The state ordered a chain of Baltimore check cashing stores to cease operations last week because of debts owed to a money order business and three Maryland banks, according to a document obtained yesterday by The Sun.
The Maryland Commissioner of Financial Regulation issued the order Thursday, alleging that A&B Check Cashing and its parent corporation, Colleen Inc., had hundreds of thousands of dollars in "outstanding, unpaid obligations" to Global Express Money Orders Inc. of Silver Spring, Farmers and Merchants Bank of Upperco, Carrollton Bank of Baltimore and Baltimore County Savings Bank.
BCSB revealed Thursday night that it had lost $6.9 million - the equivalent of seven years' profits - in a check-kiting scheme perpetrated by an unnamed "commercial deposit customer" that had filed for bankruptcy. The state's order did not mention check kiting or link the debt that it uncovered to the loss that BCSB subsequently disclosed.
A&B and Colleen Inc., which were BCSB customers, sought bankruptcy protection Wednesday. The bankruptcy petition was filed six days after A&B's majority owner, Alec C. Satisky, died of a self-inflicted gunshot wound at the company's headquarters, according to Baltimore police and the state's medical examiner.
The businesses had shut down voluntarily by the time the state's order was issued. In its bankruptcy filing, Colleen Inc. said it had $11.8 million in debts and $467,000 in assets. The listed debts included $5 million each to Baltimore County Savings Bank and Carrollton Bank, and $1.8 million to Global Express.
The company had about 20 locations in the region and was run by Alec and Brian I. Satisky. Brian Satisky, Alec Satisky's brother, was named a "check casher of the year" in 2003 by Financial Service Centers of America, a trade association that lists him on its Web site as a board member and president of the Maryland chapter.
Alec Satisky's widow, Deborah S. Satisky, did not return calls yesterday; neither did Brian Satisky. Colleen's bankruptcy attorney, Marc R. Kivitz, declined to address the allegations.
"I have no comment in response to any questions you might ask me," Kivitz said.
Carrollton Bank did not return calls yesterday, and managers at Farmers and Merchants Bank were unavailable.
Global Express Money Orders had worked with Colleen for more than a dozen years and still had a recommendation from Brian Satisky displayed on its Web site's home page yesterday.
According to Global Express' attorney, David Musgrave, customers would go to A&B to get money orders or pay bills. Global Express would issue the money orders or pay the bills, then seek repayment from A&B for the funds it had advanced. But on June 23, when Global Express sought such a repayment, the money wasn't there.
It filed for a judgment against Colleen Inc. in Baltimore County Circuit Court the same day and was awarded more than $1.8 million against Brian, Alec and Deborah Satisky. The judgment was automatically halted by the bankruptcy filing, Musgrave said.
Elizabeth L. Williams, a senior staff officer for the Maryland Department of Labor and Licensing, said her office opened an investigation into Colleen Inc. on June 27, as soon as it received a complaint from a bank that Colleen was involved in "check kiting." She said she could not identify the bank, although an attorney for BCSB said it was not his bank.
Two days later, the department issued the cease-and-desist order.
"What we have determined so far is, we don't have any indication that consumers are going to suffer any losses," which is her department's main concern, Williams said. No other complaints have been filed against A&B or its parent.
Check kiting is essentially "robbing Peter to pay Paul," said Stuart Greenberg, a Baltimore banking consultant who says he is frequently called to offer expert testimony on the practice. Essentially, the perpetrator will write a bad check on one account, deposit it into another account, and then write a second check to cover the first before either institution figures out what's going on.
Baltimore County Savings Bank, which also said that customers would not be affected by the loss, would not comment yesterday on the identity of the commercial customer thought to have defrauded it.
"When these things happen, we have to investigate, determine what happened, take appropriate action and move forward," said David Meadows, general counsel for the bank's parent company, BCSB Bankcorp Inc. "As far as all these other players are concerned, I can't really comment."
A&B Check Cashing set up shop 33 years ago, expanding to about 20 locations throughout the city.
In early 2000, it was accused of making short-term, high-interest loans to hundreds of Maryland consumers known as "payday lending." At the time, Brian Satisky said the service, which essentially allowed people to post-date checks to borrow from their next payday, was necessary for residents who needed access to cash.