Officials: KeyBank VP Embezzled $40M, Not $29M (OH)

[OhioChick]

POSTED: 6:35 am EST December 4, 2006
UPDATED: 7:21 am EST December 4, 2006

CLEVELAND -- Federal prosecutors said a former KeyBank vice president embezzled a total of $40.6 million, up from a previous estimate of $29 million.

The new charges against David F. Verhotz, 56, were outlined in a court filing Friday in U.S. District Court.

Verhotz, who has been fired as the head of the bank's international loans unit, stole the money between 1997 and 2003, prosecutors said.

Verhotz lived a life of luxury, buying a multimillion dollar home on Long Island and spending $1.1 million on his fiancee's engagement ring, according to testimony at a pretrial hearing last month.

He was arrested Nov. 11 at Cleveland Hopkins International Airport after getting off a flight from Dallas.

http://www.newsnet5.com/news/10456336/detail.html

<snip> KeyBank is owned by KeyCorp., which has more than 900 branches in Alaska, Colorado, Idaho, Indiana, Kentucky, Maine, Michigan, New York, Ohio, Oregon, Utah, Vermont and Washington.

[acmavm]

1. Sheesh, nobody noticed? That's a pretty loose ship they were

running.

Like they say, if you're gonna go, go big. And go Federal. The prisons are so much nicer.

[MADem]

9. A million here, a million there, pretty soon you're talkin' real money! NT

[EST]

2. This crook is a republican, right? n/t

[Joe Bacon]

3. How?

This clown has been doing this since 1997 and it didn't turn up in an audit?

Who were they using, Arthur Anderson????????

[melm00se]

4. embezzlement

Banks are always reluctant to detail (at least publicly) how they got ripped off...it lowers the customer's trust that banks must have to operate effectively.

[Princess Turandot]

7. If I were to take a guess..

assuming that he wasn't in cahoots with someone, the most likely explanation would be that he had inappropriate access to the loan computer system which allowed him to create new accounts under false names. Under appropriate segregation of duties, someone who is able to approve loans and who also has management responsibilities for reviewing loan transactions, however high-level, should not be able to set up accounts or access existing accounts and be able to enter changes. So high-level people in an organization should be locked out of anything other than read access to the computer system. However, it's not unheard of for that not to be the case.

[Missy M]

5. Key Bank also known as Fee Bank is trying to make up the....

money by the ridiculous fees they charge.

[Robbien]

6. This guy's salary was only $110,000, but he owned two multi-million $ NY homes

According to prosecutors, Verhotz used fake names to steal the money and support a lavish lifestyle that included the purchase of a $5.7 million home on Long Island. He also had $2.2 million in an escrow account to buy a town house on New York City\'s Park Avenue.

Investigators said he poured money into his New York home, including spending $30,000 for a chandelier and $50,000 for landscaping.

The alleged scheme began when Verhotz, who made $110,000 a year working at the bank, apparently got a fraudulent loan to pay the $30,000 to $40,000 he owed in back taxes, FBI supervisor Scott Gilbert said. Over the years, Verhotz would take out more loans to make payments on previous loans to avoid suspicion, according to the FBI.

That pattern continued without detection until this month, according to prosecutors, although it\'s unclear how it was uncovered. Bank officials are auditing seven more years of his activities to determine how much they believe he stole.

David F. Verhotz, 56, also lived a double life, according to pretrial statements made by U.S. Attorney Justin Roberts. He said Verhotz had recently divorced his wife in Ohio but told his fiancee, who lived with him in New York, that the marriage had ended 10 years ago.

\"Mr. Verhotz can\'t even be honest with his family and his fiancee,\" Roberts said at a hearing earlier this month. He said Verhotz also told his fiancee, Kim Chen, that he had two children instead of four.

http://www.sharewatch.com/story.php?storynumber=260320

[phoebe]

8. KeyCorp./KeyBank hasn't exactly been the model for good banking practices

http://www.occ.treas.gov/ftp/EAs/ea2005-141.pdf - from 2005

snip

#2005-141 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY
In the Matter of:
KeyBank, N.A. Cleveland, Ohio ) ) AA-EC-05-85 )

CONSENT ORDER The Comptroller of the Currency of the United States of America (“Comptroller”), through his National Bank Examiner, has supervisory authority over KeyBank, N.A., Cleveland, Ohio (“Bank”) and has concluded that the Bank has violated 12 C.F.R. Part 21, 31 U.S.C § 5318(i), and 31 C.F.R. Part 103. The Bank, by and through its duly elected and acting Board of Directors (“Board”), has executed a “Stipulation and Consent to the Issuance of a Consent Order,” dated October 17, 2005 that is accepted by the Comptroller. By this Stipulation and Consent, which is incorporated by reference, the Bank has consented to the issuance of this Consent Order (“Order”) by the Comptroller. Pursuant to the authority vested in him by the Federal Deposit Insurance Act, as amended, 12 U.S.C. § 1818, the Comptroller hereby orders that: Article I COMPLIANCE COMMITTEE (1) Within ten (10) days of the date of this Order, the Board shall appoint a Compliance Committee of at least three (3) directors. The entire Board, or an already existing committee thereof, may serve as the Compliance Committee. Upon appointment, the names of the members of the Compliance Committee and, in the event of a change of the membership, the name of any new member shall be submitted in writing to the Deputy Comptroller.

etc.


Robert B. Heisler was also on the Board of FirstEnergy Corp. which was also sued for "breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment."

http://www.blbglaw.com/complaints/FirstEnergy9.18.03cplt.pdf

KeyBank and its officers can be found at https://www.key.com/html/A-7.2.html#mpb

Something doesn't pass the "smell test" - given Kevin M. Blakely's profile at KeyBank - surely he would have detected this illegal activity pdq...