ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, March 26, 1996 TAG: 9603260031
SECTION: BUSINESS PAGE: C-6 EDITION: METRO
DATELINE: RICHMOND
SOURCE: JIM SILVER BLOOMBERG BUSINESS NEWS
HE HAD DOCUMENTS from Philip Morris that were impressive. More than two years later, one of the lending banks finally checked with the company. The high-powered papers were fake.
If Edward Reiners had wanted a mortgage, he probably would have had to fill out an application listing where he worked. Normally, the bank's mortgage-loan department would call his employer to make sure.
Signet Banking Corp.'s corporate loan department didn't trouble Reiners with that sort of scrutiny. The man accused of a $323.5 million fraud against Signet and six other banks told officials that he was working on a secret off-shore project for Philip Morris Cos. to develop alternatives to cigarettes.
The plan was so secret, he said, that the bankers couldn't contact other officials at the tobacco company.
In fact, there was no such project, said federal prosecutors, who arrested Reiners and an accomplice last week.
Asked if Signet relied on documents Reiners offered as proof that he worked at Philip Morris, Signet Chairman and Chief Executive Robert Freeman said, ``I believe that's true.'' Freeman added, ``That was more than just a letter from him.'' The FBI said Reiners presented a forged certificate in which Philip Morris appeared to give him the power to sign company contracts.
Almost 21/2 years passed before a bank that bought part of the loan from Signet contacted Philip Morris for verification.
Industry executives are shocked.
``I haven't come across something as embarrassing as this,'' said John Mastromarino, executive director of risk management of Bank of Boston Corp., a former regulator for the Comptroller of the Currency. ``Banks should have a more complete series of checks and balances to make sure you're dealing with a legitimate individual.''
Reiners, a former Philip Morris employee, obtained a loan from Signet in late 1993 and another from NationsBank Corp. in 1995. With additional periodic payouts, he borrowed $323.5 million by the time he was arrested.
He still owes Signet $81 million and NationsBank $60 million.
Signet sold parts of the loan to CoreStates Financial Corp., Bank of Montreal, Vienna-based Creditanstalt-Bankverein, The Long-Term Credit Bank of Japan and others, federal prosecutors said.
Industry officials said Reiners' request not to contact Philip Morris should have raised a red flag.
``There are certain things that you can't give up,'' Mastromarino said.
The loan is Signet's biggest, Freeman said. The bank's policy is that the portion of a loan meant to be kept on its books can't exceed $50 million; it expected to sell the extra $31 million to other banks, he added.
Signet says it is likely to get back most of the loan as federal authorities seize Reiners' assets.
Signet's loan gave Reiners credibility with other banks, industry executives said; the six other banks involved may have relied on Signet's opinion of Reiners.
The participating banks might also normally confirm the borrower's position at his company and ask the lead bank for more details of the project. Even with the secrecy Reiners sought, Mastromarino said, ``this is real money. I think it's perfectly legitimate to question the lead bank.''
The Long-Term Credit Bank of Japan first discovered evidence of wrongdoing this month, when it wrote Philip Morris with a question about the document Reiners had presented showing him to be authorized to sign contracts for the company. The company's assistant corporate secretary wrote back that the document was fake.
The FBI last Tuesday arrested Reiners, 51, and Judy Rose Bachiman, 38, at a Philip Morris office in Rye Brook, N.Y. Reiners is in custody. Bachiman, who was released on a $40,000 bail bond, declined comment when reached at home last week. Another hearing is scheduled today in federal court in White Plains, N.Y.
LENGTH: Medium: 76 linesby CNB