Behind the Blinds at...
AMERICAN SAVINGS
BANK
Sightings from The Catbird Seat
~ o ~
December 1, 2007
Ex-worker indicted in
thefts at Hawaii bank
By Rick Daysog, Advertiser Staff Writer
A federal grand jury indicted a former American Savings Bank employee on charges of theft, embezzlement and bank fraud, according to documents released yesterday.
Marilyn De Motta, who was a supervisor at the Hawai'i Kai branch, used her position to take hundreds of thousands of dollars from Ada Lim, a 92-year-old customer, and her family, the Nov. 15 indictment charged.
The 10-count indictment also alleged that De Motta stole money from the federal government by diverting more than $91,000 in cashier's checks that Lim had intended to pay taxes with.
The indictment comes more than a year after Lim and American Savings' former security director Bert Corniel filed separate civil lawsuits alleging that De Motta stole money from Lim and that bank officials tried to cover up the matter.
Federal prosecutors, the FBI and officials with the U.S. Treasury Department are continuing to look into the matter.
Federal investigators seized computers at American Savings' Downtown headquarters last year and issued a blanket subpoena for copies of company e-mails, financial statements and other records.
Federal investigators also have spoken with several current and former American Savings employees.
American Savings declined comment yesterday.
In the past, the bank denied that it tried to conceal fraud and said it was cooperating with the federal investigation.
In an Aug. 16, 2006, written statement, American Savings Chief Executive Officer Constance Lau said the bank terminated De Motta "promptly" after conducting its own investigation and that American Savings "did not in any way, shape or form cover up anything."
De Motta, a former 'Ewa Beach resident now living in Las Vegas, could not be reached, and her attorney, Emmanuel Guerrero, had no comment, saying he had not read the indictment.
De Motta previously said that Lim loaned her the money.
If convicted, De Motta faces up to 30 years in prison and a $1 million fine for each bank fraud and embezzlement charge and up to 10 years in prison and a $250,000 fine for each theft of public funds charge.
De Motta is expected to make an initial appearance in Honolulu federal court next week.
The lawsuit filed by Corniel, the bank's former security director, claimed that American Savings officials told him not to report the alleged fraud to federal regulators as required by law.
The bank settled the Corniel and Lim lawsuits by paying each more than $1 million.
The lawsuits documented portions of the bank's early response to the case. In February 2005 shortly after the bank began looking into the matter, De Motta, two human resources employees and a notary went to Lim's house with a bouquet of flowers, cookies and mochi crunch.
American Savings said the meeting was part of an internal investigation into De Motta, but during the visit, the bank employees asked Lim to re-sign a document that De Motta had produced to show that Lim had loaned the money to De Motta.
Lim signed the document, but in later testimony Lim said she was not aware that the people who had visited her at her home to sign the loan document were employees of American Savings.
Lim also denied that she gave De Motta a loan.
"I was in the dark," Lim said in a Dec. 6, 2006, deposition. "I thought it was more like a party."
In a separate incident, Corniel alleged that a bank executive, Abel Malczon, attempted to downplay the alleged theft of Lim's money.
During his initial investigations of De Motta's conduct, Corniel wrote a 150-word internal report alerting bank executives that De Motta may have taken hundreds of thousands of dollars from a customer.
Several days later, Malczon reduced Corniel's report to 65 words, taking out the part about a bank employee taking money from a customer.
Malczon, who could not be reached for comment, resigned from the bank in August.
Other executives who had a role in handling the Lim matter also have left the company.
Ken Newman, Corniel's former supervisor, and Stan Chong, American Savings' general counsel, recently resigned from the company, said bank spokeswoman Dawn Dunbar.
The resignations occurred after the board of American Savings parent company, Hawaiian Electric Industries, asked an outside law firm, Orrick, Herrington & Sutcliffe LLP, to conduct an independent inquiry.
The bank declined to disclose the law firm's findings. Orrick partners Walter Brown and Preston Burton, who previously represented Monica Lewinsky and former CIA spy Aldrich Ames, could not be reached.
TIMELINE OF EVENTS
February 2004: American Savings Bank Hawai'i Kai operations supervisor Marilyn De Motta befriends elderly bank customer Ada Lim and offers to help Lim with her taxes and other financial matters.
August 2004: De Motta instructs Lim to deposit the proceeds from the sale of a Wahiawa property, or about $688,000, into Lim's checking account at American Savings.
October 2004: De Motta prepares a written statement saying Lim loaned her $304,000 at a 2 percent interest rate.
