IN THE UNITED STATES DISTRICT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
LEON R. DONGELEWICZ, et al.,) CASE NO.
FIRST EASTERN BANK, et al.,
SUPPLEMENTAL PLEADING 1
- Plaintiffs repeat and re-allege all of the
allegations contained in the complaint as fully as if set forth
- This pleading does not add any new causes of
actions or parties. It only supplements Count I of the complaint against
PNC Bank, N.A.2 (by merger with First Eastern Bank, N.A.), with (a)
transactions, events and occurrences which took place after the original
complaint was filed, and which were revealed by plaintiffs' discovery,
primarily upon third parties; and (b) certain additional transactions,
events and occurrences which took place prior to the filing of the
original complaint but which were concealed from the plaintiffs, and
were discovered primarily by plaintiffs' discovery upon third
- All of the events and occurrences alleged
herein are part of the "Scheme to Continue Racketeering Using Chapter 11
Bankruptcy Protection", the "Scheme of First Eastern Bank ... to
continue pattern of racketeering indefinitely", and the "Land
Development Scheme" alleged in the complaint.
- After C.B.G. Ltd. ("CBG")
filed its bankruptcy petition, on or about March 30, 1992, until CBG's
assets were transferred to Double Diamond Inc. ("DDI") in 1996, PNC
knowingly and fraudulently continued to receive payments from CBG,
approximately two times a month, on CBG's "receivable line of credit" with PNC,
by collecting mortgage payments which were remitted by certain
class members as payment on the notes to CBG's purchase money mortgages.
Under the terms of the $10,000,000 receivable line of credit from PNC to
CBG, PNC would advance 90% of the amount financed by CBG on its
purchase money mortgages to lot purchasers. CBG would then collaterally
assign the notes to PNC, i.e., the notes continued to be the property of
CBG. PNC's agent, C&E Credit of Emerson, N.J., collected the
payments from the mortgagors, and remitted the funds to PNC as payments on
CBG's receivable line of credit. In addition, PNC sold participating
interests in CBG's receivable line of credit to two other banks: BSB Bank and
Trust Co., successor to Binghamton Savings Bank ("BSB"), and
CoreStates/First Union, previously Hamilton Bank/CoreStates.
- PNC maintained a bank account for
C.B.G. Ltd. at the Dime Savings Bank of New York, FSB (successor to
Anchor Savings Bank) in Emerson, New Jersey (Account
#020302070713280), ("DIME account"), where C&E Credit would deposit payments that
it collected from mortgagors on CBG's purchase money mortgages. C&E would
then forward the funds to PNC as payment on CBG's receivable line of credit.
- Copies of the bank records for the "DIME
account", monthly statements from November 8, 1988 to May 26, 1989, June
26, 1989 to December 31, 1995, January 27, 1996 to October 26, 1997, are
annexed hereto as Exhibit "303."
- On or about May 20,
1992, First Eastern's President filed a Corporate Certification with
DIME representing that the Federal Identification Number for the bank
account title "First Eastern for CBG Limited" was CBG's Federal
Identification Number, namely "23-2372208." A copy of said corporate certification
is annexed hereto as Exhibit "304". A copy of CBG's case information sheet in
its bankruptcy case, showing CBG's EIN as "23-2372208", is annexed hereto
as Exhibit "305."
- PNC knowingly kept
CBG's Dime account open after CBG's bankruptcy petition, for the purpose
of receiving payments from CBG's purchase money mortgages, for application to CBG's loans
in direct contravention to the Order of the Bankruptcy Court, dated
March 30, 1992, which mandated that all of CBG's bank accounts be closed. A
copy of said order is annexed hereto as Exhibit "306."
- PNC misrepresented to the Bankruptcy Court,
on or about April 30, 1992, that since CBG's bankruptcy petition that PNC
no longer received any payments from CBG on its loans. A copy of PNC's motion
for relief from automatic stay is annexed hereto as Exhibit "307."
Its counsel expressly stated in [paragraph] 1 that since CBG's bankruptcy filing
"no payments have been made to your secured creditor." Its counsel
reiterated in [paragraph] 5(b) that "The receivable line increased from a
five million dollar line on August 21, 1989, is not performing and in
- In truth and fact, between March 30, 1992 and April 30, 1992, two payments were received from CBG on its receivable line of credit, one for $164,651.00 on April 6, 1992, and the other for $106,764.48 on April 22, 1992, which were wired to PNC from the "First Eastern Bank for CBG Limited" bank account, Account No. 020302070713280 at Dime Savings Bank, F.S.B., by merger with Anchor Savings Bank F.S.B. See Exhibit "303-56."
