Loan officer banned from industry for forging documents

A former loan officer at a bank that got federal TARP aid has been banned from the industry after forging loan paperwork that caused his company to lose nearly half a million dollars.  

According to the order from the Federal Reserve, Adam Benarroch, a former assistant vice president of Midwest Bank and Trust in Elmwood Park, Ill., forged documents related to at least 14 loans in 2003 and 2004. 

His goal was to increase his bonus, which was tied to loan volume, according to the Fed. 

"Over a period of eight months (Benarroch) altered the terms of at least 14 loans totaling $8.6 million, issued two unauthorized commitments letters totaling $3.71 million and fabricated three legal memoranda in his attempts to rush the funding of a $3.15 million loan," wrote administrative law judge C. Richard Miserendino. 

The 26-branch bank is a wholly-owned subsidiary of Midwest Banc Holdings, Inc. and is one of the largest independent banks in the Chicago area. In December 2008, it received an $84.8 million investment from the Treasury Department through the Troubled Asset Relief Program.

Although the charges against Benarroch predate the company's  involvement in TARP, they nevertheless raise questions about its internal controls and fraud detection systems.

Benarroch, 38, needed approval from one of two committees for loans exceeding $75,000. He forged signatures and fabricated documents to make it appear as if unapproved loans were actually approved, or to change the terms of existing loans without permission to make them less favorable for the bank and more favorable to customers, according to the Fed. 

His actions caused the bank to lose $350,000 in interest and fees, and it was forced to write off an additional $109,000 in principal, according to the Fed.  

Benarroch was initially banned from banking Oct. 29, 2009. He appealed that decision, which was upheld by the Federal Reserve Board of Governors last week.  

Benarroch's actions "exhibit both personal dishonesty and a willful and continuing disregard for the safety or soundness of Midwest," Miserendino wrote last year.  

John Pelling, a spokesman for the bank, declined to say whether the bank would pursue legal action against Benarroch. 

Besides traffic tickets, Benarroch does not have any criminal or civil cases against him in Cook County, Ill. - where the bank is based - or two other Illinois counties where he worked. There also are no criminal or civil cases against him in federal court. 

According to a press release, Benarroch, was named assistant vice president for commercial lending in 2003, and he was tasked with working with the banks' commercial clients in McHenry County and Lake County, Ill. 
 

Benarroch previously worked in commercial lending and credit management at three Illinois banks before joining Midwest, according to the release.  

Documents from the Fed's case against Benarroch in an administrative court detail the extent of his alleged scam. His first reported foray into fraud occurred shortly after he was hired, on Dec. 5, 2003, when he forged a vice president's signature to lower the interest rate and extend the maturity of a customer's $405,000 loan. That effort cost the bank $2,700 in lost interest. 

From there, Benarroch's actions became increasingly bold and cost the bank larger sums. He would regularly forge multiple executives' signatures to make it appear as if lending committees had approved loans when they had not. Some of his forgeries cost the bank more than six-figures. 

Benarroch was caught May 12, 2004, when he fabricated documents purporting to be memos from the bank's outside attorneys concerning a $1.35 million loan. 

He was suspended that day, and bank executives began investigating his loan portfolio. They discovered 14 loan files containing either forged signatures or other discrepancies. Less than two weeks after he raised the bank's suspicions, Benarroch was fired.  

According to administrative records, Benarroch does not deny the allegations. "He admitted that he falsified legal memoranda to expedite loan closing, and does not deny that he intentionally and deliberately issued the unauthorized commitment letters that exposed the Bank to heightened risk," Miserendino wrote. Instead, he contended the case against him was jeopardizing his subsequent employment at another bank, and he pleaded for leniency. 

Benarroch has an unlisted telephone number, so he could not be reached by phone. He responded to a Facebook message from BailoutSleuth but did not answer questions about the case.  

Pelling did not answer questions how Benarroch was able to repeatedly exploit the bank without the institution's knowledge. He also did not answer whether any new safeguards are in place to prevent similar fraud in the future.  

This marks the second time this month Midwest Bank and Trust has found itself at the center of controversy.  

Earlier this month, BailoutSleuth reported that the Treasury Department had agreed to a deal to exchange its preferred stock shares in the bank for a new class of stocks that could result in millions of dollars of losses for taxpayers. 

The bank lost $231 million in 2009 and lost $151.1 million in 2008.