December 2004: De Motta deposits $212,000 of Lim's money into a savings account at American Savings in her father's name, Bernadino Pidong.
January 2005: American Savings' code of conduct committee begins an investigation of De Motta.
February 2005: American Savings sends De Motta, two human resources employees and a notary to Lim's house bearing a bouquet of flowers, cookies and mochi crunch.
Bank employees ask Lim to verify a loan document made by De Motta and to re-sign the document. Lim signs the document.
Corniel writes a 150-word internal report alerting bank officials about the potential theft.
Corniel's supervisor, Abel Malczon, the bank's senior vice president of operations, reduced Corniel's report to 65 words, taking out the part about a bank employee taking money from Lim.
American Savings fires De Motta.
March 2005: FBI begins an investigation, according to De Motta.
June 2006: Corniel resigns from American Savings.
August 2006: Lim sues American Savings, alleging De Motta defrauded her of hundreds of thousands of dollars.
Corniel also sues the bank, alleging the bank officials tried to cover up the Lim case.
FBI agents seize Corniel's computer at American Savings' Downtown headquarters in search of e-mails and other electronic records, which could demonstrate Corniel's allegations.
Constance Lau, chief executive officer of American Savings Bank and its parent Hawaiian Electric Industries Inc., denied allegations of a cover-up, saying the bank "did not in any way, shape or form cover up anything."
January 2007: American Savings agrees to pay more than $1 million to settle Lim's lawsuit.
May 2007: American Savings agrees to pay more than $1 million to settle Corniel's lawsuit.
August 2007: Malczon resigns.
November 2007: A federal grand jury indicts De Motta on 10 counts of fraud, theft and embezzlement.
See also: The Vultures that ate HonFed
November 30, 2007
Former American Savings Bank Assistant Manager Indicted on 10 Counts of Theft, Embezzlement and Fraud
Ewa Beach Resident Marilyn DeMotta Is Being
Apprehended by Federal Agents in Las Vegas
Hawaii’s U.S. Attorney Ed Kubo today announced the indictment of Marilyn DeMotta, 41, a former operations manager at American Savings Bank accused by a bank security manager in 2004 of stealing more than $1 million from 91-year-old bank customer Ada Lim.
DeMotta, a resident of Ewa Beach, was indicted in Hawaii’s U.S. District Court on Nov. 15, 2007, on 10 counts including bank fraud, embezzlement by a bank employee, and theft of public funds, but the indictment was sealed until she could be located and apprehended in Las Vegas, Nevada, where she also has a home.
The 18-page indictment alleges that DeMotta:
> Became involved with the personal financial affairs of Lim (referred to in the indictment as “A.L.”);
> Used her position with the bank to access the accounts of Lim and move funds belonging to Lim into other accounts at American Savings as well as other financial institutions;
> Used a variety of financial transactions to redirect Lim’s funds into accounts, which DeMotta controlled at American Savings Bank as well as other financial institutions;
> Altered checks belonging to Lim, so that the money was deposited into DeMotta’s father’s account, which DeMotta had opened;
Falsely endorsed the reverse side of the cashier’s checks as “refunded to customer” which were to be used for Lim’s payment of federal and state tax.
Spokesperson for the U.S. Attorney's office, Larry Butrick, says the federal agents are speaking with DeMotta’s attorney to determine whether she will surrender on her own or if a warrant will be issued for her arrest. Either way, DeMotta will be brought back to Hawaii so she can be arraigned next week.
DeMotta Took Advantage of Her Position
As Hawaii Kai Branch operations manager for American Savings Bank, DeMotta could easily befriend Lim, a frail elderly widow living in an East Oahu retirement home. Lim had no reason to distrust DeMotta when in 2003, the polite bank employee offered to help her with her finances.
Despite declaring bankruptcy in 2001, DeMotta offered to manage the upcoming sale of Lim’s $1.4 million property in Wahiawa, to prepare Lim’s federal and state tax forms, and to act as her “financial manager.” DeMotta even told Lim to get rid of her accountant because he was “too expensive.”
Lim allowed DeMotta to take control of the $668,000 netted from the sale of the property previously rented to Zippy’s Restaurant for $7,000 a month and to prepare her 2003 tax forms. Signing blank checks, Lim gave her banker full access to those funds and more totaling $900,000.
Alarmed at DeMotta's actions, Dennis Kohara, Lim’s long-time accountant, told Hawaii Reporter that he twice took his concerns to an American Savings Bank branch manager who he knew personally, because he believed an investigation was in the best interest of his client and the bank. Angie Ho, Lim’s Realtor, says she also was worried because Lim had a simple lifestyle with few expenses, but her money was rapidly being depleted.
