THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, June 6, 1996 TAG: 9606060360
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: STAFF & WIRE REPORT
DATELINE: RICHMOND LENGTH: 58 lines
A former Philip Morris employee pleaded guilty Wednesday to defrauding eight banks of $350 million - money that he said was funding a super-secret project by the tobacco company to test cigarette ``alternatives.''
Edward J. Reiners, 51, of Somers, N.Y., pleaded guilty to bank fraud and money laundering. He faces a maximum of 50 years in prison and $1.5 million in fines when he is sentenced Oct. 21.
Reiners pretended for two years that he was working for Philip Morris on the secret project - code-named ``Project Star'' - to persuade Signet Bank, NationsBank and six other companies to lend him the money to lease computers. Philip Morris has said no such project exists.
Reiners was arrested March 19 with an alleged accomplice, Judy Bachiman, 38, of Cliffside Park, N.J., after the Long-Term Credit Bank of Japan sent Philip Morris Cos. Inc. a fax to determine if Reiners' activity was legitimate.
More than $200 million in assets has been seized from Reiners, including stocks, bank accounts and a penthouse apartment in New York, although at least $100 million remains unaccounted for.
U.S. District Judge Robert R. Merhige Jr. told Reiners that he would order him to pay restitution.
Bachiman is free on bail pending trial. Reiners has been in custody since his arrest. U.S. Attorney Helen Fahey said the investigation is continuing.
Reiners had worked for years as a computer executive with Philip Morris in New York and had dealt with Richmond bankers and Nelco Ltd., a Richmond-area computer leasing company, before he left the tobacco company in 1992.
In 1994, he approached Nelco about leasing computer equipment for a secret research project that Philip Morris was conducting outside the United States.
Over the next two years, banks lent more than $350 million to Nelco, which thought it was buying computer equipment through Centralized Computer Services Inc. in New York for lease to Philip Morris.
As part of each of the loan deals, the banks were asked to sign ``confidentiality agreements.'' These agreements limited the banks' contact with Philip Morris to one person - Reiners.
The charade was so elaborate, the FBI said, that NationsBank was told that IBM was producing and shipping computers without serial numbers for the Philip Morris program.
No computer equipment was ever delivered, but the lease payments to Nelco and the banks were current when Reiners and Bachiman were arrested.
Nelco filed for Chapter 11 bankruptcy protection shortly after Reiners' arrest. Authorities consider the company and its officers to be victims of the fraud.
Most of the fraudulent loans started with Signet Bank and NationsBank, which arranged for participation by such banks as Core-States, Bank of Montreal, Credit Anstaldt of Austria and Hitachi American Credit, and Long-Term Credit Bank of Japan. MEMO: This story was compiled from reports by The Associated Press and
The Virginian-Pilot.
KEYWORDS: FRAUD PHILIP MORRIS COMPANY ARREST
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