Royal Bank America, which operates 15 branches in Pennsylvania and New Jersey, co-owned two firms with a lawyer who pleaded guilty to conspiring to rig bids at municipal tax lien auctions.
Attorney Robert W. Stein, of Huntingdon Valley, Pennsylvania, was one of two men who admitted last week that he schemed to eliminate competition by allocating bids at public auctions by the state’s municipalities.
Stein was a 40 percent owner of Crusader Servicing Corp. and Royal Tax Lien Services, said Colm F. Connolly, a lawyer for the two companies. Royal Bank, a unit of Royal Bancshares of Pennsylvania Inc., owns 60 percent of the Jenkintown, Pennsylvania-based companies, according to filings with the U.S. Securities and Exchange Commission.
“Both entities have been cooperating with the government,” Connolly, of Philadelphia-based Morgan Lewis & Bockius LLP, said yesterday in an interview. He said Stein was “effectively terminated” as president of the two companies in November 2010.
Court papers from Stein’s Feb. 23 guilty plea in Newark, New Jersey, don’t identify his companies, saying only that he was president of Pennsylvania corporations -- identified as Company 1 and a successor, Company 2 -- that bought liens.
David M. Farber, of Cherry Hill, New Jersey, also pleaded guilty. Stein and Farber are cooperating in a U.S. Justice Department antitrust probe, prosecutors say.
They are among five men who have pleaded guilty in New Jersey since August. Stein’s lawyer, Paul Zoubek, didn’t return calls seeking comment on the cases. Farber’s attorney, Michael Mustokoff, declined to comment. At least three people have pleaded guilty to similar charges in Maryland.
“My sense is the investigation is widening,” Vincent Belluscio, executive director of the state tax collectors and treasurers association, said yesterday in a phone interview. “They’re looking for larger investors that are doing the same thing. They’ve got the smaller fish. I don’t think that’s all they’re looking for.”
The borough of Newfield in Gloucester County, New Jersey, has received a Justice Department subpoena seeking documents from its March 2007 sale of tax liens, said John Eastlack, a lawyer for the town. Newfield had a population of 1,616 in the 2000 census.
“I assume it has something to do with whoever purchased the tax liens,” Eastlack said today in a phone interview. “We’re getting the records together.”
New Jersey municipalities auction about $100 million a year in tax debts on commercial and residential property to investors, Belluscio said. Bidders on tax liens are supposed to compete fairly for the right to buy liens and collect taxes on property, with bidding starting at 18 percent and then going lower, prosecutors said.
Stein, Farber and others agreed not to bid against one another at auctions, prosecutors said. That rewarded their firms with higher interest on liens they bought while forcing property owners to pay more to retire their tax debts, prosecutors said.
Firms that buy delinquent liens may earn as much as 30 percent on their investment, Belluscio said. In addition to interest of as much as 18 percent on delinquent liens, tax lien firms may add penalties of up to 12 percent, he said.
Banks “are very involved” in the process, Belluscio said. Banks provide loans to lien firms and also package liens they purchase into bonds that they sell to investors, he said.
Royal Bank acquired its interest in Crusader Servicing as part of its 2001 acquisition of virtually all assets of Crusader Holding Corp., and is now gradually liquidating the firm. Royal Bank formed Royal Tax Lien Services in 2006, according to Royal Bancshares (RBPAA) regulatory filings.
Royal Bancshares said in a March 31, 2010, regulatory filing that Crusader Servicing and Royal Tax Lien Services are “subjects” of a U.S. probe into rigged tax lien auctions.
Royal Bank’s tax lien business recovers its investment when property owners pay off their liens or a property undergoes foreclosure. The bank said it earned about $1.9 million in interest income for the nine months ended Sept. 30.
Marc Sanders, a spokesman for Narbeth, Pennsylvania-based Royal Bank, declined to comment.
JPMorgan Chase & Co. (JPM)’s Xspand subsidiary and Vienna, Virginia-based Mooring Tax Asset Group received grand jury subpoenas in 2009, according to a prospectus that year for New York City tax-lien bonds that are serviced by the firms.
Justin Perras, a spokeswoman for New York-based JPMorgan, and Gina Talamona, a Justice Department spokeswoman, declined to comment. Julia Mazak, a spokeswoman for Mooring Tax Asset, which is now known as MTAG Services, didn’t have an immediate comment.
Tax liens, which are also known as tax certificates, are secured by claims on the underlying real estate and take priority over mortgages.
Stein’s lien scheme ran from 1998 to 2009, while Farber was a member of the conspiracy from 2005 to 2009, prosecutors said. Farber was a partner in DSBD LLC, which managed investments held by two funds -- CCTS Tax Liens I LLC and CCTS Tax Liens II LLC -- that invested in municipal tax liens, court papers show.
In 2009 Farber co-founded a company called Pro Capital LLC that acquires tax liens in New Jersey, New York and Florida, according to Pro Capital’s website. Farber declined to comment.
Farber is also associated with U.S. Material Supply Inc., a Barrington, New Jersey-based company that sells to European nations spare parts for American-made tanks and other military vehicles, according to John Ferguson, who works at the parts company. U.S. Material Supply is unrelated to Pro Capital, Ferguson said.
The cases are U.S. v. Stein and U.S. v. Farber, U.S. District Court, District of New Jersey (Newark).
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