Meanwhile, DeMotta continued as the bank’s assistant manager.
In late 2004, DeMotta allegedly used Lim’s money to open an I-Plan account at the Hawaii Kai Bank Branch under her own father’s name.
The indictment alleges that this money was supposed to go to the Internal Revenue Service and State Tax Collector to pay Lim’s taxes.
But instead, DeMotta allegedly deposited more than $200,000 from the money into an American Savings I-Plan account.
As a result, DeMotta’s Hawaii Kai Branch won a company-wide competition in December 2004, and employees and management personnel subsequently received bonuses of $1,000 and $5,000 each.
Bank Security Manager Bert Corniel pushed for the bank’s senior management to aggressively pursue an investigation into DeMotta and to reimburse Lim the full amount that was stolen.
Instead, the bank’s senior officials claimed they believed DeMotta’s claim that she borrowed the money and that it had all been repaid.
American Savings management wanted to make sure it was on record that DeMotta “borrowed” the money from Lim.
On February 2005, DeMotta picked up three bank employees from the legal and human resources departments and took them to meet with Lim.
Bank general counsel Stanley Chong, who suggested the meeting, went along in hopes that Lim would sign a statement saying she had in fact lent DeMotta the money. With big smiles, and candy and flowers in hand, the four bank employees arrived at Lim’s home with the release. She signed it.
“Mrs. Lim was in no condition to turn them down. She would have agreed to anything to anyone who was nice to her,” attorney Lyle Hosoda said about his client Ada Lim, maintaining his client was improperly manipulated.
DeMotta was fired from the bank in 2005, but was able to secure a job with a local mortgage company.
Corniel filed a complaint with the FBI in 2005 saying DeMotta alleged stole more than $1 million from Lim between 2003 and 2005. It was his report that triggered a federal investigation by four federal agencies.
Corniel was fired from the bank in June 2006.
Two Lawsuits Filed Against Bank Aug. 2, 2006
Corniel filed a lawsuit on Aug. 2, 2006, in First Circuit Court, alleging that he was fired in retaliation for blowing the whistle on the cover-up of DeMotta’s theft by the bank’s top senior officials.
Ten days after Corniel was fired, FBI agents seized his computer and files from the American Savings Bank security headquarters. Sources say federal agencies investigating the case feared evidence might be lost or destroyed. Hawaii Reporter broke that story on Aug. 12, 2006.
Federal agents also issued at least a half-dozen subpoenas in the fall of 2006 to American Savings Bank senior management officials in preparation for a grand jury proceeding at Hawaii’s U.S. District Court.
Federal agents from at least four departments have been involved in the case, including the FBI, U.S. Attorney, Office of Inspector General for Tax Administration and Department of the Treasury. U.S. Attorney Ed Kubo says in his Nov. 30 release that these federal agencies continue their investigation.
Corniel’s lawsuit against American Savings was settled in 2007 for an undisclosed sum on the condition that Corniel agree to strict confidence in terms of the settlement and what he uncovered during his investigation while at the bank.
Meanwhile, Lim also sued American Savings Bank, filing her lawsuit on Aug. 2, 2006 -- the same day as Corniel’s in First Circuit Court.
Lim’s attorney, Lyle Hosoda, said that American Savings, which had been notified twice about DeMotta before she took Lim’s money, did not take action to stop her -- at least not in time, and as a result, DeMotta transferred Lim’s money to a series of accounts benefiting DeMotta and her family members.
Specifically, Lim’s lawsuit alleged that $304,000 went to DeMotta’s account at the Bank of Hawaii; $212,000 went into DeMotta’s father’s retirement fund in American Savings; $110,000 in cash was used to purchase a condo in Waipahu in DeMotta’s own name. In addition, records show another $57,000 going to pay DeMotta’s credit card debt, and several thousand dollars both transferred to the Philippines and set up in a local account for DeMotta’s children.
Hosoda says the bottom line is Lim’s money disappeared within a few months and the 91-year-old is penniless. She once made $9,000 a month from rent and social security and believed she was set financially for life. But Lim was left unable to afford the rent in the East Oahu elderly care home and was forced to move out into low-income housing in Red Hill.
Worse, Lim’s taxes were not even paid, even though she believed the $304,000 was going to pay her taxes and signed cashiers checks prepared by DeMotta for that amount. Today, Lim owes nearly $500,000 in back taxes and penalties for the sale of the property and at this point, has no way to pay the government.