- A portion of PNC's banking records for CBG's
receivable line, showing a running balance history and principal and
interest payments made from November 29, 1988 to November 6, 1992, are
annexed hereto as Exhibit "308."
- A memorandum prepared by PNC, dated October 8,
1992, which analyzes and reconciles payments made from November 11, 1991
to PNC and its two participating banks, is annexed hereto as Exhibit
- A loan modification authorization
document from BSB regarding its participation loan with PNC to CBG's receivable
line of credit, dated June 22, 1992, indicating the status of the loan
as "Current" on said date, based on said bank's share of payments from
CBG, is annexed hereto as Exhibit "310".
- A quarterly review document from
BSB regarding its participation loan with PNC to CBG's receivable line of
credit, dated November 6, 1992, indicating "Payments current" on said
date, based on said bank's share of payments from CBG, is annexed hereto as
- A summary sheet prepared by C&E
Credit showing the amounts received by PNC on CBG's receivable line of credit
loan from 1987 until 1997 is annexed hereto as Exhibit "312."
- In order to
carry out the predicate acts stated herein, CBG's monthly filings with
the bankruptcy court concealed CBG's income that was being collected by C&E Credit
on CBG's behalf from CBG's purchase money mortgages, and applied as payment on
CBG's receivable line of credit loan from PNC. A copy of CBG's income
statement for the period from April 1, 1992 through April 30, 1992,
filed with the bankruptcy court, is annexed hereto as Exhibit "313."
- After CBG's
bankruptcy, in addition to continuing to receive the payment streams on CBG's notes
as payment on CBG's receivable line of credit loan, PNC also collected
the "interest spread" that belonged to CBG under the loan agreement,
i.e., the difference between the amount of interest that the lot owners
paid CBG (a higher amount) and the interest that CBG owed PNC on
its receivable line (a lower amount). A copy of an internal BSB
banking document, prepared by BSB's loan officer, Glen R. Small, dated April 22,
1992, and titled "history sheet", indicating the bank's decision on the
payment streams and interest spread is annexed hereto as Exhibit "314."
- As a result of PNC's
concealment and receipt of the payment streams, and interest spread, from CBG,
the Valley of Lakes subdivision, which was controlled by CBG during
the relevant time period, was deprived of CBG's income streams, and these assets
of the debtor's estate were concealed from all of CBG's creditors.
- After CBG's bankruptcy, PNC continued to cover-up numerous sham purchases that CBG had used to conceal its insolvency. In particular, PNC was aware that defendant Frank M. Cedrone had arranged numerous sham purchases with its vendors, and others, whereby the "straw man" purchasers would simply pretend to be bona fide purchasers of lots from CBG, simply to generate advances from CBG's receivable line of credit with PNC. A copy of a letter from C&E to Mr. Chuck Stanbaugh of First Eastern Bank, which inter alia identifies thirteen "First Payment Defaults", i.e., purchasers who never made a payment on their mortgage, totaling $456,960.00, is annexed hereto as Exhibit "315." A copy of a BSB History Sheet, dated June 15, 1992, discussing inter alia said letter, is annexed hereto
as Exhibit "316." BSB's loan officer recorded in said History Sheet what PNC's agent,
Robert P. Woods of C&E, stated about the first payment defaults, as
"Schedule E are a group of 13 loans which were all booked in the period September-December 1991. They are first payment defaults. In some cases the individuals are contractors or vendors to the developer. Woods indicates that he believes that these contracts were signed with a promise made by the developer that the buyers would never have to make a payment based on his assumption that the project would be refinanced shortly."
- A copy of a letter, dated May 19, 1993, from one of
the listed "first payment defaults", namely, Stephen Malara, to First Eastern
Bank, is annexed hereto as Exhibit "317". Mr. Malara expressly informed First
"Mr. Cedrone asked me to sign for a piece of property to get him money for the short term. This property was either to be given to me as an employee bonus or, if things did not work out, bought out from me within six months. Others were also duped into this scheme to keep floating money. If you like, I can furnish names upon request.
I never put down any money, either as down payment or closing costs.."
- Despite PNC's knowledge of these sham purchases, PNC never took title from CBG on these notes, in order to foreclose upon the mortgages. A copy of a C&E Trial Balance, dated May 31, 1996, which was attached to the DDI transaction documents, as "Schedule of Lot Paper", is annexed hereto as Exhibit "318." Said Trial Balance shows that these "first payment defaults" continued to be part of CBG's notes, upon which PNC received payments on the receivable line, and that no payments had been made as of said date on the "first payment defaults". See Exhibit "318-6."
