The following is excerpted from the "Statement of Facts" presented by the Maryland Attorney General last Tuesday, May 27, when Jeffrey A. Levitt pleaded guilty in the Circuit Court of Baltimore City to 25 counts of embezzling and misappropriating $14.7 million from Old Court Savings and Loan.
THE STATE OF Maryland, by its undersigned attorneys, respectfully submits the following statement of facts in support of the guilty pleas entered by the defendant Jeffrey Levitt in the above-captioned case.
I. Background and the Defendant's Fiduciary Positions
In the early and mid-1970s the defendant, Jeffrey Alan Levitt, a member of the Maryland bar since June 1970, was engaged in the practice of law primarily involving real estate settlements and investments. By 1978, the defendant had become secretary, general counsel and settlement attorney for First Progressive Savings & Loan Association, Inc. ("First Progressive"), a mutual association chartered in 1914 with an office in Baltimore City. First Progressive, like all state-insured savings and loans, was regulated by the Maryland Savings-Share Insurance Corporation ("MSSIC"), a non-profit insurance corporation, and the Division of Savings and Loan Associations of the Maryland Department of Licensing and Regulation (the "Division"), a state agency.
In 1978, both MSSIC and the Division became concerned about mismanagement at First Progressive. A lengthy examination of the books and records of First Progressive, conducted by Division examiners as of February 28, 1978, revealed numerous violations of state laws and regulations.
Among the violations uncovered by the examiners were four loans to Levitt personally, all of which were at least six months delinquent in interest payments. According to the examination report, Levitt, as settlement attorney for First Progressive, repeatedly breached his fiduciary duty to the association by charging borrowers for title insurance policies but failing to provide the title policy; failing to remit the correct amount of money to the association; failing to remit the association's funds on a timely basis; failing to remit properly monies from foreclosure sales; and, on at least two occasions, withholding disbursement of escrowed settlement funds intended to pay a third-party's real estate taxes while certifying that the taxes were in fact paid.
Even after the Division's 1978 examination was completed and provided to First Progressive officers and directors for comment and correction, Levitt continued to use his fiduciary positions at First Progressive as officer and settlement attorney to his personal gain at the expense of the association and its depositors.
In early 1982 Levitt, together with Allan Pearlstein, assumed greater control of First Progressive. In September 1982, barely six months after assuming control of First Progressive, Levitt, together with Allan Pearlstein, purchased a majority interest in Old Court Savings & Loan, Inc. ("Old Court"). The funds used to purchase Levitt's interest were stolen from First Progressive.
Prior to the purchase of the stock by Levitt and Pearlstein, Old Court was a "conservatively-run savings and loan investing primarily in residential FHA and VA-insured mortgages."
Following his purchase of Old Court stock through money stolen from First Progressive . . . Levitt became president and director of Old Court. He continued to hold these positions until May 1985, shortly prior to Old Court's being placed in conservatorship by the state. From the fall of 1982 until May 1985, Levitt also served as officer and/or director of Old Court Joint Venture, Inc., Old Court Investment Corporation, Meridian Mortgage Investment Corporation, Bankers Realty, Inc., and Bankers Appraisal, Inc., wholly owned subsidiaries of Old Court.
In addition to holding the fiduciary positions of officer and/or director of Old Court, First Progressive and their respective subsidiaries, Levitt also continued to act as settlement attorney and escrow agent for both Old Court and First Progressive from the fall of 1982 until May 1985. In this capacity, Levitt received, on almost a daily basis, large loan checks from First Progressive and Old Court payable jointly to borrowers and Levitt as settlement attorney. These checks were deposited into either Levitt's attorney real estate escrow account or escrow accounts of Charles Street Title Company, a title company wholly owned by Levitt. As charged in the indictment, the defendant on many occasions willfully breached his fiduciary responsibilities to First Progressive, Old Court and the depositors of these associations by stealing and misappropriating, to his own benefit and the benefit of others, monies entrusted to him as settlement attorney.
Levitt also regularly served as trustee of construction escrow accounts set up at Old Court to fund various commercial projects. As charged in the indictment, Levitt breached this fiduciary obligation by stealing monies entrusted to him as trustee of a construction escrow account. Levitt continued to engage repeatedly in criminal conduct until early May 1985, when Old Court was placed into conservatorship.
II. General Operation of Old Court From September 1982 Through May 1985
A. The Fraudulent Portrayal of Old Court's Financial Condition.
After becoming president of Old Court, Levitt seized every opportunity to enrich himself at the expense of the association, its depositors and third-party borrowers. Having stolen the funds needed to acquire his interest in Old Court, Levitt did not hesitate to repeat his crimes again and again to amass a huge personal fortune and satisfy his appetite for material possessions. Phony entries on settlement sheets, fraudulent invoices, exorbitant fees for no services rendered, profits stolen from the association and borrowers in a variety of ways and rampant insider dealing became standard practice at Old Court.
In every conceivable sense, Levitt treated the association's and the depositors' money as if it were his own, lavishing himself, his family and his favorites with the fruits of repeated illegality.
