New Haven Independent

Message One: If you cooperate immediately with authorities, pay fines without negotiating, send others to jail, and show real remorse, you can stay out of jail.

Message Two: People now do go to jail if they sneak their way into bank-conversion stock buys to which they’re not legally entitled.

Arterton offered that dual message at the sentencing Tuesday afternoon in U.S. District Court on Church Street of George J. Kundrat, one of the out-of-town moneymen who illegally profited from buying and selling shares of NewAlliance Bank in a 2004 public offering. Arterton sentenced Kundrat, who’s 52 and from New Jersey, to three years probation, five months home confinement, 300 hours of community service, and a $10,000 fine (on top of $605,010 he has already paid in restitution and penalties).

And no prison time.

Kundrat and his attorney made an emotional appeal to avoid jail time in the case. They argued that his role as a cooperating witness proved crucial to the federal government’s successful prosecution of other players in the bank swindle. The prosecuting attorney, Mike McGarry, agreed, as did Arterton.

It’s important in cases like these to show that financial fraud will lead to jail time, Arterton said from the bench. But that has already happened here — and investors and brokers nationwide have taken notice.

This case was the first time the feds have criminally prosecuted people for this type of swindle, which occurs widely when mutually-owned banks convert to stockholder-owned, public corporations. Only depositors of those banks are legally entitled to buy stock in an initial public offering (IPO); usually that stock shoots up in value when the stock is then made available to the general public, so depositors can make a quick mini-fortune.

In the swindle, out-of-town investors find local bank depositors to pretend to buy stock for themselves, in their own name, but actually use the investors’ money to do it. Then, when the stock shoots up in value the day it goes public, they sell the stock and split the huge profits. Investors illicitly made millions of dollars in quick profits this way when New Haven Savings Bank became NewAlliance in 2004. They made about 50 cents on every dollar invested.

One reason this scam is so widespread is that the feds never prosecuted it. Until now.

Judge Arterton on June 25 sentenced one of the masterminds, Robert Ross (pictured), to a year and a day in prison for his role in arranging $4.9 million in such purchases in the New Haven Savings/NewAlliance offering. She sentenced a minor player, Chance H. Vought, to a day in jail. Both men also paid six-figure fines. Both pleaded guilty in the scheme. A middlemen in the scheme, John Lucarelli, pleaded innocent. He was found guilty at trial, but then freed on a technicality.

“Civil enforcement [as opposed to criminal prosecutions] clearly didn’t work” in fighting this kind of fraud in other cities, and “thus provided no deterrence,” Arterton said. “The new era of criminal prosecutions hopefully makes that different… It is fear of going to prison that may be the only clarion call that ‘unlawful’ means unlawful, and there can be consequences.”

That message was sent with the prior sentencings in this case, Arterton said.

Tuesday she wanted to send another message to white-collar crooks by allowing Kundrat to avoid prison: Cooperate fully, openly, and quickly when feds sniff a bank fraud like this one.

George Kundrat pleaded guilty to one one count of conspiracy to commit mail fraud, wire fraud and securities fraud; he made a quick $380,000 profit on the deal. His early and extensive cooperative with authorities proved crucial to making the case against Ross. That fact proved crucial at his sentencing Tuesday.

As soon as he learned that federal investigators had visited Robert Ross, Kundrat contacted the feds on his own. He offered extensive evidence in the case, evidence that proved crucial, according to the U.S. Attorney’s office. He never pocketed his profits; instead he put his shares in a safe-deposit box. He claimed he knew something was wrong and that the deal would go sour. He immediately turned over all the money as well as fines requested by the feds without trying to negotiate a lower price, according to both sides in the case.

“That kind of standing up is the measure of the man who truly is remorseful, not in an opportunistic way, but a sincere way,” Arterton said from the bench. She noted that Robert Ross, too, cooperated with authorities, but only after trying to mount a defense, and after cashing in his proceeds. And to date Ross hasn’t paid his fines, she said.

Before Arterton ruled, Kundrat, a wealthy trader and former attorney, made a plea to avoid jail time. His voice broke with near-sobs as he recounted the past three years of being publicly identified as a criminal and awaiting sentencing.

“Every day for the past three years I’ve asked myself, ‘Why did I get involved in this transaction?’ I knew it was wrong,” he said. “It was just a pure lack of moral judgment on my part.”

He spoke of the “disastrous effect” his actions have had on his family. “My kids get teased in school: ‘Your father is a criminal.’” When his son wanted to run for class treasurer, according to Kundrat, another student said, “Why, so you can steal money like your father?’”

His attorney spoke of how Kundrat would take his children to volunteer at soup kitchens on Christmas Eve.

Arterton referred to that when she explained why she limited home confinement to five months.

“Mr. Kundrat will be free by Christmas to take his children to serve in the soup kitchen,” she said.