Behind the Blinds at…
AMERICAN SAVINGS BANK
Sightings from The Catbird Seat
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December 11, 2006
American Savings report
raises ‘red flags’
By Rick Daysog, Advertiser Staff Writer
An American Savings Bank senior vice president rewrote an in-house report last year on a bank employee’s alleged theft of $600,000 from an elderly customer to delete any reference to the customer losing money.
Corporate governance experts say it is unusual for a bank to remove information from a report intended to alert top executives to potential problems.
In February 2005, American Savings Bank security director Bert Corniel learned that a supervisor at the Hawai’i Kai branch took hundreds of thousands of dollars from a 92-year-old customer, Ada Lim. Corniel wrote a 150-word report alerting bank officials of the incident.
Corniel’s supervisor, Abel Malczon, the bank’s senior vice president of operations, reduced Corniel’s report to 65 words, taking out the part about a bank employee taking money from Lim.
The short version was submitted to the bank’s disclosure committee, which reviews cases of possible fraud.
“This has the appearance of someone trying to downgrade the gravity of the situation,” said banking consultant Tom Tarter, a former president of the Bank of Los Angeles who now advises financial institutions on corporate governance issues. “This is a totally inappropriate action and makes you wonder how other frauds and other problem areas are treated by the bank.”
American Savings Bank, the state’s third-largest financial institution, said it did nothing wrong, but cannot comment on specifics of the case because of a pending lawsuit and a federal grand jury investigation into the matter.
Dawn Dunbar, American Savings’ spokeswoman, said last week the company acted properly. Malczon declined comment and referred all questions to the bank.
American Savings CEO Constance Lau said in a written statement on Aug. 16, after news broke that a bank employee took money from an elderly customer, that the “bank did not in any way, shape or form cover up anything.”
When asked about changes to Corniel’s report, Dunbar said: “Unfortunately, we cannot respond fully to these allegations because this matter is still pending before the court.”
“We are confident that when the facts do become known, it will be clear that American Savings Bank has acted lawfully and properly.”
Corniel sued the bank on Aug. 2, claiming bank officials retaliated against him and passed him over for a promotion because of various disclosure reports he filed.
Lau, in her August statement, said Corniel was a “disgruntled former employee.”
Corniel’s report and Malczon’s revisions are key exhibits in Corniel’s lawsuit in state Circuit Court. In the lawsuit, Corniel alleges that an operations supervisor at American Savings’ Hawai’i Kai branch, Marilyn De Motta, took hundreds of thousands of dollars from Lim between August 2004 and December 2004, and that the bank later tried to cover up the fraud to avoid reporting the losses to its regulators.
To back up Corniel’s contention, he filed with the court copies of e-mail messages from Malczon, his supervisor, about the edited report.
“Here is the revised report talked about in management,” Malczon wrote in the e-mail to Corniel on Feb. 25, 2005. “Management would prefer no names (of the victim or bank employee) be used.”
Malczon added, “If you are not comfortable submitting this under your banner, I understand and will submit it under my name.”
Lim, the 92-year-old customer, also filed suit against American Savings on Aug. 2, but the bank settled that lawsuit in September for undisclosed terms.
A federal grand jury recently opened an investigation into the alleged fraud and the bank’s handling of the case.
The audit committee of the Hawaiian Electric Industries Inc. board also has opened an investigation into the matter. HEI is the parent company of American Savings.
Founded in 1925, American Savings has about $6.9 billion in assets, 64 branches and about 1,400 employees.
The in-house reports on the Lim incident weren’t the only reports bank officials changed.
In sworn testimony taken by Corniel’s attorneys, bank officials said they amended a “suspicious activity report” written by Corniel on the Lim matter and filed with federal regulators. The bank officials did not say in their testimony why the report was amended or what was changed.
The bank’s CEO, Lau, said in a deposition she gave in the Corniel lawsuit that Malczon directed a staff attorney to change Corniel’s initial report. Lau did not provide details on the changes.
Bank spokeswoman Dunbar declined to comment on Lau’s testimony and the changes to the report, citing federal laws prohibiting the disclosure of the contents of such reports.
