PHILADELPHIA—Michael J. Schlager, 51, of Lancaster, Pennsylvania, was sentenced today to 20 years in prison for his role in a fraud conspiracy that caused the Bank of Lancaster County (BLC), which was chartered in 1863 and is one of the five oldest banking organizations in the country, to cease its independent existence. Schlager was a senior vice president at Equipment Finance LLC (EFI), when he and seven co-defendants engaged in a sophisticated loan fraud scheme that caused losses of approximately $53 million at EFI. All eight defendants pleaded guilty. In addition to the prison term, U.S. District Court Judge Paul S. Diamond ordered Schlager to pay restitution in the amount of $53 million. Schlager and Joseph Braas, the former chief operating officer of EFI, led the conspiracy. Braas was sentenced yesterday to serve 15 years in prison.
From 2001 through 2007, the defendants, five of whom were EFI employees at the time, orchestrated a pervasive scheme to steal money by looting the accounts of EFI and falsifying EFI’s books. Schlager and Braas directed other employees of the company, including Mary C. Stankiewicz, Misty L. Kroesen and Curtis A. Kroesen, to make false entries in EFI’s books, create false documents for EFI’s files, and undermine the audit process conducted by Sterling’s inside and outside auditors. During the years of the conspiracy, the EFI employee defendants made EFI appear more profitable than it actually was, and made it appear that EFI was exposed to less risk than it was, and thereby succeeded in keeping their jobs, making increasingly higher salaries and bonuses and continuing to obtain funding for EFI from BLC and its other creditors.
EFI was a logging industry lender that was based in Lititz, Pennsylvania. The company provided funding for the purchase of forestry and land clearing equipment. In March 2002, EFI was acquired by Sterling Financial Corp., a former financial services company that was headquartered in Lancaster. At that time, EFI became a wholly owned subsidiary of the Bank of Lancaster County N.A., which in turn was a wholly owned subsidiary of Sterling. As a result of the fraud scheme, Sterling Financial was eventually liquidated.
Sentencing hearings are scheduled for the remaining co-defendants as follows: John Wiley Spann on September 14, 2012, Mary Stankiewicz on September 27, 2012, Misty and Curtis Kroesen on October 15, 2012, Harold Young on Jan. 21, 2013, and John Tomberlin on March 26, 2013.
The case was investigated by the FBI and the U.S. Postal Inspection Service and is being prosecuted by Assistant U.S. Attorneys Judy G. Smith and Nancy Potts.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions, and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.