Bank president and Chief Executive Officer Constance Lau, who also serves as president of the Hawaii Bankers Association, and was named by U. S. Banker magazine as one of the top 25 most powerful women in banking and “Business Leader of the Year” in 2004 by Pacific Business News, did not speak publicly about either the civil lawsuits or criminal federal investigations into American Savings Bank.
But in a series of press releases, Lau adamantly denied American Savings Bank has done anything illegal.
On Tuesday, Aug. 22, 2006, American Savings asked the state’s First Circuit Court to dismiss the two lawsuits against the $6.9 billion financial institution and subsidiary of the state’s second largest company, Hawaiian Electric Industries.
In a 10-page filing, the bank attorneys maintained “there have never been any actions by American Savings Bank to conceal any improprieties by bank personnel." The filing also states former security manager Corniel was never coerced or kept from submitting any reports required by law.
After considerable negative press in the local and national trade press, however, American Savings Bank, in a dramatic turn, agreed to a settlement with Lim.
Neither Lim’s attorney, nor the bank, would discuss the terms of the arrangement, which was announced on Sept. 18, 2006, but her settlement is reportedly more than $1 million.
Bank Hires Top Guns, Fights Federal Inquiry
American Savings Bank, Hawaii’s 3rd largest bank with $6.7 billion in assets, retained Washington D.C.-based law firm of Fried, Frank, Harris, Shriver & Jacobson LLP to defend the bank during the federal inquiry.
One of the attorneys hired was former U.S. Department of Justice Inspector General Michael Bromwich, who since entering private practice 7 years ago, has defended both financial and other corporations under investigation by government agencies.
While working with the Department of Justice, he attempted to prosecute Oliver North during the Iran-Contra controversy in the late 1980s and investigated government agencies for their management of such crises as Oklahoma City bombing and the 1993 terrorist attack on World Trade Center.
Bromwich’s experience and that of his co-counsel, Thomas Vartanian, who is an expert in banking law, makes the firm the ideal one to defend the bank against any criminal or civil charges, sources say.
Behind the scenes, the bank’s board and attorneys brokered a deal with the federal U.S. Attorney’s office to delay any indictments while the bank conducted its own audit.
After the bank’s audit was completed and turned over to the U.S. Attorney, key bank employees involved with this case suddenly left the bank.
That includes Abel Malczon, senior vice president of operations, who was considered one of the bank’s most powerful and politically connected officers; and Stanley Chong, general counsel for the bank, who sent the delegation of four employees including DeMotta to get Lim’s signature on the form that stated DeMotta had borrowed the money from her. Wilson Ho, the bank branch manager supervising DeMotta during her alleged crime spree, was transferred to another branch and ultimately demoted. Ken Newman, brought in to replace Corniel when he was fired, also left the bank in recent weeks.
Financial experts familiar with the case say the federal investigation could lead to criminal charges against bank officers, and if they are proven serious enough, the bank could lose its federal charter.
DeMotta Maintains Her Innocence
All along, DeMotta has dismissed any allegations of wrongdoing.
In an interview with Hawaii Reporter in the fall of 2006, DeMotta explained that she was not responsible for Lim losing nearly $1 million.
DeMotta says that she befriended Lim while Lim lived in a Hawaii Kai elderly care home and “became like family.”
DeMotta told Hawaii Reporter that she did not steal any of Lim’s money. She says she merely "borrowed" $304,000 from Lim to “help her out” and paid her back on time and in full. She admits she put $212,000 in her father’s retirement account during a related bank promotion, but she says that money was part of the $304,000.
“Mrs. Lim wanted me to invest her money and I could not find anything that was good in the short-term so I borrowed it and gave her 2 percent interest. I did not need the money. I have plenty of my own.”
DeMotta says she took the $110,000 from the Lim family for a Waipahu condo purchase. DeMotta bought the condo in her name, even though she says she did so as an investment on behalf of the Lims. They were repaid $125,000, DeMotta maintains, saying she kept the additional $55,000 in profit from the condo resale of $180,000 because “she earned it.”
She says she realizes now that she probably should not have borrowed money from a customer, or volunteered to help her with her finances or tax preparation, but that she was not responsible for Lim being forced to move from her Hawaii Kai elderly care home into a low-income housing complex in Red Hill.
DeMotta blamed Lim’s daughter and granddaughter for financially taking advantage of Lim to the point where the senior citizen was impoverished.