Suspicious activity reports are required of all banks, stock brokerages and casinos when they suspect fraud, money laundering or any other illicit activity involving $5,000 or more.
If the alleged abuse involves a company insider, the financial institution has to file a suspicious activity report regardless of the amount of the loss. A false suspicious activity report could result in criminal prosecution and fines for a company, said Sarah Welling, law professor at the University of Kentucky and an expert on money laundering. Failure to file such reports also can lead to civil penalties.
Banking consultant Tarter, who reviewed American Savings Bank e-mails and disclosure committee reports at the request of The Advertiser, said the way the bank reported the Lim case to its internal disclosure committee fell well below “industry standards that require full disclosure.”
Tarter said American Savings’ disclosure committee should have been given all of the facts surrounding the alleged fraud against the elderly customer. Full disclosure would allow the bank’s senior management and its board to decide whether the bank had to reimburse the customer and whether to set aside reserves for the potential loss, Tarter said.
American Savings’ disclosure committee, whose members include senior bank managers, was created in response to the Sarbanes-Oxley corporate reforms several years ago. The committee reviews corporate governance issues for the bank.
American Savings spokeswoman Dunbar declined to discuss the duties and makeup of the bank’s disclosure committee.
James Spindler, a corporate governance expert and law professor at the University of Southern California, said amending Corniel’s original report probably did not violate any laws from a corporate governance standpoint, because the losses involved aren’t material to the bank’s earnings.
But Spindler said investors don’t look too kindly when managers shift “numbers around to cover up bad things” and don’t inform the company’s board of such problems.
“This is something that raises some red flags,” said Spindler.
September 30, 2006
Bank data subpoenaed in
alleged $600K theft
By Rick Daysog, Honolulu Advertiser
A federal grand jury has subpoenaed documents from American Savings Bank to investigate the alleged theft of hundreds of thousands of dollars from an elderly bank customer and the bank’s response to the reported theft.
The 23-member panel issued a blanket subpoena earlier this month for copies of company e-mails, financial statements and other records, people familiar with the investigation said. The sources asked not to be identified because the investigation is ongoing.
The grand jury’s subpoena comes on the heels of two civil lawsuits filed on Aug. 2, one by a 91-year-old bank customer, Ada Lim of Moanalua, and the other by the bank’s former director of security, Bert Corniel.
The suits charged that Marilyn De Motta, an operations supervisor at the American Savings’ Hawai’i Kai branch, took $600,000 from Lim. The suits also alleged that the bank tried to cover up the theft.
American Savings CEO Constance Lau said in a written statement last month that the bank “did not in any way, shape or form cover up anything.”
The grand jury’s investigation is not limited to Lim’s theft allegations but also is examining American Savings’ conduct, according to the sources.
The panel is an investigative grand jury, meaning that it was convened to gather evidence and may not file criminal charges depending on what it finds.
When asked for comment on the grand jury, American Savings spokeswoman Dawn Dunbar said in an e-mail, “While we cannot speak on behalf of the FBI, it is important to note that American Savings Bank has been cooperating and will continue to cooperate with all governmental authorities.”
Assistant U.S. Attorney Ron Johnson, who prosecutes federal crimes in Hawai’i, could not be reached for immediate comment.
COMPUTER SEIZED
No criminal charges have been filed in the case, but FBI agents last month seized Corniel’s computer and interviewed Corniel and other witnesses.
Lim settled her lawsuit with the bank on Sept. 18. Terms of the settlement were not disclosed.
Lyle Hosoda, attorney for Lim, said in a news release at the time that “Ms. Lim recognizes that this was a unique situation and both parties are fully satisfied that the settlement is both amicable and fair.”
Corniel’s suit is still pending.
De Motta’s attorney, Emmanuel Guerrero, declined comment yesterday on the grand jury investigation.
NOTED LAWYER HIRED
Established in 1925, American Savings is the state’s third largest financial institution with $6.7 billion in assets. The bank is a subsidiary of Hawaiian Electric Industries Inc.
American Savings recently retained high-profile Washington, D.C., attorney Michael Bromwich to assist the bank with the federal investigation.
