River City Joins the RW Professional Fray--but Sues Crawford
by Mark Anderson, Staff Writer, Sacramento Business Journal
River City Bank, Sacramento( state capital of California,) is suing a New York company that sold it $1.3 million in medical equipment leases, some of which turned out to be bogus.
The company that supposedly owned the equipment is at the center of what investigators call an elaborate ruse that scammed banks across the country out of perhaps $200 million.
Federal agents last year raided the New York offices of RW Professional Leasing Corp., which they accuse of using a string of mailboxes, fake documents and fraudulent financial histories to further a scheme to defraud banks on brokered leases.
River City Bank bought some of that company's leases two years ago through an intermediary, Crawford & Sons Ltd., and it is suing Crawford and other unnamed defendants for fraud, negligence and breach of duty. It accuses Crawford of making representations about the quality and safety of the investments that were either outright false or had never been verified.
In its complaint, filed in Sacramento Superior Court late last month, River City Bank asked for reimbursement and punitive damages from Crawford & Sons, a Fayetteville, N.Y.-based company that brokers secondary-market financial transactions. When companies that lease medical equipment, finance auto or mortgage loans, or provide other financial services need to unload some of their notes to free up cash, Crawford finds investors such as River City Bank to buy the paper.
No one from Crawford & Sons was available for comment. The bank's attorney, Stephen Johanson, also declined to discuss the suit. (Note: Crawford has a suit
along with several other community banks against RW Professional and also has named Bank of New York, as reported in Leasing News in earlier editions. editor)
Bank of New York Co., which according to River City's lawsuit was supposed to have set up an escrow account for payments on the leases but never did so, is also under investigation in connection with the alleged fraud. The New York bank said in regulatory filings this month that it and some of its employees are being investigated, and that two civil lawsuits have been filed against the bank seeking a total of $46 million.
Guarantees and forgeries: According to River City Bank's complaint, filed April 23, Crawford solicited River City Bank in March 2001 to fund RW's medical equipment leases. Crawford allegedly said all its leases were with licensed medical professionals who put a personal guarantee on any lease.
Crawford further characterized the leases as very strong credits, rated at either A or B, which is considered investment grade, the suit said. Crawford also allegedly told River City that the medical equipment had been delivered to the medical offices.
Crawford's client was Island Park, N.Y.-based RW Professional Leasing. RW Professional did make some leases, but it also had a number of fraudulent schemes going, according to a federal indictment in the New York Eastern District Federal Court.
In June 2002, 40 federal agents raided the headquarters of RW Professional. Prosecutors were investigating a nationwide bank fraud with total losses estimated at $200 million. The indictment states RW Professional created a number of elaborate schemes -- and used perhaps 100 rented mailboxes coast to coast -- to send phony checks, fake leases and bogus invoices to banks in various states.
Based on those documents and verifications, banks and brokers were persuaded to lend RW Professional millions of dollars, investigators said. The four principals of RW Professional Leasing were arrested last June. The investigation continues, said agents with the FBI in New York.
River City Bank funded five leases made by RW Professional totaling nearly $1.3 million; the largest was for $412,638 and the smallest for $187,318.
Old reliable ... usually: Equipment leases are generally seen as a good buy for a bank because the equipment itself often helps generate income for a medical office, so the doctor has incentive to keep the equipment and stay current on payments.
But even the best underwriting flies out the window when there's fraud involved. If the leasing company is cooking the books and creating leases and customers, all of its leases can look good on paper.
The schemes used by RW Professional included multiple loans from different banks for a single piece of medical equipment, loans for equipment that was never purchased or leased, and even loans to doctors who don't exist, River City and investigators allege.
The indictment includes some forfeiture allegations where the government sought to impound assets of RW Professional. The investigation continues, as does the search for other assets of RW Professional, said sources with the FBI and the U.S. attorney's office.
River City's executives didn't comment on the suit against Crawford or the circumstances of the fraud.
The bank did write off nearly $1 million at the end of last year, according to the bank's filings with the Federal Deposit Insurance Corp., but the reason for the write-off wasn't stated. That amount could represent most of the money lost in the scam.
River City could get recovery from Crawford, from Crawford's insurance company or even from the money recovered by the government. Neither RW Professional nor Bank of New York was listed as a defendant in the lawsuit, but the complaint includes "John Doe" defendants, a move which allows changes if new evidence identifies other responsible parties.
(Crawford & Sons along with many community banks are also suing RW Professional, as is American Express Business Finance, and it is reported there are several smaller suits being brought against the company. For previous stories, please go here: