I was browsing Justice Department records this morning and noticed a fraud case which allegedly cost First Hawaiian Bank more than $2.5 million.
According to an Justice Department press release, Stephen M. Kraut, the general manager of a Tracy, California auto dealership, was indicted on multiple counts of fraud that allegedly took place between 2005-2007.
A sealed indictment was issued on April 30, 2009 and made public two weeks later following Kraut’s arrest. It alleges FHB had a financing agreement with a Tracy Chevolet in Tracy, California. The deal with First Hawaiian gave the dealership a $12.1 million line-of-credit to buy new and used cars from third-party dealers. The dealership would submit paperwork for cars it was purchasing for its inventory and eventual sale to consumers, and FHB would advance the funds. When the cars were sold, FHB would be repaid.
But the government alleges many of the cars identified in the financing applications were never actually purchased, and the money instead diverted to the dealership’s operating expenses and personal use by the general manager.
According to the indictment, the financing agreement originated with Citibank (West) FSB in June 2005. FHB “assumed this contract” a year later.
The indictment alleges that the general manager of the dealership directed the preparation of fraudulent checks which appeared to document the dealership’s purchases but were never sent or negotiated. The dealership also submitted false invoices that listed cars it sought financing to purchase, but in fact were never purchased.
The total amount involved in the fraud is said to have “exceeded $2,500,000,” although some of that was returned to FHB in the form of “lulling payments…in order to continue to fraud scheme.”
The reported $2.5 million would make it a pretty big bank fraud for First Hawaiian, but I couldn’t find any local news coverage of the case here in Hawaii.
Kraut entered a plea of not guilty and is awaiting trial in California.