Bank a victim of check kiting

$1.2 million lost, Carrollton says


Carrollton Bancorp said yesterday that it suffered $1.2 million in losses, which nearly wiped out second-quarter profits at the Baltimore-based community bank, from a check-kiting scheme that might have victimized another area bank and a money-order business.

Robert A. Altieri, chief executive officer at Carrollton, said the bank suspects the scheme was undertaken by one of its commercial deposit customers, A&B Check Cashing, which operated a string of stores in Baltimore that offered a variety of financial services. State regulators also have said A&B is involved in a possible check-kiting operation affecting Carrollton as well as Baltimore County Savings Bank and Global Express Money Orders Inc. of Silver Spring.

The Maryland Department of Labor, Licensing and Regulation, which issued a cease-and-desist order against A&B last month, referred the case to the FBI, which is investigating.

A&B's parent company, Colleen Inc., has filed for bankruptcy protection in federal court and lists Carrollton, Baltimore County Savings Bank and Global Express as its largest creditors. Brian Satisky and his brother, Alec, owned the check-cashing operation. Alec Satisky committed suicide last month at the company headquarters, according to Baltimore police and the state's medical examiner. Brian Satisky could not be reached yesterday to comment.

Altieri said the bank has sufficient capital to meet banking regulations but declined to elaborate on how the losses were discovered or how the alleged scheme worked. He said the bank has not experienced problems with internal controls, which are designed to be able to detect fraud and accounting errors, despite turnover among its chief financial officers. The bank has had three CFOs in less than two years.

"Our bank is sound," Altieri said. "Unfortunately, there are times when people aren't going to follow the law."

In general, check kiting involves writing a bad check on one account, depositing it into another account, and then writing a second check to cover the first before either institution figures out what is going on. Perpetrators take advantage of the "float," or the amount of money in checks that have not cleared because of a time delay between when a check is written and when funds to cover that check are deducted from an account.

The $1.2 million after-tax loss at Carrollton, to be recognized in the second quarter, would reduce earnings per share by 42 cents. The bank, with assets of $360 million at the end of last year, now expects to report quarterly net income of about $18,000 compared with $868,000 in the first quarter.

The bankruptcy proceeding involving Colleen Inc. is expected to proceed this month when creditors convene a general question-and-answer session in court.

Global Express, which has obtained a court judgment for $1.8 million from A&B's principals, would be the first to collect, said Marc R. Kivitz, a bankruptcy attorney for Colleen. Although at this point, he said, the assets of Colleen and A&B do not appear to cover that amount, much less amounts that would be sought by Carrollton and Baltimore County Savings Bank.

Last week, BCSB revealed losses from check kiting of $6.9 million, or more than the bank's profits during the past seven years. It has not named the customer it said was involved in the check kiting. General Counsel David Meadows also has said the bank is sound despite the hit to its bottom line.

Kivitz declined to comment on the check-kiting allegations, and said he is prohibited by law from representing both the company and the Satiskys as individuals.

He said Colleen and A&B are in the process of selling off leases at more than 20 locations in addition to computers, office furniture, other equipment and three motor vehicles owned by the company. He said at least three possible bidders have expressed an interest in the locations and that an auction is possible.

"It is in the interest of the owners of this company to return as much to the creditors of this company as possible," he said.

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