S.F. Giants owner Scott Seligman implicated in Sterling bank fraud case

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Detroit — Sterling Bank & Trust founder Scott Seligman, a minority owner of the San Francisco Giants, knew about and provided “encouragement” for a years-long criminal conspiracy involving a loan program that helped his family reap a $115 million windfall, according to federal court records.

Seligman has not been charged with wrongdoing, but the alleged conspiracy surfaced in a new criminal case that follows months of questions raised in a separate civil lawsuit about money generated by an initial public offering.

The case described by prosecutors includes details about tax cheats, money launderers and bank executives engaged in a scheme that implicates Seligman, 69, the wealthy scion of a prominent Metro Detroit family active in the sports, art and philanthropic worlds.

The criminal case and a related securities class-action lawsuit allege executives at the bank used a residential loan program to boost revenue of its parent company, Southfield-based Sterling Bancorp. Inc., and position the company to go public in 2017.

During an initial public offering, Seligman and family sold $114.7 million in shares, a Wall Street success story that soured months later amid federal investigations, grand jury subpoenas, upheaval within the bank’s executive ranks and now these criminal charges in an ongoing investigation.

Federal prosecutors have charged former Sterling bank executive YiHou Han with bank and wire fraud conspiracy. The San Francisco banker and co-conspirators falsified loan documents and knowingly provided loans to borrowers involved in money laundering and tax evasion, prosecutors said.

Seligman is not labeled a co-conspirator, and he and the bank are not named in the Han criminal case. Instead, the filing refers to “Financial Institution A” and “Executive 1,” which two sources familiar with the investigation say are Sterling bank and Seligman, respectively. The sources requested anonymity, citing the ongoing criminal investigation, and their information is supported by dates and facts contained in the criminal filing.

The criminal filing also identifies several potential targets of the investigation, including three other unnamed bank executives, and indicates federal agents are focused on lending practices involving the bank’s residential Advantage Loan Program. The program catered to Asian borrowers in San Francisco, Los Angeles, New York and Seattle, prosecutors said.

“With the knowledge and encouragement of members of Financial Institution A’s senior management, including Executive 1, Executive 2, Executive 3, and Executive 4, the defendant and her co-conspirators falsified documents and material information about borrowers’ qualifications for the Advantage Loan Program, and concealed material information about borrowers from Financial Institution A’s underwriting department, in order to increase the volume of loans originated under the Advantage Loan Program — which, in turn, increased the bank’s revenue — and their personal commissions,” Justice Department Trial Attorneys Jason Covert and Kevin Lowell wrote.

“Throughout his career, Mr. Seligman has always cooperated with government regulators and he intends to continue to do so,” his lawyer, Russell Duncan, told The Detroit News.

Han, a San Francisco woman who goes by the nickname “Fanny” and once attended black-tie society events at Seligman’s side, was arraigned virtually April 16 by a federal magistrate judge in Detroit and released on a $1 million unsecured bond.

She is scheduled to plead guilty next month to a charge punishable by up to 30 years in prison, potentially giving federal investigators a key insider against others implicated in the alleged conspiracy.

Han’s lawyers and federal prosecutors did not respond to messages seeking comment. Company lawyers and Chief Financial Officer Stephen Huber did not respond to messages Friday.

Rising above regional roots

The criminal case is the most serious fallout from a tumultuous period for the Southfield bank, and comes 13 months after Sterling Bancorp disclosed the Justice Department was investigating residential lending practices. The bank had more than $3.9 billion in assets last year and 30 locations in four states, mostly branches in San Francisco and the Bay area.

The Han case suggests that during an alleged conspiracy that lasted from 2011-19 Sterling rose from being a regionally focused private bank to a publicly traded company thanks to the Advantage Loan Program, prosecutors said. 

Sterling bank grand opening in flushing Yihou Han and Stephen Adams. #areaasfpen

Posted by Lyman Chao on Thursday, February 21, 2019

YiHou Han attended the grand opening of a Sterling bank branch in Queens in February 2019 that featured Chinese cultural celebrations. (Video: Facebook)

“Executive 1” is described as the founder and majority shareholder of “Financial Institution A,” which is headquartered in Southfield and founded in 1984. That is the year Sterling bank was founded, and the bank’s headquarters is in the One Towne Square building in Southfield.

Seligman’s biography in company regulatory filings repeatedly refers to him as the Sterling founder and majority shareholder. Seligman family trusts own approximately 70% of the Sterling Bancorp common stock, according to a regulatory filing.

The complaint said Han worked as a vice president and managing director at “Financial Institution A.” That matches details in a 2019 Sterling Bancorp press release referring to Han as a vice president and managing director while touting her work.

Han was encouraged by “Executive 1” and others to falsify documents and information about Advantage Loan Program borrowers and to hide information from underwriters, prosecutors said.

As recently as last month, company officials told investors that several investigations were underway.

“The bank is currently under formal investigation by the (Office of the Comptroller of the Currency), is responding to grand jury subpoenas from the DOJ and is responding to a formal investigation recently initiated by the SEC that is related to the Advantage Loan Program,” the company disclosed in its annual report filed with the U.S. Securities and Exchange Commission.

Seligman, meanwhile, resigned from positions as consulting director to the bank’s board and as vice president of the company at the end of 2019.

The loan program

The criminal case, meanwhile, focuses on Sterling’s key revenue source, the Advantage Loan Program. The program offered adjustable-rate mortgages to “members of the Asian community,” primarily on the West Coast. The program required at least a 35% down payment, charged higher rates and fees but did not require applicants to submit tax returns or payroll records.