But public records show DeMotta emerged from bankruptcy in 2003. She told Hawaii Reporter she was on the financial rebound after her parents’ Waimanalo home was sold. Public records shows the Waimanalo home was sold in 2005, however, not in 2003.
Under bank rules, DeMotta was not allowed to represent herself as a financial planner and tax specialist or to even touch the client’s money. Despite this mandate, DeMotta says she was only going out of her way to make sure Lim was a "satisfied bank customer."
“American Savings is a family-oriented bank, which encouraged employees to go out of their way to help customers,” DeMotta told Hawaii Reporter.
Saddened that she was fired from the bank in 2005 for "unrelated reasons," DeMotta says she realizes that she should not have “helped” Lim with her finances, even though she was only doing so out of the goodness of her heart.
She says because she was generous to Lim, her own family is suffering.
American Savings Bank’s public relations officials did not return calls or emails to Hawaii Reporter by press time to comment on this indictment.
Federal officials would not comment on whether other bank officials will be charged in this case, and would only say the investigation involving four federal agencies is ongoing.
Malia Zimmerman, editor and president of Hawaii Reporter, can be reached via email at mailto:Malia@hawaiireporter.com
May 21, 2007
ASB settles second suit
Pacific Business News (Honolulu)
American Savings Bank has settled a lawsuit with its former security chief who had accused the bank of covering up the theft of hundreds of thousands of dollars from an elderly customer.
It is the bank's second settlement in eight months over the same issue. The details of the settlement were not made public.
Bert Corniel, the former security director for the bank, sued American Savings Bank, accusing executives of covering up an assistant manager's theft from customer Ada Lim.
In the 17-page lawsuit filed Aug. 2 in 1st Circuit Court in Honolulu, Corniel accused American Savings Bank CEO Constance Lau of attempting to "coerce" him to "conform and recharacterize" fraud losses that escalated between 2002 and 2004.
Corniel said he was was passed over for a promotion in 2004 because of his efforts to report financial irregularities at the bank. He resigned from the bank last June.
Dawn Dunbar, the bank's corporate communications manager, released this statement Monday: "Although we cannot comment on the specifics of the settlement, we believe that this resolution of the matter is in the best interests of American Savings Bank. We are pleased to put this matter behind us and continue our efforts to best serve our customers and communities."
John Mackey, an attorney with the Torkildson Katz Fonseca Moore & Hetherington firm, which represented American Savings, said he would not comment on the settlement. Calls to Corniel's attorney, Brandee Faria with John Francis Perkin, were not immediately returned.
American Savings Bank, Hawaii's third-largest bank, settled a lawsuit last September filed by the 91-year-old Lim. Lim charged the bank failed to protect her from the bank branch employee who befriended her and allegedly drained $900,000 from her account.
In a statement last August, Lau said the facts alleged in the lawsuits were "untrue" and the claims against the bank "outrageous."
"At the end of the day, I expect the bank to be fully exonerated," Lau said.
Chad Blair
http://pacific.bizjournals.com/pacific/stories/2007/05/21/daily9.html
December 11, 2006
American Savings report
raises 'red flags'
By Rick Daysog, Advertiser Staff Writer
An American Savings Bank senior vice president rewrote an in-house report last year on a bank employee's alleged theft of $600,000 from an elderly customer to delete any reference to the customer losing money.
Corporate governance experts say it is unusual for a bank to remove information from a report intended to alert top executives to potential problems.
In February 2005, American Savings Bank security director Bert Corniel learned that a supervisor at the Hawai'i Kai branch took hundreds of thousands of dollars from a 92-year-old customer, Ada Lim. Corniel wrote a 150-word report alerting bank officials of the incident.
Corniel's supervisor, Abel Malczon, the bank's senior vice president of operations, reduced Corniel's report to 65 words, taking out the part about a bank employee taking money from Lim.
The short version was submitted to the bank's disclosure committee, which reviews cases of possible fraud.
"This has the appearance of someone trying to downgrade the gravity of the situation," said banking consultant Tom Tarter, a former president of the Bank of Los Angeles who now advises financial institutions on corporate governance issues. "This is a totally inappropriate action and makes you wonder how other frauds and other problem areas are treated by the bank."
American Savings Bank, the state's third-largest financial institution, said it did nothing wrong, but cannot comment on specifics of the case because of a pending lawsuit and a federal grand jury investigation into the matter.
Dawn Dunbar, American Savings' spokeswoman, said last week the company acted properly. Malczon declined comment and referred all questions to the bank.
