THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, March 22, 1996 TAG: 9603220515
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN AND ROBERT LITTLE, STAFF WRITERS
LENGTH: Medium: 88 lines
The FBI said Thursday it may make additional arrests in a scheme that apparently duped Signet Bank, NationsBank and a handful of other institutions out of $323.5 million.
FBI agents apprehended two individuals on bank fraud charges Tuesday in Rye Brook, N.Y. The two - Edward J. Reiners, 51, of Somers, N.Y., and Judy Rose Bachiman, 38, of Cliffside Park, N.J. - were visiting a Philip Morris Cos. facility when they were arrested.
Reiners, a former employee of the giant tobacco and consumer products company, had fooled the banks by saying the borrowed funds would be used by a Philip Morris subsidiary for a secret project, the FBI said in court documents filed in Richmond.
The alleged bank fraud, which began in 1993, involved ``a group of people who knew each other,'' John Donahue, an FBI spokesman in Richmond, said Thursday. He declined to say when or where any additional arrests might be made.
The FBI's investigation, said Donahue, has involved six agents from the agency's white-collar crime unit.
Separately, the credit-rating firm Standard & Poor's said it will consider cutting its rating on $250 million of debt issued by Richmond-based Signet and its parent, Signet Banking Corp.
Signet disclosed Tuesday that it stood to lose as much as $81 million from the scheme. But on Wednesday, it said it expected to recover a significant part of that.
Standard & Poor's said Signet's losses on the loans should not materially affect the bank's financial condition. However, the ultimate cost to Signet will include legal bills and the cost of collecting what it is owed, S&P said.
A reduction in the credit ratings of Signet and its parent company could make it more expensive for them to borrow money.
Signet has told securities analysts that some of the proceeds from its loans have been found in marketable securities and were seized.
However, analysts said Signet still may have to contend with legal challenges from other banks that participated in the loans made to Reiners. Signet was the lead bank in one group of banks that provided part of the $323.5 million.
David West, a banking analyst with the Richmond-based brokerage firm Davenport & Co. of Virginia, said it appeared that Signet could recover more than $40 million, or about half of the $81 million, it had lent.
For Signet, ``the financial damage should be relatively modest,'' because Signet earns more than $40 million in a quarter, West said.
``I'm concerned from the perception standpoint and from the potential for litigation,'' he said.
At least one brokerage firm already has downgraded its evaluation of Signet Banking Corp. shares in the wake of the lending scandal. Keefe, Bruyette & Woods, a New York firm that specializes in bank stocks, reduced its rating on Signet's shares from ``attractive'' to ``hold'' on Thursday.
Charles O. Meiburg, a banking professor at the University of Virginia's Darden Graduate School of Business Administration, said competitive pressures have made it difficult for banks to fully protect themselves from loan fraud.
``Borrowers,'' he said, ``want decisions promptly and they don't want to waste a lot of time'' in the application process. However, Reiners' insistence that Signet and other lenders sign confidentiality statements should have raised questions about the transaction, he said.
Reiners had told bankers that he was involved in a project that Philip Morris wanted to keep secret. The confidentiality agreements that they signed required all bank contacts with Philip Morris to be made through Reiners, according to the FBI affidavit.
The scheme began unraveling last week when a loan officer with one of the participating banks, Long Term Credit Bank of Japan, asked questions about a document that obligated Philip Morris for the bank loans through the year 2003, the FBI's affidavit said.
The document bore the signatures of Philip Morris assistant secretary Diane McAdams and Reiners, who told bankers he was chief operations officer of a Philip Morris subsidiary, Worldwide Regional Exports.
When the loan officer at Long Term Credit Bank contacted McAdams about the loan document, she responded that her signature had been forged and that she did not know an Edward J. Reiners.
The Long Term Credit Bank officer shared this information with NationsBank, which began its own investigation. Last weekend, NationsBank notified Signet and the FBI of the possibility of fraud, the FBI affidavit said. MEMO: Staff writer Sue Robinson contributed to this story.
KEYWORDS: BANK SCAM FRAUD FBI by CNB