Bromwich of Fried, Frank, Harris, Shriver & Jacobson LLP, is a former inspector general at the U.S. Department of Justice and was part of the federal government’s legal team that prosecuted Iran-Contra figure Oliver North in the late 1980s.
Bromwich did not respond to an e-mail yesterday seeking comment on the grand jury investigation.
August 16, 2006
FBI probes bank over
alleged fraud cover-up
By Rick Daysog, Honolulu Advertiser
The FBI is investigating claims that American Savings Bank officials tried to cover up theft, including one case in which a bank employee allegedly took several hundred thousand dollars from a 91-year-old customer.
FBI agents interviewed the bank’s former security director Bert Corniel yesterday after he charged in a lawsuit that the bank asked him to stop reporting fraud cases to federal and state officials, said John Perkin, Corniel’s attorney.
Assistant U.S. Attorney Ron Johnson, who prosecutes federal crimes in Hawai’i, said yesterday he could not confirm or deny that an investigation is under way. A person at the Honolulu FBI office said late yesterday the bureau had no immediate comment.
The bank said the charges are false and it is cooperating with the FBI investigation.
“Although we cannot comment on the investigation, we can say that we have and will continue to cooperate and provide investigators with all the relevant information as it is requested,” said American Savings Bank in a written statement. “Mr. Corniel’s concerns … were thoroughly investigated and found to be without merit.”
Corniel and bank customer Ada Lim, 91, alleged in separate lawsuits filed on Aug. 2 that a manager at a bank branch took hundreds of thousands of dollars from Lim.
Lim deposited more than $600,000 into her American Savings account in 2004, only to have most of the money siphoned out of her account by the bank employee, who was helping to manage Lim’s finances, the lawsuits allege. The bank employee opened an account with Bank of Hawaii and deposited various sums from Lim totalling $304,000, according to Lim’s lawsuit. The bank employee bought a condominium using $110,000 of Lim’s money, the suit claims.
Corniel said in January 2005, when he was investigating the Lim case, the bank employee confessed to him that she took the money. American Savings officials said the transfer was a loan from Lim to the employee, Corniel said.
Corniel said American Savings officials told him not to report the fraud as required by law to federal regulators and law enforcement agencies such as the FBI, Office of Thrift Supervision and the Federal Deposit Insurance Corp.
Several American Savings employees went to Lim’s house in February 2005 with gifts and to get her to sign a document exonerating the bank, according to the lawsuits.
$200,000 SHORT
Lyle Hosoda, Lim’s attorney, said the bank returned most of Lim’s money but still owes her about $200,000. No criminal charges have been filed against the bank employee, but Hosoda said an Internal Revenue Service investigation of the employee is under way.
Craig Togami, American Savings marketing and communications director, said yesterday the bank would not respond to specific allegations in the two lawsuits. Togami said he could not comment beyond what it said in the written statement.
“American Savings Bank believes that this entire lawsuit is without merit,” the statement said. “There are many factual errors in the complaint. … We look forward to telling our side of the story more fully at the appropriate time.”
The bank’s statement also cast doubt on the motivation of Corniel. In June, Corniel resigned from the bank, saying he was pushed out.
“To understand what truly happened, there are some facts to keep in mind: Security today goes well beyond physical security, and so the bank decided to emphasize protection of security of information systems and computers; Mr. Corniel, whose background is in physical security, was not selected for the newly created position of VP Security; Mr. Corniel voluntarily resigned after repeated efforts by the Bank to have him stay,” the statement said.
PRESIDENT IMPLICATED
Corniel’s lawsuit also charges that Constance Lau, the president of the bank, asked him to “recharacterize” the bank’s fraud losses as “potential losses” in his reports to federal regulators.
Lau became chief executive of American Savings’ parent company, Hawaiian Electric Industries Inc, in May. Togami said Lau was traveling and could not be reached for comment….
FBI agents seized Corniel’s computer at American Savings’ downtown headquarters on Friday in search of e-mails and other electronic records, which could demonstrate Corniel’s allegations, according to Perkin, Corniel’s attorney.
Corniel is a retired Honolulu police officer and a former investigator with the city prosecutor’s office who was hired as American Savings’ security director in 2000.
