Magazine article American Banker

Ohio Bank Tells SEC: Exec, Client Conspired in 3-Year, $15M Fraud

Magazine article American Banker

Ohio Bank Tells SEC: Exec, Client Conspired in 3-Year, $15M Fraud

Article excerpt

An Ohio community banking company said it was the victim of an "elaborate fraud" that cost it about $15 million in the past three years.

Belmont Bancorp made the disclosure in an 8-K statement filed Oct. 14 with the Securities and Exchange Commission.

The $446 million-asset company said the fraud was orchestrated by a former executive and customer at its Belmont National Bank subsidiary. The Bridgeport, Ohio, company has filed claims against former executive vice president William Wallace and his wife, Christine. Restitution also will be sought from Steven D. Schwartz, former president of the now-defunct Schwartz Homes Inc. in New Philadelphia, Ohio, as well as from another Schwartz executive.

Documents filed in the Tuscarawas County Common Pleas Court in Ohio said Mr. Wallace and Mr. Schwartz plotted from 1996 to 1999 to unlawfully transfer millions of dollars from Belmont National Bank to Schwartz Homes

During that time, the documents said, Mr. Wallace made a loan exceeding $5 million to Mr. Schwartz's company by "fraudulently and willfully misrepresenting" to the bank's board the quality of Schwartz Homes as a borrower.

Belmont also said the two men established a bogus loan program that claimed to help Schwartz customers finance homes purchases. The funds went directly to the building company, the bank said.

The bank alleged that the scam was made possible through "outright lies as well as omissions of critical information" by Mr. Wallace and ultimately bilked Belmont of $10 million.

Belmont said Mr. Wallace -- who took a consulting job with Schwartz after resigning from the bank in March -- intimidated subordinates who questioned the loans and concealed the building company's overdrafts. The bank added that Mr. Schwartz gave false information to Belmont's directors, deceived and harassed skeptical Belmont employees, and forged documents. …

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