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Bank of NY Buys Out of RW Professional Mess

by Kit Menkin

“Bank of New York eats $24,000,000 for not handling the infamous "E" account properly. Barry will never serve time in jail, but the deep pocket guys will roll to cover their ****.”

( Name With Held )

It was no surprise to see shares of Bank of New York Co. fall 1.1% on a report that the company may pay a $24 million fine in order to avoid criminal indictment for allegedly failing to report suspicious activity at a branch.

Manhattan-based Bank of New York's stock fell to as low as $32.62 Tuesday morning; by 10:14 a.m., it was off 0.8%, at $32.74.

As readers have been following our many stories about RW Professional Leasing Company, the case involves litigation regarding the process of securing leases directly and in directory, in a warehouse line to pay to pay upfront equipment costs. RW allegedly told lenders that the loans would be repaid with leasing revenue, which would be paid into escrow accounts at the Bank of New York. Instead, the firm is accused of putting $92 million in loan proceeds into a Bank of New York account and diverting more than $28 million to the leasing firm's owners.

Several principals of RW and a former Bank of New York branch manager, Myrna Katz, were arraigned in federal court in March for their roles in the alleged scheme. They pleaded not guilty.

Bank of New York is in discussions with the U.S. Attorney for the Eastern District of New York to pay a $24 million penalty, cooperate with prosecutors and submit to independent monitoring, reported the Wall Street Journal on Tuesday.

According to an indictment in U.S. District Court for the Eastern District of New York, RW Leasing obtained large loans from banks by saying it needed the money for upfront costs of the equipment. Lenders were told they would be repaid through leasing revenue that went into escrow accounts at Bank of New York. Instead, according to the indictment, RW Leasing put about $92 million in loan proceeds into a single account at Bank of New York, then diverted at least $28 million to the firm's owners.

Prosecutors are contending that, given the quantity of money that went through the RW Leasing account, the bank should have noticed suspicious activity and filed reports with regulators. Banks are required to closely monitor all of their accounts for signs of money laundering, fraud and other financial crimes.

Neither of the lead attorneys would return our e-mail or telephone calls on any matter since the start of the trial, which has been postponed as the man behind the scenes, Barry Drayer, reportedly fired all his attorneys and is pleading to the court he is too broke to pay any legal fees.

The case may go to trial in March of next year. One plaintiff has made a deal, and it is reported a broker named in the suit may turn state evidence, but his involvement appears to be a side issue in the suit.

The “stalling” of the trial makes other things happen, such as Bank of New York with its problems ( reportedly also involving other difficulties than RW Professional.)

Former Sierra Cities President Tom Depping sold off the company before the buyer American Express found problems, resulting in a $20 million pending law suit ( postponed to the criminal case) as well as several other cases involving community banks allegedly scammed with Bank of New York reportedly playing a role.

With American Express out of the leasing business and the lack of money available, it appears the suit may be moot as there is no money to collect or desire to even be reminded of the companies involvement in an industry it should have stayed clear of ( ask the top executives about this and they know where the investment makes the better return—it was never equipment leasing, something Merrill-Lynch is starting to learn.)

It is ironic, as the person who sent Leasing News the information about Bank of New York, seems to echo what is happening in this legal world with Tyco, NorVergence, CMC, and others seemingly able to walk away, as Tom Depping also did, and here we have Martha Stewart in jail because she sold some stock after she received inside information ( as determined by the trial.) Her crime was pocket change compared to these individuals, but perhaps because she was a woman, and a famous one at that, she goes to jail while the men are able to walk free.