Businessman Pleads Guilty to Loan Fraud

Allison Tussey —  November 8, 2012 — Leave a comment

A. Eddy Zai, 44, Pepper Pike, Ohio, pleaded guilty to nine counts and agreed to forfeit $16.7 million for his participation in a fraud scheme against St. Paul Croatian Federal Credit Union.

Zai pleaded guilty to one count of conspiracy to commit bank fraud and bank bribery, two counts of bank fraud, three counts of money laundering, one count of bribery, and two counts of making false statements of financial institutions.

Zai conspired with others, including Anthony Raguz, the former chief operating officer of the St. Paul Croatian Federal Credit Union (SPCFCU), to submit false loan documents to the credit union, defraud the credit union of approximately $16.7 million, and pay bribes and kickbacks to Raguz for using his position at the credit union to approve numerous loans to Zai and the entities and nominee companies he controlled, according to the indictment.

The conduct took place between December 2003 through March 2010, according to the indictment.

SPCFCU, Eastlake, Ohio, was placed into conservatorship by the National Credit Union Administration on April 23, 2010. One week later, the NCUA liquidated SPFCFU and discontinued its operations after determining the credit union was insolvent. At that time, SPCFCU served about 5,400 members and was believe to have assets of approximated $239 million.

At all times herein, Zai owned, operated and controlled The Cleveland Group LLC (aka the Cleveland Group of Companies) and its many related entities, which included: Cleveland Flooring & Designs Ltd.; Alpina Inc.; Cleveland Development Group LLC; The Cleveland Group, Environmental, LLC; Cleveland Real Estate Group Inc.; The Cleveland Group Real Estate Division; The Cleveland Group, Excavating Division; Cleveland Management Group Inc.; The Cleveland Group, Construction Division; The Cleveland Group, Consulting Division; The Cleveland Group Ltd.; 417 Ltd.; 417 Limited; and Sutton Park Ltd. Certain of these entities were created primarily to operate as a “safe haven” for credit union proceeds, while others performed little or no legitimate business despite having loan proceeds intented for Zai‘s “business” ventures, according to the indictment.

Zai also engaged in a scheme to defraud the credit union by, among other things, submitting loan documents for and receiving loan proceeds on behalf of companies that ceased operations, according to the indictment. Zai continued to seek and obtain loan proceeds in the name of non-operating entities even after he directed that no loan payments be made to the credit union. This scheme to defraud the credit union resulted in an approximately $13.7 million loss, according to the indictment.

The indictment alleges further that Zai submitted numerous false loan documents to the credit union between March 2008 and July 2009 in order to influence the credit union’s decision to approve loans to the companies he controlled.

Zai gave Raguz numerous cash payments, usually in the form of $100 bills concealed in envelopes and hand-delivered to Raguz at the credit union’s offices and totaling more than approximately $5,000, according to the indictment. The payments were made to both induce Raguz to approve additional fraudulent loan applications and to reward Raguz for having previously approved false loan applications, according to the indictment.

“Mr. Zai thought he could take a shortcut to success,” said Steven M. Dettelbach, United States Attorney for the Northern District of Ohio. “But by bribing a bank executive and defrauding investors, his shortcut trampled over the rights of others. He will now have to begin the long path to repay society.”

“This case is the result of a lengthy joint investigation between the FBI and the IRS. Zai was the single largest recipient of fraudulent loans and significantly contributed to one of the largest collapses of a credit union in U.S. history,” said Stephen D. Anthony, Special Agent in Charge of the FBI’s Cleveland Field Office.

This case is being prosecuted by Assistant U.S. Attorneys Bridget M. Brennan and John D. Sammon, following an investigation by the Cleveland Field Office of the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation Division.

Allison Tussey

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