In his lawsuit, Corniel mentions a second incident, involving two bank tellers and a customer who allegedly defrauded the bank of $256,000 in April and May 2005. Corniel said he filed reports with federal regulators and law enforcement officials, including the FBI, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
But bank officials recharacterized the losses as expenses or charge-offs and his immediate supervisor told Corniel that his filings with federal authorities could cost him his job, the lawsuit claimed.
August 18, 2006
FBI began bank probe in ’05
By Rick Daysog, Honolulu Advertiser
The former American Savings Bank employee accused of taking hundreds of thousands of dollars from a 91-year-old customer said FBI agents have been investigating her case for more than a year.
Marilyn De Motta, an operations supervisor at American Savings’ Hawai’i Kai branch before she was fired in February 2005, said FBI investigators questioned her in March 2005 about allegations she took money from Moanalua resident Ada Lim. The FBI interviewed her a second time earlier this year and the Internal Revenue Service joined that session, De Motta said.
An FBI spokesman yesterday would not confirm or deny that an investigation is under way.
Lim alleged in a lawsuit filed Aug. 2 that De Motta approached her and offered assistance with her finances. Lim also alleged De Motta instructed her to deposit $688,669 into an American Savings account. Lim alleged De Motta took $304,000 from Lim’s account starting in 2004 and later got Lim to sign a document saying it was a loan paying 2 percent interest.
In a separate lawsuit also filed on Aug. 2, Bert Corniel, the former security director for American Savings, alleged that he interviewed De Motta in January 2005 while she was still working at the bank and she “confessed that she took Ms. Lim’s money.” Corniel also alleged the bank was “aware of this situation as early as July 2004, but no disciplinary action was taken.” Corniel alleged the bank “attempted to cover up De Motta’s fraud as a loan.”
American Savings CEO Constance Lau on Wednesday said the bank did not “in any way, shape or form cover up anything” in a written response to allegations in the two lawsuits.
The bank said on Tuesday it is cooperating with the federal probe.
De Motta spoke to The Advertiser on Wednesday and said Lim authorized all the transfers of funds to De Motta.
De Motta said she initially didn’t want to help Lim with her finances. But De Motta said she felt pressured by Lim, who made repeated phone calls to get her to help….
De Motta, who worked for American Savings for 13 years, also faulted the bank for not adequately supervising her.
“It’s not like me to blame someone else, but why didn’t anybody hold me and slap me in the face at the time? Instead, they’re watching me and throwing me away,” De Motta said.
When asked why De Motta borrowed money from a 91-year-old customer, De Motta declined to answer.
“It will be proven in court why I did it,” De Motta said. “I’m dying to tell people what happened.”
De Motta has not been charged with a crime in this case.
John Knorek, American Savings Bank’s attorney, said Wednesday the bank’s code of conduct committee began an investigation of De Motta in January 2005 and fired her the following month.
Reach Rick Daysog at rdaysog@honoluluadvertiser.com
July 1, 2006
Regulators take over property insurer
A buyer is sought for Hawaiian Insurance & Guaranty Co. Ltd.
By Stewart Yerton, Star-Bulletin
Hawaii’s fourth-largest homeowners insurance company has been taken over by state insurance regulators, who are working with counterparts in other states to find a buyer for the Hawaii firm and several of its sister insurance companies.
The move by Hawaii Insurance Commissioner J.P. Schmidt will enable the state to oversee a sale of Hawaiian Insurance & Guaranty Co. Ltd., said Ernest Fukeda, president of HIG.
HIG has suffered from a rash of customer defections following financial troubles suffered by its Alabama-based parent company, Vesta Insurance Group, which was beset by hurricane-related losses in the Gulf South. In March, rating agencies downgraded Vesta’s bond rating to C+, a rating for extremely risky bonds that is considered too low to meet some mortgage lending requirements.
Although Fukeda said HIG is financially sound, its parent’s rating dragged down the local subsidiary, causing concerns among several major mortgage lenders. In May, First Hawaiian Bank, American Savings Bank and Central Pacific Bank instructed HIG-insured mortgage borrowers to meet with their insurance agents to discuss the downgrade. Bank of Hawaii went a step further, telling HIG policyholders to seek another insurer. [Good reasons why the BANKS should never have been allowed to get into the INSURANCE business!].
