's written statement.

The former chairman of failed Premier Bank in Wilmette, along with his wife and two other defendants, have been indicted in Cook County Criminal Court on fraud charges in what was described as the first case in the country accusing former bank officers and directors of running a "criminal enterprise" to defraud the federal bank bailout program.
Dr. Zulfikar Esmail, 70, of Evanston, a medical doctor who launched the bank in 2000, is charged with financial institution fraud and being the organizer of a financial crimes enterprise, according to the indictment, brought by Illinois Attorney General Lisa Madigan's office. If convicted, he faces mandatory jail time of six to 30 years.
Also charged were his wife Shamim Esmail, 65, and two board members: Robert McCarty, 51, of Geneva, and William Brannin, 53, of Chicago. They each face two sets of charges, one that would mandate prison time of six to 30 years and the other that would mean possible prison time of four to 15 years.
(Read the indictment at the end of this story.)
The four were arrested at their homes last month and released after posting bonds.
At his arraignment today, Dr. Esmail pleaded innocent, said his attorney, Chris Gair.
"There is no evidence of wrongdoing by Dr. Esmail and this is overreaching by the Illinois attorney general's office. We're going to be looking forward to establishing Dr. Esmail's innocence," Mr. Gair said.
Ms. Esmail's attorney, Mark Rotert, said "She isn't guilty of the charges in the indictment. She intends to defend herself and we're looking forward to clearing her name."
The Esmails were accused of defrauding the Treasury Department out of $6.8 million in bailout funds issued under the Troubled Asset Relief Program (TARP). In addition to the lost taxpayer funds, when Premier Bank failed last year, it cost the Federal Deposit Insurance Corp.'s insurance fund an estimated $64.1 million.
According to the indictment, the Esmails engineered a scheme to “shake down” one of the bank's biggest borrowers, requiring that he hand over equity interests in some of his projects to the Esmails' grown children as a condition for obtaining loans to expand.
George Dernis, former owner of the Michael's Fresh Market chain of grocery stores, had made similar allegations in a civil lawsuit he brought last year against the Esmails.
The indictment also accused the Esmails of concealing the condition of the bank from state banking regulators by, among other things, lending money to borrowers to buy out the failing projects of other borrowers. That enabled the bank not to have to disclose certain loans as delinquent on its quarterly reports of its financial condition.
Mr. Esmail also allegedly improperly charged the bank for construction work done on his home and some rental properties he owned, according to the indictment.
“Esmail, the former chairman of TARP recipient Premier Bank, stands charged of orchestrating a criminal enterprise by using Premier Bank as his personal fiefdom and of exploiting TARP to finance an alleged long-running criminal enterprise while fattening his own pockets at the expense of customers and federal taxpayers,” said Christy Romero, special inspector general for TARP, in a release.
In the release, Ms. Madigan said the defendants used “taxpayer funds to further their own shakedown scheme at a time when our country was on the brink of disaster.”
Also participating in the investigation was the FDIC's Office of Inspector General.
Attorneys for the other two defendants didn't respond to requests for comment.


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