NewAlliance Bank isn’t a named party to a fraud trial that began in federal court in New Haven Monday. But the lawyer for an alleged scammer made clear in opening remarks that he’ll put on trial the actions of top execs of a “greedy, dishonest bank” (like CEO Peyton Patterson, pictured) who he said winked at a massive swindle in order to pocket millions themselves.
Technically, a 34 year-old Yale School of Management graduate named John Lucarelli is on trial. Based on the government prosecutor’s opening statement, the case promises to reveal juicy details — from diner meetings to bank parking-lot transactions — of how seven-figure get-rich-quick scams took place around here when New Haven Savings Bank went public in 2004 and became NewAlliance Bank.
The trial will, it became clear Monday morning, also focus on a larger tale of alleged greed, at the top levels of New Haven’s banking industry.
The case stems from the 2004 conversion of New Haven Savings Bank, the area’s last significant mutual bank, into a stock corporation called NewAlliance. A multi-million-dollar scandal accompanied the bank’s going public. The bank offered the first shares of stock to its depositors at a low price ($10 a share), who could then make a quick buck by reselling the stock when the bank formally went public. Out-of-town investors swarmed into town to find depositors and give them money to buy stock on their behalf, which was illegal, then divide the profits when the stock was immediately resold. The intention of the intial stock sale was to enable local depositors, who previously owned the bank and built up its value, to share in some of the new wealth created by the conversion.
The FBI investigated these scams and has developed a number of cases, some of the first of their kind in the country. (Click here for some details.) A number of participants have pleaded guilty or otherwise agreed to pay fines. Monday morning saw attorneys offer opening statements before U.S. District Court Judge Janet Arterton in the trial of Lucarelli, one alleged participant who decided to fight the charges, in a wood-panneled courtroom less than a block from the bank’s headquarters.
“The bank knew exactly what was going on,” argued Lucarelli’s attorney, Dominic Amorosa. “All they did was talk about it. They did nothing to stop it.”
“They raised a billion dollars” from a whole host of deep-pocket scammers like the New Yorkers, Amorosa noted. “Bank officers and directors made millions and millions of dollars in stock. They had an enormous motive [to allow the scams to proceed]. They wanted the money.”
Middleman
While attorney Amorosa offered an intellectually interesting opening defense in court Monday, it’s unclear whether the strategy will distract jurors the basic facts of Lucarelli’s actions.
The government charges that Lucarelli, who grew up in Orange and later went to work on Wall Street, worked for three shady New York “millionaires” in this scam. The New Yorkers allegedly assigned Lucarelli to find New Haven-area people with accounts at the bank; set up meetings with them and the New Yorkers; arrange for them to serve as fronts to buy stock for the New Yorkers; and ferry paperwork in the transaction. Lucarelli allegedly lined up local depositors and arranged for them to buy $4.9 million worth of stock with the New Yorkers’ money. Investors made up to 50 percent profit in one day on these deals. Two of the New Yorkers have pleaded guilty and are scheduled to testify against Lucarelli.
Assistant U.S. Attorney Michael S. McGarry told jurors that Lucarelli pocketed over $100,000 for his role. “Right off the bat,” McGarry argued, Lucarelli knew “what he was doing was wrong,” from the New Yorkers, from news accounts, and from his own background as a licensed broker.
“Three New York millionaires wanted to buy the stock, but they couldn’t get in on the deal,” McGarry said. “The deals that John Lucarelli helped set up were against the law.”
McGarry described early 2004 meetings Lucarelli allegedly set up with the New Yorkers and local depositors in a Derby diner, a Milford diner, a Milford hotel lobby. He also allegedly set up a meeting at Geppi’s restaurant in New Haven’s Fair Haven neighborhood, whose owner, according to McGarry, decided not to go in on the deal after learning of its illegality.
Lucarelli also waited in the parking lots of bank branches in Hamden, Orange and West Haven to immediately take stock-sale certificates from the depositors and drive them to New York, according to McGarry.
McGarry made a point of noting that bank officials made warnings in the press and in written notices to depositors to avoid these transactions.
Complicit Bankers?
“Judge the bank by what it did, not by what it said,” Amorosa told jurors when it came his turn to speak.
Yes, the bank formally told depositors not to take outsiders’ money to buy stock on their behalf. But, Amorosa argued, the bank knew it was happening, even in some cases who was probably doing it, then did nothing to stop it. The bank knew these depositors had nowhere near the money to afford to buy so much stock.
“These depositors were sending $700,000 checks when they had $20,000 accounts,” he said. “The bank knew these people didn’t have the money. There were newspaper articles written in New Haven a month before“ the initial stock sale describing “exactly what was going on.”
“This bank sold out the city of New Haven,” Amorosa declared. In the course of the trial, he vowed, “we’re going to find out how many times the bank, looking at these $700,00 checks, asked, ‘Where are you getting the money?’”
Community activists and leaders criticized Patterson and other bank directors and execs for taking the bank public. They charged that the bank’s leaders were destroying a community-based, depositor-owned bank committed to city neighborhoods in hopes of striking it rich by setting up the bank to be gobbled by a national out-of-state suitor. Bank officials denied that motive at the time; they said the bank wouldn’t be sold for at least five years. At the bank’s most recent annual meeting, however, Patterson denied that any five-year barrier exists to selling the bank. She said the bank could be in play within three years of the 2004 conversion. Shareholders have also criticized bank execs and directors for their seven- and eight-figure salaries and bonuses; Patterson received $27 million in stock options this year alone.
In his opening statement, Amorosa did defend his client, Lucarelli, on the specifics of the government’s charges, too. He promised the jury that he’d subject the government’s parade of witnesses — who’ll include two of the New York investors as well as depositors Lucarelli approached — to tough cross-examination. Several of their stories changed during their interviews with federal investigators, Amorosa claimed. He also noted that two of the New York investors who hired Lucarelli have pleaded guilty in the case, and therefore stand to serve less time in jail if they help the government convict Lucarelli. “People who are looking to save themselves from going to jail for four or three years… have an enormous motive here to help the prosecutors.”
“Lucarelli was victimized by a professional con artist by the name of Robert Ross,” the key New York investor, Amorosa charged. “He was also victimized by a greedy, dishonest bank.”
The main point of your article is based on the opening statement of a defense attorney. I hope the facts support the allegations otherwise you are running down people's reputations on heresay.