Three local men were charged Wednesday in a $1.9 million check-kiting scheme that allegedly led to the closure of St. Paul-based Pinehurst Bank.
Two of the men-John Anthony Markert, 57, of Mendota Heights and Gregory Paul Pederson, 43, of Roseville-previously served as officers at Pinehurst Bank, which was closed last year by regulators. The third man, George Leslie Wintz, Jr., 61, of Minneapolis, was their customer, according to prosecutors.
All three men were each charged with five counts of misapplication of bank funds and face a maximum of 30 years in prison for each count.
From March 2006 through January 2010, Markert, Pederson, and Wintz misapplied about $1.9 million from Pinehurst Bank in a check-kiting scheme, according to the U.S. Attorney's Office in Minnesota.
Check kiting, a type of deposit fraud, refers to a process of floatingworthless checks between accounts in order to create the illusion ofhaving a balance from which money can be withdrawn; the accounts showinflated balances that enable checks to be honored instead ofunpaid-essentially taking advantage of the time it takes a check toclear.
The indictment alleges that Wintz was "kiting" increasingly large sums between Pinehurst Bank and a second bank until late February 2009, when the second bank discovered Wintz's insufficient funds and returned more than $1.8 million in bad checks to Pinehurst Bank; the sum exceeded Wintz's already-exhausted borrowing limit of $1.25 million at Pinehurst.
According to the U.S. Attorney's Office in Minnesota, the men then arranged for five loans to go to straw borrowers of Wintz and disbursed $1.9 million to those borrowers, knowing the funds were intended to cover the check-kiting scheme.
Markert and Pederson allegedly knew that Wintz, rather than the straw borrowers, was the actual borrower for all five loans.
The three men allegedly took steps to conceal the loans from the bank's board and regulators. But in January 2010, the scheme was uncovered during an independent audit, and the bank terminated Markert and Pederson. The bank was required to declare the five loans as losses, rendering it undercapitalized and leading to its closure by regulators in May 2010.