PHILADELPHIA (Legal Newsline) - Two former senior officers of a finance company were sentenced earlier this month to lengthy prison terms and to pay $53 million in restitution for fraud.
The Securities and Exchange Commission had accused Joseph Braas and Michael Schlager of orchestrating a five-year long sophisticated financial scam. They worked for Equipment Finance, formerly a commercial lender to the soft pulp logging industry and wholly owned subsidiary of Sterling Financial Corp., a publicly traded bank holding company based in Lancaster, Pa.
The SEC filed a civil action against Braas and Schlager based on the criminal case on Jan. 6, 2011. The two were accused of orchestrating a pervasive and wide-ranging scheme using fraudulent underwriting and reporting practices to hide mounting losses and defaults within EFI's commercial loan portfolio from Sterling's senior management and auditors.
Braas and Schlager agreed to settle the matter and the judgments were entered. For the criminal matter, Braas was sentenced to 15 years in federal prison, and Schlager received a sentence of 20 years in prison, each followed by five years of supervised release.
According to the complaint, Braas and Schlager caused EFI to report false financial information to Sterling which, in turn, from 2002 through 2006, filed quarterly and annual SEC reports which were materially false and misleading.
As a result of the fraud, Sterling ultimately charged off $281 million of EFI finance receivables, which represented a large majority of EFI's loan portfolio, and approximately 13 percent of Sterling's total loan portfolio during the period of the fraud, the SEC said.