The program was a success. The bank originated at least $5 billion in loans through the advantage program from 2011-19, according to the government. During that time, Han handled at least 1,288 Advantage Loan Program mortgage loans representing about $683.5 million in credit extended by the bank.

She worked closely with Seligman and other executives to expand the program, prosecutors said. But the program was deeply flawed, according to the government.

Han and co-conspirators falsified documents and material information about the qualifications of borrowers, prosecutors said. They also allegedly concealed information in order to boost the volume of advantage program loans, the bank’s revenues and executives’ commissions.

“The defendant and her co-conspirators knowingly provided Advantage Loan Program loans to borrowers involved in money laundering and tax-evasion activity,” the Justice Department trial attorneys wrote in the criminal case.

The borrowers operated companies that did not report taxable income by concealing and disguising the source, prosecutors added. Han and others also are accused of loaning money to people who hid assets from the government.

Han and others accomplished this by falsifying a borrowers’ income and debt-to-income ratios, job and employment information, according to the criminal case.

Officials at Sterling Bancorp, which is referred to as “Holding Company A” in the Han criminal case, told investors and federal regulators that the bank’s leaders followed a “disciplined and conservative underwriting approach,” prosecutors said.

“The defendant and her co-conspirators concealed information from Financial Institution A’s Underwriting Department and Quality-Control Department that the defendant believed would delay or prevent the Bank from originating loans under the Advantage Loan Program.”

The wrongdoing was rewarding for Han, according to the government. From 2015-19, Han was paid approximately  $3,381,355 in commissions largely generated by fraudulent loans. 

She was charged in a criminal information, which means Han is expected to plead guilty. The criminal case mirrors allegations contained in a securities class action lawsuit filed by the Oklahoma Police Pension and Retirement System against Sterling Bancorp last year.

The lawsuit accuses Sterling Bancorp of misleading investors about the Advantage Loan Program, claiming it was underwritten and complied with federal laws designed to prevent money laundering and other financial crimes. False and misleading statements artificially inflated the company’s stock price, according to the lawsuit.

The advantage program represented at least 75% of Sterling Bancorp’s entire loan portfolio, according to the lawsuit. The loan portfolio was $755 million in 2012 but that figure rose to $2.37 billion less than five years later.

By fall 2017, the company was ready to go public through an initial public offering at a stock price of $12. Seligman and relatives who owned shares individually or through trusts sold more than 9.5 million shares and received $114,692,304, according to the lawsuit.

Turmoil followed the IPO. More than 150 officers and employees have been terminated or quit, including more than 45 loan officers since fall 2019, according to a company SEC filing. That purge includes Han, who was terminated in November 2019, according to the civil lawsuit.

Program suspended

The Advantage Loan Program, meanwhile, was voluntarily suspended in December 2019 and later scrapped. Since then, shares in Sterling Bancorp have lost more than 35% of their value. On Friday, the company’s stock closed at $5.03 per share.

Meanwhile, the same day Han made an appearance in federal court earlier this month, lawyers for the Oklahoma pension fund asked a judge to approve a settlement that involves Sterling Bancorp’s insurers paying $12.5 million.

“This settlement should put to rest one of several difficult matters that arose out of our former Advantage Loan Program,” said Thomas O’Brien, CEO of Sterling Bancorp, in a statement, “and allow our team to continue to focus on working hard to resolve our outstanding compliance issues while prudently managing our credit metrics, capital and liquidity.”

Seligman is the son of the late Bloomfield Hills developer Irving Seligman, who created a real estate empire that started with building residential garages after World War II. The business expanded to developing homes and apartment in major cities nationwide.

Irving Seligman had his own brush with scandal.

In 1993, Detroit native Thomas Demery, a former assistant secretary of the United States Department of Housing and Urban Development, pleaded guilty to accepting a $100,000 loan from Irving Seligman. Seligman’s firm received about $15 million in subsidies for housing projects it managed in Michigan while Demery was a HUD official.

Scott Seligman, meanwhile, rose to top positions within the family company before founding the bank in 1984. He also is part of an ownership group that bought the San Francisco Giants baseball team in 1992.

Seligman trusts own a multimillion-dollar portfolio of homes and properties in Arizona and California, including the 40th floor of the landmark Transamerica Pyramid in San Francisco and a 22-acre gated site in Napa, according to public records.

Seligman and family have drawn praise for making hefty charitable contributions in Metro Detroit. The performing arts center at Detroit Country Day School carries the Seligman name thanks to a $1 million donation.

The planned donation drew scrutiny in 1998 after the Detroit Free Press reported Seligman had faced several court cases alleging sexual harassment, misconduct or abuse — allegations he denied. The lawsuits were settled privately “with no finding made that the allegations were true,” the paper reported.

“He’s a bright guy. He’s a good guy,” said prominent Metro Detroit lawyer Geoffrey Fieger, a former Detroit Country Day classmate and one-time gubernatorial candidate in Michigan.

Seligman’s generosity extends beyond the elite private school. Fieger and Seligman speak periodically because both collect artwork by sculptor Marshall M. Fredericks, Fieger said.

Seligman commissioned “Black Elk, Homage to the Great Spirit,” a sculpture that anchors the garden at Marshall M. Fredericks Sculpture Museum at Saginaw Valley State University. The sculpture is 13-feet tall, bronze and Fieger wanted it.

Fieger tried to buy the sculpture approximately one year ago, he said: “I wanted to get that one, but he wasn’t offering.”

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Twitter: @robertsnellnews

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