- Subsequent to CBG's bankruptcy and
PNC's agreement of October 22, 1992 with CBG, which made it possible for
CBG to remain in control of the Valley of Lakes, PNC permitted
defendant Frank M. Cedrone to arrange for certain of his associates to have
their maintenance fees to CBG not collected, based on their association
with defendant Frank M. Cedrone. Among other examples are the facts stated
in Mr. Malera's letter regarding his non-payment of maintenance fees which
is annexed hereto as Exhibit "317."
- In order to cover up
the massive "Land Development Scheme", as well as the actions
alleged herein, PNC refrained from taking title to CBG's notes on its
purchase money mortgages, altogether, and simply chose to continue to receive
CBG's payments on its receivable line of credit loan, until it could find
a buyer for all of CBG's assets. A copy of a letter from First Eastern to
its participant banks, dated November 18, 1993, is annexed hereto as
- During the relevant time period, PNC
collected payments from the mortgagors on CBG's purchase money mortgages in the
name of First Eastern Bank, and made numerous representations to class
members, for the purpose of misleading them into believing that the bank
was the true owner of the notes, and not simply a collateral holder of
said notes for CBG. One example of such a representation; namely, a
sample letter, dated June 1, 1994, from First Eastern to a mortgagor, is
annexed hereto as Exhibit "320." Consequently, the mortgagors did not
know that they were actually paying CBG in order for CBG to pay off its
loan from PNC.
- PNC's agents, C&E Credit Consultants
and C&E Collections, were paid out of the funds received as payment
on CBG's notes to its purchase money mortgages in order to continue the
pattern of wrongdoing. Funds were transferred out of the DIME account on
a monthly basis for this purpose.
- In order to cover-up this course of wrongdoing, PNC did not disclose, as part of the DDI transaction, that it was settling causes of action which the participant banks may have had against PNC. As part of the DDI transaction, BSB was paid $100,000 for its interest in CBG's loan, and any causes of action that it may have had against PNC. A copy of a letter from PNC to BSB, dated October 31, 1996, and Termination of Participation Agreement, dated October 30, 1996, is annexed hereto as Exhibit "321." Said documents were not disclosed by PNC, but were obtained from BSB by plaintiffs pursuant to a subpoena duces tecum.
- PNC conducted the financial
transactions, which occurred after the filing of CBG's bankruptcy petition, and which
are identified in the DIME bank statements, annexed hereto as Exhibit
"303": knowing that the funds represented the proceeds of unlawful
activity, and "specified unlawful activity", within the meaning of 18 U.S.C.
1956, and in order to promote the carrying on of said activities, and to
conceal or disguise the nature, source, ownership or control of the
proceeds of said activity.
- As part of conducting
the transactions identified herein, and in connection with CBG's bankruptcy case,
PNC knowingly and fraudulently concealed the payment streams and
interest spread, belonging to the estate of a debtor, CBG, from creditors and
the U.S. Trustee; and knowingly and fraudulently received material
amounts of funds from the debtor, CBG, after the filing of CBG's bankruptcy
petition, with intent to defeat the provisions of title 11.
- As part of its ordinary course of business in
carrying out the transactions, events and occurrences alleged herein,
PNC made numerous mailings, some of which are annexed hereto, and uses
of interstate wire facilities.
- Based on these transactions, occurrences and events, PNC committed, as part of the same pattern of racketeering alleged in the original complaint, numerous RICO predicate acts of Bankruptcy Fraud (i.e., fraud connected with a case under title 11), Money Laundering (18 U.S.C. 1956), Mail Fraud (18 U.S.C. 1341), and Wire Fraud (18 U.S.C. 1343).
Dated: May 27,
Palisades Park, NJ 07650-2345
FAX: (201) 816-1688
1 This pleading both amends the complaint pursuant to
Federal Rule of Civil Procedure 15(a), and supplements the complaint
pursuant to Federal Rule of Civil Procedure 15(d). However, because of the
enormous size of the original complaint and exhibits, and the fact that
the amendment of the original complaint herein only adds additional
transactions, events and occurrences: Plaintiffs are submitting this
pleading in the form of a supplement to the original complaint with
paragraphs that continue the numbering of the original complaint and
exhibits, without physically duplicating the entire original complaint and
exhibits, which are incorporated herein by reference, for the convenience
of the Court and all parties.
2 All references to PNC refer to (a) First Eastern
Bank, N.A. prior to its merger with PNC Bank, N.A., and (b) PNC Bank, N.A.
after its merger with First Eastern Bank,