Bank scandal: Check-kiter is 'extremely sorry'
The allegedly fraudulent scheme that bashed a local bank for $2.4 million continues to rattle the local economy. Earlier this week, it was revealed that Ivy Industries, a locally based maker of picture frame moldings, had lost 80 percent of its employees in a wave of layoffs that followed the scandal.
The FBI, which is leading the investigation, has steadfastly refused to release details about the case. However, on the afternoon of Tuesday, March 18, the attorney for the former Ivy Industries CEO, John C. Reid, came forward.
"Mr. Reid is extremely sorry for what he has done," said attorney Fran Lawrence in a prepared statement. "In an attempt to save a struggling business and to avoid admitting failure, he made terrible errors in judgment."
Reid allegedly engaged in the crime of check-kiting. Experts say there are several ways to engage in kiting, but all take advantage of the "float," the period between a deposit and the time when the bank actually collects the funds. One household form of kiting, engaged in by thousands of Americans, occurs when a person writes a check and then scurries to deposit money in time to cover the expenditure. What Reid allegedly did was more systematic.
Reid and an alleged co-conspirator, Alan B. "Bro" Pinkerton, were hit with a $7.3 million suit in Albemarle Circuit Court earlier this week. In the suit, Albemarle First Bank alleges that not only did Reid and Pinkerton intentionally juggle non-existent funds between Albemarle First and SunTrust bank, but they tried to cover up their overdrafts by drawing on non-existent funds at a third institution, Southern Financial Bank.
Attorney Lawrence said Reid expects to be charged with federal fraud crimes and has been "cooperating fully" with authorities, including turning over his passport and other documents.
While remaining Ivy Industries officials aren't granting interviews, F. Troost Parker, acting CEO, released a statement earlier this week attempting to distance himself from the scandal.
"I learned the news that has unfolded in the past several days," wrote Parker, "with immense shock and great regret." According to a subsequent release, Parker and Corwith Davis Jr. served only as investors and not company employees– until after learning of the scheme in early March.
Messages left at Reid's and Pinkerton's homes went unreturned.
Because Ivy Industries operates from a bland, nearly windowless industrial building just south of downtown on Monticello Avenue, many locals may not realize that it's a powerhouse in the world of picture frames.
Founded in 1971 by a team including Parker, who had worked for legendary Charlottesville framer Paul Victorius, Ivy Industries sells its moldings across the country.
"Ivy Industries is considered by all other rivals to be the best– none better," says Richard Freeman, owner of the Freeman-Victorius framing gallery.
Freeman, who stocks about 125 different Ivy Industries moldings in his Corner-area shop, says he heard about the layoffs, but company officials assured him that his supply of moldings would not stop.
Back in 1998, a group including Parker and Reid purchased the company back from a Philadelphia-based holding company called Eastwind Group for $5.4 million, according to an Eastwind release. Eastwind was in the habit of buying and selling "underperforming manufacturers," according to a 1997 article in the Philadelphia Business Journal. Eastwind had purchased Ivy Industries from Parker and others in January 1997 for $3.7 million, according to the Journal.
For Albemarle First, a bank founded by a team of locals in 1998, the incident comes on the heels of a profitable fourth quarter in which the institution earned four cents per share and saw its assets grow at an annual rate of nearly 12 percent. The scheme, however, brought a first-quarter loss of $1.94 a share and cut its capital from $10 million to $7.6 million.
Albemarle First's president, Thomas M. Boyd, did not return the Hook's calls by deadline, but, in a prepared statement, he claimed that "This extraordinary event will not deter us from our strategic mission to provide exceptional customer service."
Investors weren't quite so reassured. After the news was released on March 12, the company stock, which had recently been trading for nearly $10 a share, dipped to $6.84. By Tuesday, March 18, it had rebounded somewhat to nearly $8 per share.
According to its website, Albemarle First Bank is a place "where the people you trust with your money know you by name." If so, it's hard to understand how an alleged local perpetrator could expect to get away with check-kiting, one of the oldest ways to defraud a bank.
"He wasn't doing anything to line his own pockets," says Reid's friend, businessman Bob Schotta. "I'm sure he had the best intentions– to save the company and the jobs of his employees. Obviously, he made a mistake that's gone horribly, horribly wrong."
Susan Payne, a public relations expert working for Ivy Industries, says the company let go 40 of its more than 50 employees by Friday, March 14. The remaining "skeleton crew," Payne says, will attempt to keep the company alive.
So will Freeman. His Rotunda-facing store, widely considered the leader in framing UVA's notoriously large diplomas, typically uses Ivy Industries moldings for about half its diploma jobs. "But I think we'll push them a little harder this year," Freeman says, "because we want to see them survive."