Barbara Hollingsworth: Scary, true story of the FDIC and the Halloween bank
By: Barbara Hollingsworth
Examiner Columnist
October 27, 2009
In "Silver Blaze," by Arthur Conan Doyle, a Scotland Yard inspector investigating a missing racehorse asks Sherlock Holmes: "Is there any other point to which you would wish to draw my attention?" Holmes replies: "To the curious incident of the dog in the night-time."
"The dog did nothing in the night-time," the puzzled inspector retorts. "That," says Holmes, "was the curious incident."
A year after the $700 billion bank bailout, let me draw your attention to the curiously missing warnings from the Federal Deposit Insurance Corporation's (FDIC) army of bank examiners who, like the dog in the story, were supposed to bark at anything suspicious. They were either spectacularly incompetent, or something else was going on.
For example, FDIC should have flagged big trouble long before federal regulators secretly seized Washington Mutual, the largest bank failure in U.S. history, and sold it at a fire-sale on Sept. 25, 2008. Congress is finally asking why the dogs didn't bark.
In a Sept. 16 subpoena obtained by The Examiner, the Senate Permanent Subcommittee on Investigations asked FDIC chairman Sheila Bair to hand over the "full scope of examinations or other comprehensive reports of examinations for Washington Mutual" regarding its residential mortgage portfolio, risk management standards and capital reserves, as well as any communications between FDIC, WaMu's directors and senior management, and the Office of Thrift Supervision, another regulator that didn't bark.
While they're at it, senators should also ask why former FDIC Chief Operating Officer John F. Bovenzi was listed as an official signatory on WaMu's Jan. 24, 1997 8-K filing with the Securities and Exchange Commission while he was director of FDIC's Division of Resolutions and Receiverships. Bovenzi was later assigned to IndyMac, another colossal bank failure that cost taxpayers $10.7 billion, before reportedly being forced to retire last year.
Yolanda Gibson-Michaels of Temple Hills was fired in 2005 after 21 years at FDIC for blowing the whistle on Legal Division employees she claims were buying properties owned by banks in receivership and flipping them for profit. She also says Bovenziwas not the only one at FDIC who had more than sufficient motivation to look the other way.
And then there's the Halloween Bank.
Leah Fulghum spent the last 15 years trying to find out what happened to her grandfather's missing $33 million estate. The Florida resident says FDIC insured a shell bank in Indiana she believes was used to steal assets from heirs of real estate developer Frank Kryder and defraud the Internal Revenue Service.
Under federal regulations, tax-deferred government securities purchased by her great-grandparents could not be reissued, transferred or redeemed without notifying the IRS. Fulghum traced the bonds to the Allen County National Bank in Fort Wayne, but they were never redeemed by Kryder or any of his direct descendants, including her mother Katherine.
According to its own Legal Division, FDIC issued certificate # 20070 to ACNB on October 31, 1969. Just four days later, however, the bank merged with Lincoln National Bank and Trust and the Halloween Bank - along with Fulghum's inheritance - disappeared without a trace.
The Examiner confirmed that ACNB was not listed in FDIC's Institution Directory, and Fulghum could find no records of it anywhere in Fort Wayne, Allen County or the State of Indiana.
"There was never an Allen County National Bank - just a pile of assets to be concealed," Fulghum told me. "I am probably the only person alive who would ever have come looking."
How did the four-day-old Halloween Bank get past FDIC gatekeepers? Are any other shell banks like it still out there?
As the great Sherlock Holmes knew, when the watchdog doesn't bark, there's a reason.
Barbara F. Hollingsworth is The Examiner's local opinion editor.
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