A pair posing as Philip Morris Cos. officials were arrested by federal agents yesterday in an alleged three-year scheme to defraud seven banks of $254 million.
The arrests of Edward J. Reiners and Judy Rose Bachiman on criminal charges in New York stemmed from an alleged computer-leasing swindle involving loans from the seven lenders, most notably Signet Banking Corp. and NationsBank Corp.
The FBI said in a statement late yesterday that the banks became involved when they financed computer equipment leases through a Richmond, Va.-based computer firm, believing the equipment was being used by Philip Morris in offshore research.
Mr. Reiners, a former employee of the tobacco giant, and Ms. Bachiman received the fraudulent loans after obtaining Philip Morris stationery and forging loan documents, the FBI said.
"Although the potential for losses to banks involved could reach into the hundreds of millions of dollars, the exact loss has not been determined," a statement released by the FBI and the Virginia U.S. attorney's office said.
Signet appears to be the bank with the most exposure to the scheme, however, with $81 million at risk.
Payments on the loans appear to be current, Signet said.
Banking analysts who track Signet said it might be forced to write off the entire $81 million and take a potential charge of 87 cents per share after taxes in the first quarter, because the bank failed to allocate any reserves against potential losses on the AAA-rated leases.
Signet said it was assessing its potential for loss. The $11.3 billion bank also sold or transferred participations in $173 million in similar loans with the same parties to NationsBank, CoreStates, Bank of Montreal, Hitachi American Credit, Credit Anstalt and the Long Term Credit Bank of Japan.
L The level of exposure for each bank could not be determined.
Richmond-based Signet declined to reveal how it became aware of the alleged scheme or how it discovered that loan documents had been forged.
John Donahue, an FBI spokesman, confirmed that the investigation, which culminated in the arrests in Rye Brook, N.Y., began in Richmond, however.
Trading in Signet's stock was halted at roughly 3: 50 p.m. yesterday on news of the arrests and the bank's potential loss. "We do believe that the $81 million does represent the maximum downside from this situation," said Merrill H. Ross, a banking analyst with Wheat First Butcher & Singer in Richmond, in a hastily worded memorandum to Signet investors.
Although Wheat First predicts Signet's shares could open at $2 per share lower today than its recent $25.25 per share trading level, the investment house expects the price to rebound within a month based on "the continued viability of ongoing earnings on an operating basis."
Philip Morris, maker of Marlboro and other cigarette brands, has begun its own internal investigation.
Signet said it is cooperating with federal authorities.
"At this time, we need to put all the pieces together, and we have no other information," said Teri Schrettenbrunner, a Signet spokeswoman.
Under the law, Mr. Reiners, 51, and Ms. Bachiman, 38, could face up to 30 years imprisonment, a $1 million fine and five years supervised probation if convicted.
Pub Date: 3/20/96