Former Title Company Owner Heads to Prison
in Bank Fraud Conspiracy
|U.S. Attorney’s Office February 18, 2015|
HOUSTON—Harris County resident
has been ordered to prison following his conviction for defrauding seven different Houston-area banks or more than $2 million in 2007 and 2008, announced United States Attorney Kenneth Magidson. Smith pleaded guilty Oct. 9, 2013.
Today, U.S. District Judge Lee H. Rosenthal, who accepted the guilty plea, handed Smith a 36-month sentence to be followed by three years of supervised release. He will also have to pay $2,078,783.68 in restitution.
As outlined in documents filed with the court and admitted by Smith during his guilty plea, he orchestrated a check kiting scheme that targeted seven different financial institutions in the Houston area. The scheme used multiple bank accounts held in the name of title companies and financial service companies Smith controlled. Smith carried out the scheme by signing checks drawn on the business accounts of these companies knowing the accounts lacked sufficient funds to cover the checks.
At Smith’s direction, an employee of the title companies named Maria Eliza Garza deposited the checks into other company accounts. This conduct artificially inflated the account balances. Smith then wrote additional checks, using the inflated balance caused by the deposit of the insufficient fund checks and caused Garza to deposit those checks into either the original issuing account or other company accounts.
Smith admitted that he used the fraudulently-inflated account balances at the Houston-area banks without institutional approval as interest-free loans, lines of credit and sources of funds for his personal use. He admitted he and Garza discussed these account balances on a near daily basis and that even after two of the Houston-are banks discovered the kiting scheme and notified him that they were closing his accounts, Smith continued the kiting scheme by opening new accounts at two different financial institutions.
From January through June 2008, the number and amount of checks kited by Smith increased substantially. During this six-month time period, the combined deposits of nine accounts at the remaining Houston-area banks totaled $128,499,315.99. Almost 99% of these deposits—$127,010,571.40—were from checks made payable between the nine accounts. The kiting activity occurred on a near-daily basis and averaged almost 14 deposited items per day. Smith signed approximately 98% of the checks used during this time period.
The scheme collapsed in June 2008, when another bank learned of these financial irregularities and suspended Smith’s immediate access to checks deposited in the corporate accounts. The scam caused a total loss of $2,078,783.68.
Garza also pleaded guilty to conspiracy to commit bank fraud. She was sentenced Jan. 21, 2015, to 18 months in prison and restitution for the full loss amount.
Smith was permitted to remain on bond and voluntarily surrender to a U.S. Bureau of Prisons facility to be determined in the near future.
The investigation was worked jointly by the FBI, Harris County District Attorney’s Office and the Webster and Friendswood Police Departments. Assistant U.S. Attorney John Pearson is prosecuting the case.