Although HIG has “more than adequate funds to continue to pay claims” and recently secured the backing of AA-rated reinsurers, Fukeda said the company has lost about 11 percent of its customers so far this year. The company has about 29,000 policyholders, he said….
The question appears to be whether a buyer can be found before HIG suffers more defections, causing its business to deteriorate further. Schmidt said he is working with his counterparts in Alabama, California, Florida and Texas to close a deal with a prospective buyer group interested in acquiring the Vesta affiliates in those states, as well as the Hawaii business.
Schmidt declined to identify the prospective buyer group….
Read the full story at…
http://starbulletin.com/2006/07/01/news/story05.html
For more, GO TO > > > Tracking the Hawaiian Insurance Companies
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February 10, 2001
American Security Bank
buys Bishop Insurance
HoaHana
American Savings Investment Services Corp. (ASISC), an ASB subsidiary, is acquiring Bishop Insurance Agency of Hawaii, Inc., which deals primarily property and casualty insurance and has done business in Hawaii since 1859.
ASISC’s insurance operations, American Savings Insurance Agency (ASIA), offers a full range of insurance products and services, including individual life, long-term care, fixed and variable annuities, special tax-sheltered annuities for teachers, and personal and commercial property and casualty insurance.
“This acquisition gives American Savings Bank an opportunity to provide greater benefits to our customers,” said Wayne Minami, president and chief executive officer of American Savings Bank.
“We are pleased with this acquisition,” said Clarence Philpotts, vice-chairman of the board of Bishop Insurance Agency….
Bishop will continue to do business under the Bishop Insurance Agency name…
From the Bishop Insurance Agency website:
Bishop Insurance Agency
Bishop Insurance Agency of Hawaii, Inc. (BIA) has been trusted to protect island property and lives since 1859. As the oldest insurance agency in Hawaii on the roster of the top 10 agencies in the state, BIA has grown along with the islands, and has come to know and understand its people and their special needs.
The Bishop Insurance Agency offers a full line of Personal and Business Insurance products from 140 different companies including First Insurance Company of Hawaii, DTRIC, TIG/Crum Forester and Island Insurance.
http://www.asbhawaii.com/lhc/8_1_7.php
April 29, 2002
AUTO INSURERS AGREE TO HAWAII FINES
The Insurance Journal
Seven of Hawaii’s largest auto insurance companies who have been under investigation for allegedly using prohibited criteria to determine premiums, have agreed to pay fines totaling $115,500. The seven companies— AIG Hawaii, Allstate Group, RLI, Maryland Casualty Company (Zurich), Hartford, State Farm Group, and USAA Group, account for approximately 60 percent of the state’s auto insurance market.
Four other companeis—TIG, HIG, DTRIC, and Progressive—have also been under investigation, and are pending resolution. Companies found to be in compliance with Hawaiian law include Island Insurance, GEICO, First Insurance, and Liberty Mutual.
Hawaii’s Insurance Division began its investigation last August, when it was reported that State Farm owned companies were using credit bureau information as a factor in determining policyholders’ premiums. Of the companies fined, State Farm Group paid the largest amount at $40,000.
www.insurancejournal.com/magazines/west/2002/04/29/newsbriefs
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MORE TO COME
For now, you can see more of what’s going on behind the blinds at…
British Petroleum: Buzzards in the Pipelines
Buzzards in the Bank of Hawaii
The Carlyle Group: Birds that Drink from Cesspools
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
Part I – Part II – Part III – Part IV – Part V – Part VI
The Hawaiian Insurance Companies
Investors Equity: Vultures in The Meadows
Marsh & McLennan: The Marsh Birds
Marsh & McLennan’s Mercer Consulting
Marsh & McLennan’s Putnam Investments
Office of the U.S. Trustee vs Harmon
The Power Vampires & The Ghost of Ken Lay
The Secret Lives of Duke and Dusty
The Silence of the Whistleblowers
Sukamto Sia: The Indonesian Connection
Vultures up to their beaks in Tesoro Petroleum
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Last Update February 4, 2007, by The Catbird