FOR IMMEDIATE RELEASE CIV

TUESDAY, MARCH 3, 1998

U.S. SUES FIVE INDIVIDUALS FOR FRAUDULENT SCHEME

CONTRIBUTING TO THE FAILURE OF COREAST SAVINGS BANK

WASHINGTON, D.C. -- The United States has sued five

individuals alleging they engaged in a fraudulent conspiracy that
contributed to the failure of CorEast Savings Bank by funneling
millions of dollars in loans from CorEast and its predecessors
into several dubious New York City construction projects in which
the banks' chairman, Arthur G. Cohen, had secret, pecuniary
interests, the Department of Justice announced today.

The complaint--which alleges bank fraud, misapplication of

funds of a financial institution, bank bribery, illegal
participation in loans, falsification of bank records, false
statements to bank regulators, and conspiracy to violate federal
banking laws--asked for civil penalties of more than $100 million
under the provisions of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA, 12 USC, § 1833a).

Assistant Attorney General Frank Hunger of the Civil

Division and U.S. Attorney Robert P. Crouch Jr. of Roanoke said
the complaint was filed under seal February 25 in U.S. District
Court in Roanoke, Virginia. The case was assigned to Chief Judge
Samuel G. Wilson, and the complaint was made public today.

Named as defendants were Arthur G. Cohen, a New York City

real estate developer who served on the boards and executive
committees of the Virginia banks; Marvin B. Tepper of Sands
Point, New York, and Steven M. Terk of New York City, who both
served on the boards and executive committees of the Virginia
banks; Lawrence M. Goodman of New York City, who is Cohen's
nephew and borrowed millions of dollars from the banks; and Ilyne
R. Mendelson of New York City, who was a lawyer for the banks.

The banks included First Federal Savings and Loan

Association of Roanoke; Colonial Savings and Loan Association of
Richmond; and CorEast Savings Bank, which was formed through the
merger of Colonial and First Federal in 1988. Cohen acquired
control of Colonial in 1984, First Federal in 1986 and CorEast in
1988. All were insured through the Federal Savings and Loan
Insurance Corporation and later through its successor, the
Federal Deposit Insurance Corporation (FDIC).

Hunger said, "Congress enacted FIRREA to combat and deter

fraudulent conduct that threatens the safety and soundness of the
nation's financial institutions. The message to the financial
community from the complaint should be clear and unambiguous: law
enforcement will not tolerate attempts to circumvent federal
banking laws or conceal unlawful conduct. The law requires, and
law enforcement expects, that individuals entrusted with the
management of financial institutions will abide by the law, all
regulatory requirements, and the highest standards of corporate
citizenship."
 The Department also asked the court for an injunction to
enjoin Cohen from dissipating assets while the suit was pending.

In 1985, the complaint said, the Federal Home Loan Bank

Board (FHLBB) advised Cohen that federal regulations prohibited
direct and indirect transactions between federally-insured banks
and Cohen or his affiliates. The complaint alleged that Cohen
repeatedly told the FHLBB that he understood that he could not
have a personal interest in any project financed by the Virginia
banks.

Nonetheless, according to the complaint, Cohen caused the

Virginia banks to make $34.1 million in loans to New York City
cooperative conversion projects, while concealing from the
regulators and the boards of the banks that he shared in the
proceeds of loans and had other pecuniary interests in the
projects.

The complaint also asserts that Cohen's companies secretly

shared in the proceeds of loans from the Virginia banks.
According to the complaint, Cohen's companies were DCI
Contracting Corporation (an interior and architectural design
company), Kingswood Management Corp. (a real estate management
company), and Fleetwood Realty Corp. (a sales agent for various
projects). The scheme, according to the complaint, was
accomplished with the active participation of all defendants, and
concealed through fraudulent bank records and false statements to
bank regulators.

The complaint alleges that Cohen committed 23 violations of

federal banking law, including conspiracy, bank fraud,
misapplication of bank funds, bank bribery, illegal participation
in loans, false statements to bank regulators, and falsification
of bank records.

According to the complaint, Terk and Tepper allegedly

conspired to violate the law and caused the falsification of
board minutes, while Mendelson allegedly aided the conspiracy by
distributing loan proceeds for the benefit of Cohen and his
companies and through other actions. The complaint alleged that
Goodman, in conspiring to violate federal law, entered into an
unlawful quid pro quo arrangement by which Goodman agreed to use
Cohen's companies and pay them $1 million in overcharges and, in
exchange, Cohen caused CorEast to lend funds to Goodman to
compensate for the overcharges.

Under FIRREA, if found liable, the defendants face civil

penalties of up to $1 million for each violation and civil
penalties for the pecuniary losses to the Virginia banks and the
United States and the pecuniary gains of the defendants and
others.

Hunger praised the Federal Bureau of Investigation for its

efforts in conducting the investigation of this matter.

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98-096