American Savings CEO Constance Lau said in a written statement on Aug. 16, after news broke that a bank employee took money from an elderly customer, that the "bank did not in any way, shape or form cover up anything."
When asked about changes to Corniel's report, Dunbar said: "Unfortunately, we cannot respond fully to these allegations because this matter is still pending before the court."
"We are confident that when the facts do become known, it will be clear that American Savings Bank has acted lawfully and properly."
Corniel sued the bank on Aug. 2, claiming bank officials retaliated against him and passed him over for a promotion because of various disclosure reports he filed.
Lau, in her August statement, said Corniel was a "disgruntled former employee."
Corniel's report and Malczon's revisions are key exhibits in Corniel's lawsuit in state Circuit Court. In the lawsuit, Corniel alleges that an operations supervisor at American Savings' Hawai'i Kai branch, Marilyn De Motta, took hundreds of thousands of dollars from Lim between August 2004 and December 2004, and that the bank later tried to cover up the fraud to avoid reporting the losses to its regulators.
To back up Corniel's contention, he filed with the court copies of e-mail messages from Malczon, his supervisor, about the edited report.
"Here is the revised report talked about in management," Malczon wrote in the e-mail to Corniel on Feb. 25, 2005. "Management would prefer no names (of the victim or bank employee) be used."
Malczon added, "If you are not comfortable submitting this under your banner, I understand and will submit it under my name."
Lim, the 92-year-old customer, also filed suit against American Savings on Aug. 2, but the bank settled that lawsuit in September for undisclosed terms.
A federal grand jury recently opened an investigation into the alleged fraud and the bank's handling of the case.
The audit committee of the Hawaiian Electric Industries Inc. board also has opened an investigation into the matter. HEI is the parent company of American Savings.
Founded in 1925, American Savings has about $6.9 billion in assets, 64 branches and about 1,400 employees.
The in-house reports on the Lim incident weren't the only reports bank officials changed.
In sworn testimony taken by Corniel's attorneys, bank officials said they amended a "suspicious activity report" written by Corniel on the Lim matter and filed with federal regulators. The bank officials did not say in their testimony why the report was amended or what was changed.
The bank's CEO, Lau, said in a deposition she gave in the Corniel lawsuit that Malczon directed a staff attorney to change Corniel's initial report. Lau did not provide details on the changes.
Bank spokeswoman Dunbar declined to comment on Lau's testimony and the changes to the report, citing federal laws prohibiting the disclosure of the contents of such reports.
Suspicious activity reports are required of all banks, stock brokerages and casinos when they suspect fraud, money laundering or any other illicit activity involving $5,000 or more.
If the alleged abuse involves a company insider, the financial institution has to file a suspicious activity report regardless of the amount of the loss. A false suspicious activity report could result in criminal prosecution and fines for a company, said Sarah Welling, law professor at the University of Kentucky and an expert on money laundering. Failure to file such reports also can lead to civil penalties.
Banking consultant Tarter, who reviewed American Savings Bank e-mails and disclosure committee reports at the request of The Advertiser, said the way the bank reported the Lim case to its internal disclosure committee fell well below "industry standards that require full disclosure."
Tarter said American Savings' disclosure committee should have been given all of the facts surrounding the alleged fraud against the elderly customer. Full disclosure would allow the bank's senior management and its board to decide whether the bank had to reimburse the customer and whether to set aside reserves for the potential loss, Tarter said.
American Savings' disclosure committee, whose members include senior bank managers, was created in response to the Sarbanes-Oxley corporate reforms several years ago. The committee reviews corporate governance issues for the bank.
American Savings spokeswoman Dunbar declined to discuss the duties and makeup of the bank's disclosure committee.
James Spindler, a corporate governance expert and law professor at the University of Southern California, said amending Corniel's original report probably did not violate any laws from a corporate governance standpoint, because the losses involved aren't material to the bank's earnings.
But Spindler said investors don't look too kindly when managers shift "numbers around to cover up bad things" and don't inform the company's board of such problems.
"This is something that raises some red flags," said Spindler.
September 30, 2006
Bank data subpoenaed in
alleged $600K theft
By Rick Daysog, Honolulu Advertiser
A federal grand jury has subpoenaed documents from American Savings Bank to investigate the alleged theft of hundreds of thousands of dollars from an elderly bank customer and the bank's response to the reported theft.
The 23-member panel issued a blanket subpoena earlier this month for copies of company e-mails, financial statements and other records, people familiar with the investigation said. The sources asked not to be identified because the investigation is ongoing.
