Continental Bank – Creating Something From Nothing

Financial Institution
Management Fraud

Creating something from nothing

Management created this company, Windsor Ceramic Tile with promises of employment in exchange for government loans. With these loans and their equity contribution in place, a fixed asset bank loan was obtained to finance the purchase of equipment intended to reduce the need for a large labor force, in order to make the company more competitive with its foreign competitors.

Profits never came and the bank called the loan. With $50 million of fixed assets on the books, it became a challenge to find these assets in the manufacturing plant. In the fraud business, with this case as an example, a fraudster may loose the first time, but then the next time believes he has the perfect crime. This case was the next time and that was why the name Michael Smith would not go away. In one of my previous fraud bankruptcy cases, I was aware that a Michael Smith had purchased all the manufacturing equipment from a trustee at a fraction of the cost. To make his equity contribution, he sold that equipment to Windsor Ceramic Tile at an amount that was 20 times greater than his actual cost. His US partner, who was in a similar business, contributed his equity in the same manner, by selling his old plant equipment through one of his German vendors.

Effective business intelligence at the front end of a loan proposal is helpful to avoid the seasoned fraudsters. As an aside, Richard Ross from the bank introduced me to fine wine, he said as an investment but I much preferred to drink, a good habit that continues to this day.