A 35-year-old former vice president of banking giant Citigroup Inc. returned from a trip to Bangkok, Thailand, on Sunday to learn that there was a warrant out for his arrest. He is accused of one of the largest embezzlement schemes one CPA fraud examiner has ever heard of — involving $19.2 million in bank funds allegedly diverted to his own accounts. He pled not guilty to the allegations in federal court in Brooklyn, New York, on Monday.
Unbelievably, the alleged embezzlement of $19.2 million from Citigroup’s debt-adjustment and interest-expense accounts apparently went unnoticed until a recent audit of Citigroup’s treasury department. Citigroup officials, describing themselves as “outraged,” immediately reported the suspicious transactions to the FBI and are “cooperating fully to ensure Mr. Foster is prosecuted to the full extent of the law,” according to a statement.
Based on Citigroup’s reports, prosecutors claim that, between May 2009 and December 2010, the young VP used fake contract numbers and deal account numbers on eight separate wire-transfer instructions in order to make large money transfers appear to be supporting existing Citigroup contracts. He then somehow diverted the money to Citigroup’s cash accounts and then into his own account — at J.P. Morgan Chase.
Prosecutors call the embezzlement scheme ‘the ultimate inside job’ — but how could it have been accomplished by a single person and gone unnoticed for over a year?
Prosecutors have not detailed how the complex system of transactions was tied to the accused, except to say that the embezzlement scheme would have required specialized knowledge. “The defendant allegedly used his knowledge of bank operations to commit the ultimate inside job,” said the U.S. Attorney for the Eastern District of New York.
A certified fraud examiner and public accountant interviewed by Westlaw News & Insight confirmed that it would be extremely difficult for a single employee to bypass internal bank controls, which typically require more than one individual to sign off on large money transfers. The case is also unusual in that so much money was allegedly stolen in such a short time.
“I’ve never known an embezzlement of this magnitude,” the fraud examiner said. “It’s not a large amount of money in the scheme of payments, but for an embezzlement case, it’s one of the largest I’ve ever seen.”
In cases of alleged white collar crimes, one of the issues that comes up frequently is whether the defendant’s actions are indicative of a crime — or whether they merely represent accounting or paperwork errors. Prosecutors will have their work cut out for them as they attempt to prove how the purportedly missing money traveled through various internal accounts at Citibank and into the former vice president’s personal bank account.
The young VP, who left Citigroup in January of this year, could face up to 30 years in federal prison if convicted. One of his criminal defense lawyers told the press that he “is planning on fighting it.”
The VP was released on Monday on $800,000 bail, which was partially secured by a lien against his parents’ home. He was forced to surrender his passport and is required to remain within the confines of New York and New Jersey.
Source: Westlaw News & Insight, “Ex-Citigroup VP pleads not guilty in fraud case,” Jessica Dye, June 27, 2011