The grand jury's subpoena comes on the heels of two civil lawsuits filed on Aug. 2, one by a 91-year-old bank customer, Ada Lim of Moanalua, and the other by the bank's former director of security, Bert Corniel.
The suits charged that Marilyn De Motta, an operations supervisor at the American Savings' Hawai'i Kai branch, took $600,000 from Lim. The suits also alleged that the bank tried to cover up the theft.
American Savings CEO Constance Lau said in a written statement last month that the bank "did not in any way, shape or form cover up anything."
The grand jury's investigation is not limited to Lim's theft allegations but also is examining American Savings' conduct, according to the sources.
The panel is an investigative grand jury, meaning that it was convened to gather evidence and may not file criminal charges depending on what it finds.
When asked for comment on the grand jury, American Savings spokeswoman Dawn Dunbar said in an e-mail, "While we cannot speak on behalf of the FBI, it is important to note that American Savings Bank has been cooperating and will continue to cooperate with all governmental authorities."
Assistant U.S. Attorney Ron Johnson, who prosecutes federal crimes in Hawai'i, could not be reached for immediate comment.
COMPUTER SEIZED
No criminal charges have been filed in the case, but FBI agents last month seized Corniel's computer and interviewed Corniel and other witnesses.
Lim settled her lawsuit with the bank on Sept. 18. Terms of the settlement were not disclosed.
Lyle Hosoda, attorney for Lim, said in a news release at the time that "Ms. Lim recognizes that this was a unique situation and both parties are fully satisfied that the settlement is both amicable and fair."
Corniel's suit is still pending.
De Motta's attorney, Emmanuel Guerrero, declined comment yesterday on the grand jury investigation.
NOTED LAWYER HIRED
Established in 1925, American Savings is the state's third largest financial institution with $6.7 billion in assets. The bank is a subsidiary of Hawaiian Electric Industries Inc.
American Savings recently retained high-profile Washington, D.C., attorney Michael Bromwich to assist the bank with the federal investigation.
Bromwich of Fried, Frank, Harris, Shriver & Jacobson LLP, is a former inspector general at the U.S. Department of Justice and was part of the federal government's legal team that prosecuted Iran-Contra figure Oliver North in the late 1980s.
Bromwich did not respond to an e-mail yesterday seeking comment on the grand jury investigation.
August 16, 2006
FBI probes bank over
alleged fraud cover-up
By Rick Daysog, Honolulu Advertiser
The FBI is investigating claims that American Savings Bank officials tried to cover up theft, including one case in which a bank employee allegedly took several hundred thousand dollars from a 91-year-old customer.
FBI agents interviewed the bank's former security director Bert Corniel yesterday after he charged in a lawsuit that the bank asked him to stop reporting fraud cases to federal and state officials, said John Perkin, Corniel's attorney.
Assistant U.S. Attorney Ron Johnson, who prosecutes federal crimes in Hawai'i, said yesterday he could not confirm or deny that an investigation is under way. A person at the Honolulu FBI office said late yesterday the bureau had no immediate comment.
The bank said the charges are false and it is cooperating with the FBI investigation.
"Although we cannot comment on the investigation, we can say that we have and will continue to cooperate and provide investigators with all the relevant information as it is requested," said American Savings Bank in a written statement. "Mr. Corniel's concerns ... were thoroughly investigated and found to be without merit."
Corniel and bank customer Ada Lim, 91, alleged in separate lawsuits filed on Aug. 2 that a manager at a bank branch took hundreds of thousands of dollars from Lim.
Lim deposited more than $600,000 into her American Savings account in 2004, only to have most of the money siphoned out of her account by the bank employee, who was helping to manage Lim's finances, the lawsuits allege. The bank employee opened an account with Bank of Hawaii and deposited various sums from Lim totalling $304,000, according to Lim's lawsuit. The bank employee bought a condominium using $110,000 of Lim's money, the suit claims.
Corniel said in January 2005, when he was investigating the Lim case, the bank employee confessed to him that she took the money. American Savings officials said the transfer was a loan from Lim to the employee, Corniel said.
Corniel said American Savings officials told him not to report the fraud as required by law to federal regulators and law enforcement agencies such as the FBI, Office of Thrift Supervision and the Federal Deposit Insurance Corp.
Several American Savings employees went to Lim's house in February 2005 with gifts and to get her to sign a document exonerating the bank, according to the lawsuits.
