Ex-thrift official charged with fraud Prosecutors allege fictitious loans

November 22, 1991|By Brian Sullam

Federal prosecutors yesterday charged the former vice president of Augusta Federal Savings Bank and 11 others with contriving schemes to defraud the S&L, which the federal government took over in April because of its weak financial condition.

Robert Schmuff, 52, of Sparks was charged with allegedly creating an elaborate "loan-kiting" scheme that involved approving fictitious car, boat and equipment loans to cover losses created by earlier fictitious loans.

The government alleges that within one month after taking control of Augusta's consumer loan department in 1987, Mr. Schmuff approved a $58,000 boat loan to a non-existent borrower. He then developed a pattern of approving loans to non-existent borrowers, friends or customers of a car dealership in which he had an ownership interest.

In all, prosecutors charge, Augusta lost $500,000 to $1 million due to the fraudulent loans Mr. Schmuff approved during the 2 1/2 years he ran the S&L's consumer lending department.

The S&L lost about $2 million more because Mr. Schmuff approved loans to high-risk borrowers who did not repay their loans.

Even though Augusta's consumer lending department generated a large number of bad loans, no one else in the thrift knew about it because Mr. Schmuff controlled the department and did not require any other officer to approve the loans. Shortly after his dismissal in the spring of 1990, Augusta officials discovered the fraudulent loans and called the FBI.

The large losses generated by Augusta's consumer lending department depleted its capital and forced the Resolution Trust Co. to take over the S&L last April and reorganize it as Augusta Federal Savings Association.

At the time of the take over, Augusta had a negative net worth of more than $3.5 million. The S&L, which had eight branches in the Baltimore area, had $157.1 million in assets and $160.7 million in liabilities, the RTC said.

Mr. Schmuff was the only thrift officer to be indicted. The 11 others indicted were friends, business associates and borrowers. Federal officials said four others have been charged in criminal complaints that have been sealed.

The criminal information alleges that Marble Arch, a Timonium auto dealership partly owned by Mr. Schmuff, played a key role in the fraud. No matter how bad the credit histories of the dealership's customers, Mr. Schmuff approved their auto loans.

Donald Cohen, 46, the other co-owner of Marble Arch, was charged with receiving more than $121,000 in loans for a forklift and a boat that were never purchased.

Three other Marble Arch employees were also charged with participating in the scheme: Daniel Silverman, 34, company president; Evelyn Arlene Duggins, 59, company bookkeeper; and Carlo Sagastume, 32, a part-time salesman.

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