Geoffrey S. Berman, the United States Attorney for the Southern District of New York, William F. Sweeney Jr., Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), and Jay N. Lerner, Inspector General of the Federal Deposit Insurance Corporation (“FDIC”), announced today the unsealing of an Indictment charging attorney MENDEL ZILBERBERG, a former director of Park Avenue Bank (the “Bank”), and ARON FRIED with bank fraud and related charges for perpetrating a fraudulent scheme to obtain a $1.4 million loan from the Bank. The defendants caused the Bank to issue the loan to a straw borrower on the basis of false statements and misrepresentations, when in fact the defendants received and used the loan proceeds, resulting in a loss of over $1 million to the Bank when the loan defaulted. ZILBERBERG was also separately charged with embezzlement and misappropriation of Bank funds while he was a director and insider of the Bank. ZILBERBERG and FRIED were arrested this morning and will be presented later today before U.S. Magistrate Judge Katharine H. Parker. The case has been assigned to U.S. District Judge George B. Daniels.
Manhattan U.S. Attorney Geoffrey S. Berman said: “As alleged, Mendel Zilberberg and Aron Fried conspired with another to defraud the bank where Zilberberg served as a director. In a textbook case of self-dealing and breach of fiduciary duty, Zilberberg allegedly exploited his position at the bank to grease the skids for a loan given under blatantly false pretenses, a huge chunk of the proceeds of which he himself dipped into.”
FBI Assistant Director-in-Charge William F. Sweeney Jr said: “As alleged, when Fried and his co-conspirator realized they wouldn’t be able to secure a loan the traditional way – by legitimately obtaining the money from an authorized financial institution – they brought a straw borrower and bank director into their circle to effectively carry out the fraudulent activity. As alleged, Mendel Zilberberg, the bank’s director, played a key role in carrying out this scheme, driving the loan through the approval process while shrouding the details in secrecy. When the bank realized a loss of more than $1 million, the defendants allegedly walked away with the money from the defaulted loan. Making false statements and misrepresentations on a loan application is a federal crime, a lesson those charged today have learned the hard way. Furthermore, bank insiders, of all people, should model the legal and ethical obligations of the financial institutions they serve, instead of breaking the law.”
According to the allegations contained in the Indictment[1] unsealed today in Manhattan federal court:
In or about 2009, ARON FRIED and a co-conspirator not named in the Indictment (“CC-1”) sought to obtain a fraudulent loan from the Bank in Manhattan in order to finance an investment in a home health care business. However, knowing that CC-1 would not be credit-worthy and had a criminal record, FRIED and CC-1 used a straw borrower (the “Straw Borrower”) for the loan application who was recruited by CC-1. To effectuate the scheme, FRIED and CC-1 partnered with MENDEL ZILBERBERG, then a director of the Bank, who had the power to personally shepherd the fraudulent loan through the Bank’s approval process and guard it from scrutiny. Together, the defendants concocted a false premise for the loan, supported the loan application with false representations, and set up pass-through bank accounts to funnel the proceeds of the fraudulent loan to themselves. Specifically, the defendants made or otherwise caused false statements to be made to the Bank regarding, among other things, (a) that the borrower on the loan was the Straw Borrower, when in fact the actual borrowers and beneficiaries of the loan were ZILBERBERG, FRIED, and CC-1; and (b) that the purpose of the loan was for business investments by the Straw Borrower, when in fact the actual purpose of the loan was to benefit ZILBERBERG, FRIED, and CC-1.
Based on the false representations made to the Bank and ZILBERBERG’s involvement in the loan approval process, the Bank issued a $1.4 million loan to the Straw Borrower, which was quickly disbursed to the defendants through multiple bank accounts and transfers. In total, ZILBERBERG received at least approximately $466,000 of the loan proceeds, FRIED received at least approximately $434,000 of the loan proceeds, and CC-1 received the remainder of the loan proceeds. The loan ultimately defaulted, resulting in a loss of over $1 million.
ZILBERBERG, 61 of Monsey, New York, and FRIED, 46 of Toms River, New Jersey, are each charged with one count of conspiracy to commit bank fraud, one count of bank fraud, and one count of making false statements to a bank, each of which carries a maximum sentence of 30 years in prison, as well as one count of conspiracy to make false statements to a bank, which carries a maximum sentence of five years in prison. ZILBERBERG is also charged with one count of embezzlement and misappropriation of bank funds, which carries a maximum sentence of 30 years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Berman praised the investigative work of the FBI and the FDIC, Office of the Inspector General, and noted that the investigation remains ongoing. Mr. Berman also thanked the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) and the New York State Department of Financial Services for their assistance with the investigation.
The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
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