Bank Chief Accused of TARP Fraud.

Courtesy The Wall Street Journal

By LINGLING WEI And CHAD BRAY

A lifelong banking-industry executive was arrested Monday on numerous charges, including allegations of defrauding regulators in connection with what prosecutors said was his desperate effort to save his New York bank from failing.

Charles J. Antonucci Sr., the former president and chief executive of the Park Avenue Bank of New York, made false statements to regulators in an effort to obtain about $11 million from the U.S. government's Troubled Asset Relief Program, prosecutors said. He is the first person to be charged criminally with attempting to defraud TARP, the bank bailout program passed as the nation teetered on the verge of an economic meltdown in 2008, prosecutors said.

Park Avenue Bank, a lender with more than $500 million in assets that specialized in commercial-real-estate loans, failed on Friday after piling up more than $27 million in net losses last year. Bad real-estate loans shrank the bank's capital to just $3.3 million at year's end, down 87% from two years earlier, according to filings the bank made with the Federal Deposit Insurance Corp.

"The bank was broken, so, in October and November 2008, [Mr.] Antonucci methodically went about pretending to fix it," said Preet Bharara, the U.S. attorney in Manhattan, at a press conference.

Prosecutors charged Mr. Antonucci with 10 counts of fraud, bribery and other crimes, including accepting free plane rides from a bank customer and stealing $103,000 from pastors of a church in Coral Springs, Fla. He could face up to 30 years in prison for each fraud and embezzlement charge. The bank's four branches were taken over by Valley National Bank.

Mr. Antonucci was taken into custody by federal agents at 7 a.m. at his home in Fishkill, N.Y. Unshaven and bespectacled, he sat quietly next to his lawyer and said little at a bail hearing Monday. He wore a red St. John's University hooded sweatshirt, blue track pants and brown loafers.

Bail was set at $2 million, to be secured by his home in Fishkill and his wife's apartment in Queens, N.Y. "These charges are what they are," said Charles Stillman, a lawyer for Mr. Antonucci. "We're going to study them and consider what our appropriate response to the charges will be."

The criminal charges against Mr. Antonucci come as regulators are ratcheting up their efforts to hold bank executives responsible as more financial institutions succumb to bad real-estate loans and other problems.

In January, a former executive at Omni National Bank, a failed bank in Atlanta, pleaded guilty to charges he overvalued bank assets in a bid to hide mortgage fraud. The former executive, Jeffrey Levine, is scheduled to appear before United States District Judge Jack Camp on March 23 for sentencing in his case.

The lending practices at Integrity Bank, an Alpharetta, Ga., lender seized by banking regulators in 2008, are under investigation by the FDIC. Lawyers for bank executives have declined to comment.

Mr. Antonucci held numerous positions in the banking industry before organizing a group of investors in 2004 to invest more than $10 million in Park Avenue for about 85% of the common stock, according to a person familiar with the matter. The bank, named after its location on Park Avenue, was struggling at the time, and Mr. Antonucci touted to investors his experience at working with regulators and turning around troubled banks, the person said.

The lead investor was real-estate developer David Lichtenstein, best known for his ill-fated acquisition of the Extended Stay Hotels chain, which is operating under bankruptcy protection. Mr. Lichtenstein hasn't been accused of wrongdoing.

Under Mr. Antonucci, the bank increased assets to $500 million from $100 million at the end of 2004, making loans throughout the region to commercial-real-estate owners, and to a racetrack in the Catskill Mountains. But like many other small banks across the country, Park Avenue saw its soured loans jump after the financial crisis hit in 2007.

According to Foresight Analytics, a banking research firm in Oakland, Calif., delinquencies on commercial property loans held by the bank jumped to 23% at year's end, up from about 18% a year earlier and 7.7% at the end of 2007. In September 2008, the FDIC declared that the bank was "undercapitalized."

This growing stress led to one of the schemes alleged in the criminal compliant. In the fall of 2008, Mr. Antonucci announced he had shored up the bank's capital base by investing $6.5 million of his own money, according to the complaint. But, in fact, the money came from the bank. Mr. Antonucci had set up a series of fraudulent transactions to make it seem like it was coming from him, the complaint states.

The federal investigation of Mr. Antonucci began about five months ago, when the Ecuador office of the Department of Homeland Security's U.S. Immigration and Customs Enforcement learned of a person interested in engaging in an illegal business deal with Mr. Antonucci, according to James Hayes, the agent in charge of ICE's New York office. He declined to elaborate.

The complaint also alleges Mr. Antonucci used a bank-consulting firm he owns to funnel Park Avenue Bank's money to himself. In addition, according to the bank bribery section of the indictment, he received free flights on more than 10 occasions in 2008 and 2009 on the private plane of a bank customer, including to the Super Bowl, Panama and the Masters golf tournament in Augusta, Ga.

Federal prosecutors alleged Mr. Antonucci arranged for Park Avenue to lease space from three properties he owned, causing the bank to spend more than $1 million to improve, lease and pay expenses on the properties, the complaint says. The bank used only one of the properties, according to the complaint.

Mr. Antonucci also was accused of stealing more than $103,000 from pastors of a church in Coral Springs, Fla., by offering to pay four times their investment through a purported bond, according to the complaint.

The money was deposited in an account he controlled at the bank and never repaid, according to prosecutors. Instead, Mr. Antonucci divided the money with an unnamed co-conspirator, according to the complaint.

Park Avenue Bank of New York isn't affiliated with Park Avenue Bank in Georgia.