The source of the funds stolen and misappropriated by the defendant came from the public at large. Under Levitt's direction Old Court embarked upon an aggressive advertising campaign in Baltimore City, the State of Maryland, and throughout the country, promising interest rates among the highest in the nation. Old Court created a "money room" to deal with the response to Levitt's aggressive advertising efforts. Old Court employees assigned to the "money room" received mail inquiries, answered telephone calls from across the country generated by advertisement of a toll free telephone number, opened new accounts, and mailed out information packets to persons responding to advertisements offering the "Old Court Advantage."
By late 1984 and early 1985, the "money room" was inundated by telephone and mail responses to advertisements placed by Old Court in newspapers throughout the country. Any potential customer who sought information on Old Court was sent a copy of Old Court's latest published financial statement, purportedly reflecting the association's assets, liabilities and net worth. Old Court employees in the "money room" mailed thousands of the preprinted statements of Old Court's financial condition to the public. Many depositors were lured not only by high interest rates but also by the apparently profitable financial condition of the association. However, the true financial condition of Old Court was masked by the booking of false profits that misled the investing public and state regulators. By late 1984 Old Court's published financial statements were grossly inaccurate.
Following the collapse of savings and loans in Ohio in March 1985, many investors became wary of state-insured savings and loans. Depositors from across the country contacted Old Court to inquire about the association's financial stability. Many depositors withdrew their funds from the association, creating a "silent run" on Old Court's deposits. In an effort to stem the withdrawals and bring in fresh money, Levitt stepped up Old Court's advertising campaign. In addition, Levitt sent a letter to some Old Court depositors and potential investors assuring them of Old Court's stability. In this letter, Levitt represented that Old Court was in compliance with MSSIC regulations, and that customers "can be sure that the trust they have placed in Old Court Savings & Loan is well-deserved, and will be well-rewarded." Yet when he signed this letter, Levitt well knew that the trust reposed in him by depositors of Old Court had been violated on countless occasions. Moreover, even as Levitt assured the public of the security of their deposits, many recipients of this letter were receiving a published statement of Old Court's financial condition that Levitt knew was totally misleading.
In an effort to present the appearance of a profitable institution, at Levitt's direction false profits in connection with a number of transactions were entered on the books and records of Old Court. For example, at the defendant's instruction, Old Court would enter into a contract to acquire real property. Frequently, prior to taking title, Old Court would immediately sell the property at a higher price, simultaneously making a loan to the new purchaser in an amount greater than the new purchase price. Levitt typically authorized non-recourse loans to such purchasers who invested none of their own funds. Consequently, only Old Court's money was at risk. Old Court would nevertheless book the "profit" on the transactions even though no real profit had inured to the benefit of the association or been received by it.
As reflected in a number of the charges in the indictment, Old Court would also book millions of dollars of "profit" on transactions in which the "profit" was never actually received by the association but rather was embezzled by the defendant and others.
B. Fees, Loans and Other Personal Benefits Obtained by the Defendant.
During the period September 1982 through May 1985, Levitt received huge fees and other benefits from Old Court and First Progressive.
Levitt was paid a salary by Old Court Savings and Loan, Inc. totaling $178,538.56 for the two and a half year period. Levitt also received $3,510,043.80 in highly questionable "consulting" or "management" fees from Old Court subsidiaries pursuant to "contracts" approved by other insiders. At Levitt's instructions, his wife Karol received $42,000 in "consulting fees" from Meridian Mortgage.
Entities owned or controlled by Levitt also received large fees. Levitt-Pearlstein Management Co., Inc., a property management company in which Levitt had a substantial interest, and Pearlstein-Levitt Investments, a joint venture in which Levitt had a 50 percent interest, received $1,735,000 in "management" or "consulting" fees from Old Court or its subsidiaries during this period. Charles Street Title, a real estate title company owned by Levitt, received a $50,000 "consulting" fee.
In sum, Levitt or entities in which he had an interest received salary and fees totaling $4,414,482.36 over the two and one half years that he was president of Old Court. This amount does not include the many millions of dollars received by the defendant and his entities, Charles Street Title and Jeffrey Levitt Mortgage Services, as settlement fees regularly charged to borrowers of Old Court, many of which were partnerships partially or wholly owned by Old Court.
Levitt used the millions stolen from Old Court and First Progressive to support and finance a lavish lifestyle for himself, his family, and his friends. For the most part, Levitt deposited the stolen money into one of several personal accounts over which he had control and custody, and then used the funds to acquire real estate in his own and his family's name, invest in real estate and other joint ventures, invest in stocks and bonds, and acquire millions of dollars worth of tangible personal property such as numerous antique cars, jewelry, antique furniture and glassware, silver and the like.
One indicia of the extent to which Levitt's fraud enriched him and his family is a comparison of his 1982 and 1984 tax returns. In 1982, Levitt reported approximately $154,000 in gross income. By 1984, his federal income tax return reflected over $5 million in income for that year alone.
Although Levitt used a small part of his stolen fortune to make donations to charity, this was simply a charade to obtain respectability. Levitt began a so-called charitable organization, the "Levitt-Pearlstein Foundation," which made donations to a variety of needy individuals and organizations. However, with the exception of five dollars used to open the bank account for the Levitt-Pearlstein Foundation, the funds used to make these donations came from Old Court and its subsidiaries.
STEPHEN H. SACHS