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This Article: AMERICAN BANKER, March 8, 1995, at pg. 4

Valley of Lakes RICO Class Action against PNCBANK, et al.
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PNC Mired in Realty Fraud Suit Against Pa. Bank It Acquired

A federal district judge in Newark rejected PNC's motion to dismiss a lawsuit filed originally against Wilkes-Barre, Pa.-based First Eastern Bank, which PNC acquired in June.


A recent bank acquisition has landed PNC Bank Corp. in a tangle of litigation over a failed real estate venture.

A federal district judge in Newark last week declined to accept PNC's motion to dismiss a lawsuit filed orginally against Wilkes-Barre, Pa.-based First Eastern Bank, which PNC acquired in June.

The suit claims that First Eastern, now PNC, violated various provisions of the Racketeer Influenced and Corrupt Organizatinos Act in regard to its financing of a real estate development known as Valley of Lakes, near Hazleton, Pa.

Any suit based on RICO claims carries the risk of treble damages. Roger S. Antao, the New York-based attorney for the 16 plaintiffs, said he hasn't proposed a specific figure for a damages claim but the amount could be "substantial."

Jonathan Williams, a PNC spokesman, said Monday that he could provide no information aobut the impact the litigation maight have on the Pittsburgh-based company, which has $64 billion in assets.

"We intend to defend against this case vigorously, and we deny the allegations as to First Eastern's conduct," the spokesman added.

The lawsuit, which is still seeking certification for class action status, stems from the collapse of the 4,000-acre Valley of Lakes development, to which First Eastern had lent more than $20 million.

The first developer, Jack Halprin of High Vista Corp., received a jail sentence on land-sale and mail-fraud charges and served six months in prison. The second developer, Frank Cedrone of CBG Ltd., who bought the property at foreclosure in 1986, filed for bankruptcy in 1992.

The complain alleges that thousands of people in Pennsylvania and neigboring states lost money investing in what had been touted as the Northeast's "premier resort."

Plans called for an "Arnold Palmer golf course," hotels, lakes, and convention centers, but little was actually built.

The complaint, known as Dongelewicz v. First Eastern Bank, alleges that PNC continues its involvement in Valley of Lakes by refusing to foreclose on the bad loans made by First Eastern Bank.

The ruling by District Court Judge William H. Walls allows Mr. Antao to subpoena documents and take depositions from PNC officers.

Allegations in the complaint include:

  • That PNC (First Eastern) knowingly took part in a securities fraud scheme in which it wrote numerous mortgages for property it knew would never be developed.
  • That the bank knew that Mr. Cedrone had no legal right to take over the development after Mr. Halprin was sentenced to prison.
  • That the bank took part in a scheme to actively conceal the insolvency of the developer.
  • That the bank took part in several extortion schemes to "shake down" purchasers of property.

The suit "calls in question PNC's banking practices in regard to real estate development," Mr. Antao said.

Mr. Williams declined to discuss the allegations in detail, but he noted that Judge Walls dismissed three of the five counts against PNC as the successor organization to First Eastern Bank.

The suit was filed in New Jersey rather than Pennsylvania because Mr. Cedrone, the developer, had registered Valley of Lakes in New Jersey and marketed the development in that state.

Valley of Lakes RICO Class Action against PNCBANK, et al.

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