In $1.9M Scheme, 1 Ex-Bank Exec. Guilty, 1 Acquitted
Following a 12-day trial, the former leader of St. Paul-based Pinehurst Bank and a bank customer were convicted Friday for their roles in a multimillion-dollar “check-kiting” scheme, while a former executive of the bank was acquitted, Minnesota's U.S. Attorney's Office said.
John Markert, former Pinehurst president; George Wintz, a Pinehurst customer; and Gregory Pederson, the bank's former chief credit officer and senior vice president, were charged last June for allegedly misapplying bank funds. All three were hit with additional charges last September.
On Friday, the jury split the verdict on Markert: He was convicted with five counts of misapplication of bank funds but was acquitted of the bank fraud and false statement charges he faced. He faces up to 30 years in prison on each misapplication count.
Wintz was found guilty of two counts of bank fraud and one count of theft from an employee benefit plan, but he was found not guilty of helping Merkert misapply funds. He faces up to 30 years in prison for each bank fraud count and an additional five years for the theft charge.
Pederson, meanwhile, was acquitted on all counts.
Prosecutors accused the three men of operating a “check-kiting” scheme involving $1.9 million in overdrafts. Check kiting refers to a process of floating checks between accounts to create the illusion of having a balance from which money can be withdrawn; an individual writes a check for a value greater than his or her account balance at one bank and then writes another check from a different bank to cover the first over-drawn account-essentially taking advantage of the time it takes a check to clear.
Wintz allegedly kited increasingly large sums between Pinehurst Bank and a second bank until the second bank discovered his insufficient funds and returned more than $1.8 million in bad checks to Pinehurst Bank.
Prosecutors said that Markert and Pederson then recruited five straw borrowers to receive $1.9 million in loans from Pinehurst for Wintz, and the three concealed the scheme from the bank's board. Wintz was also accused of embezzling more than $160,000 from his company's 401(k) plan and using the money for personal benefit, to pay his company's bills, and to repay the straw borrowers' loans.
When the fraud was uncovered in 2010, Markert and Pederson lost their jobs, and the bank was closed by regulators several months later.
On the heels of Friday's mixed verdicts, U.S. Attorney B. Todd Jones said in a statement that “confidence in the strength and integrity of our financial institutions is critical to building strong communities.”
“We respect the jury's decision in this case and will continue to vigorously prosecute those who engage in fraud and deception for their own personal enrichment at the public's expense,” Jones added.
Following the trial, Markert's attorney, Joe Friedberg, told the Pioneer Press that he was “very disappointed” and “somewhat surprised” by the outcome. He said Pederson deserved to be cleared of the charges he faced but described the mixed verdicts as “just bizarre.”
One juror told the St. Paul newspaper that the difference in outcomes for the two former Pinehurst Bank leaders came down to Markert “having authority” over Pederson.
U.S. District Court Judge Ann Montgomery will hand down sentences for Markert and Wintz at a future hearing, which has not yet been scheduled.