$200,000 SHORT
Lyle Hosoda, Lim's attorney, said the bank returned most of Lim's money but still owes her about $200,000. No criminal charges have been filed against the bank employee, but Hosoda said an Internal Revenue Service investigation of the employee is under way.
Craig Togami, American Savings marketing and communications director, said yesterday the bank would not respond to specific allegations in the two lawsuits. Togami said he could not comment beyond what it said in the written statement.
"American Savings Bank believes that this entire lawsuit is without merit," the statement said. "There are many factual errors in the complaint. ... We look forward to telling our side of the story more fully at the appropriate time."
The bank's statement also cast doubt on the motivation of Corniel. In June, Corniel resigned from the bank, saying he was pushed out.
"To understand what truly happened, there are some facts to keep in mind: Security today goes well beyond physical security, and so the bank decided to emphasize protection of security of information systems and computers; Mr. Corniel, whose background is in physical security, was not selected for the newly created position of VP Security; Mr. Corniel voluntarily resigned after repeated efforts by the Bank to have him stay," the statement said.
PRESIDENT IMPLICATED
Corniel's lawsuit also charges that Constance Lau, the president of the bank, asked him to "recharacterize" the bank's fraud losses as "potential losses" in his reports to federal regulators.
Lau became chief executive of American Savings' parent company, Hawaiian Electric Industries Inc, in May. Togami said Lau was traveling and could not be reached for comment....
FBI agents seized Corniel's computer at American Savings' downtown headquarters on Friday in search of e-mails and other electronic records, which could demonstrate Corniel's allegations, according to Perkin, Corniel's attorney.
Corniel is a retired Honolulu police officer and a former investigator with the city prosecutor's office who was hired as American Savings' security director in 2000.
In his lawsuit, Corniel mentions a second incident, involving two bank tellers and a customer who allegedly defrauded the bank of $256,000 in April and May 2005. Corniel said he filed reports with federal regulators and law enforcement officials, including the FBI, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.
But bank officials recharacterized the losses as expenses or charge-offs and his immediate supervisor told Corniel that his filings with federal authorities could cost him his job, the lawsuit claimed.
August 18, 2006
FBI began bank probe in '05
By Rick Daysog, Honolulu Advertiser
The former American Savings Bank employee accused of taking hundreds of thousands of dollars from a 91-year-old customer said FBI agents have been investigating her case for more than a year.
Marilyn De Motta, an operations supervisor at American Savings' Hawai'i Kai branch before she was fired in February 2005, said FBI investigators questioned her in March 2005 about allegations she took money from Moanalua resident Ada Lim. The FBI interviewed her a second time earlier this year and the Internal Revenue Service joined that session, De Motta said.
An FBI spokesman yesterday would not confirm or deny that an investigation is under way.
Lim alleged in a lawsuit filed Aug. 2 that De Motta approached her and offered assistance with her finances. Lim also alleged De Motta instructed her to deposit $688,669 into an American Savings account. Lim alleged De Motta took $304,000 from Lim's account starting in 2004 and later got Lim to sign a document saying it was a loan paying 2 percent interest.
In a separate lawsuit also filed on Aug. 2, Bert Corniel, the former security director for American Savings, alleged that he interviewed De Motta in January 2005 while she was still working at the bank and she "confessed that she took Ms. Lim's money." Corniel also alleged the bank was "aware of this situation as early as July 2004, but no disciplinary action was taken." Corniel alleged the bank "attempted to cover up De Motta's fraud as a loan."
American Savings CEO Constance Lau on Wednesday said the bank did not "in any way, shape or form cover up anything" in a written response to allegations in the two lawsuits.
The bank said on Tuesday it is cooperating with the federal probe.
De Motta spoke to The Advertiser on Wednesday and said Lim authorized all the transfers of funds to De Motta.
De Motta said she initially didn't want to help Lim with her finances. But De Motta said she felt pressured by Lim, who made repeated phone calls to get her to help....
De Motta, who worked for American Savings for 13 years, also faulted the bank for not adequately supervising her.
"It's not like me to blame someone else, but why didn't anybody hold me and slap me in the face at the time? Instead, they're watching me and throwing me away," De Motta said.
When asked why De Motta borrowed money from a 91-year-old customer, De Motta declined to answer.
"It will be proven in court why I did it," De Motta said. "I'm dying to tell people what happened."
De Motta has not been charged with a crime in this case.
John Knorek, American Savings Bank's attorney, said Wednesday the bank's code of conduct committee began an investigation of De Motta in January 2005 and fired her the following month.
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