Check-kiting Suspect Had Built Up Trust With Bank

January 19, 1992|By Michael James | Michael James,Staff writer

A Howard County government employee who allegedly stole $93,000 froma local bank in a check-kiting scam had built up 15 years of trust with bank officials, who were duped by a con job similar to one used by unscrupulous corporate investors.

"We're not going to get into the 'how-to' of this," said Dick Jennison, the vice president of Citizens Bank of Maryland. "There's a lot of it going on, and nothing's going to prevent it from ever happening again. So we're not going to tell people how it's done."

Jennison said the bank was evaluating its policies, but he said he doubts any safeguard would insure against the check-kiting scheme allegedly deployed for the last six years by Lavida B. Smith, 40, of Columbia.

Smith, who has worked for 10 years as an administrative aide in the county finance department, was arrested by FBI investigators Monday at her job and charged with four counts of bank fraud. It is not suspected, however, that county money was used in the alleged scheme.

An FBI indictment alleges that Smith used her two personal bank accounts in a scheme in which she made daily visits to Citizens Bank in Ellicott City and the Bank of Baltimore in Columbia.

The check-kiting plan, say federal investigators and area finance experts,was not unlike the "money-floating" ploy that netted illicit big-business investors millions of dollars in the E. F. Hutton scandal of 1985.

Check-kiting takes advantage of the three to five "working days" that banks require to process a check through the money-changing system. In the time that it takes one check to clear, a person or business may cash several other checks and deposit them in another account.

The result is that the account becomes inflated for three to five days until the checks clear. In Smith's case, FBI officials said she continued to stay at least one day ahead of the floating checks for six years, and with each passing week she increased the amounts of the checks.

"You could be a millionaire if it didn't drive you madfirst," said Clifford Thies, an associate professor of economics at the University of Baltimore. "Banks today have a tendency to be too liberal with check cashing, and that's where trouble starts."

According to federal investigators, Smith's reputation as a respected county official and her good standing as a longtime customer of the bank enabled her to pull off the scheme. She had been a Citizens Bank account holder since 1976.

Smith started in December 1985 with no morethan $100 in her Bank of Baltimore checking account. She began writing checks -- usually for amounts of $1,000 or more -- on that accountto obtain cash, money orders and treasurer's checks at Citizens Bank, said Andrew Manning, an FBI spokesman.

Before her personal checkcould be processed, Smith would deposit the money order or treasurer's check back into the Bank of Baltimore account, Manning said. She would then return to Citizens Bank within the next 24 hours to purchase another money order.

In the three- to five-day time period that it took for her personal checks to be processed, Smith would sometimes purchase two or three other money orders, putting her anywhere from$2,000 to $6,000 "ahead of that first check," Manning said.

Whileher account was inflated in such a manner, Smith allegedly "skimmed"a small percentage from the excess money, which amounted to $93,000 over a six-year period, Manning said.

Smith faces a $10,000 fine and up to five years in jail for each count of bank fraud. She is scheduled to appear for an arraignment in federal court on Friday and hasbeen ordered to check in with a pretrial services counselor three times per week.

Co-workers said Smith, known as a stylish dresser who spoke of hoping someday to own a clothing and fashion boutique, is well-liked and a model employee in the water and sewer billing department. Smith computes county residents' billing charges.

"She does her work very well, and she is a kind person. You can't help but likeher," said Avis L. Corbin, chief of the county licenses and permits division. "The office is very upset about all this."

County Administrator Raquel Sanudo said that although Smith could be dismissed if she is convicted of the charges, she is currently on personal leave and may return to work when she wishes.

Auditors are checking the books in the office, but "At this point we have no indication that anyimproprieties were committed," Sanudo said.

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