FDIC Targets S.S. Chatwal; 3 Indian Banks Get Powerful Ally

NEW YORK – If there is one United States agency that is wise to the ways of crooks and cheats who defraud banks, and especially relentless in their pursuit, it is the Federal Deposit Insurance Corporation, popularly known as FDIC – the governor guys who insure your bank deposits for up to $100,000. Recall the savings and loans banking scandals? Remember Whitewater and the Clintons? Now the FDIC is after Sant Singh Chatwal and His mysterious millions. In July of 1995, Chatwal was forced into an involuntary bankruptcy by State Bank of India, Bank of Baroda, and Bank of India who jointly claim losses of over $22 million at the hands of Chatwal.

Allegations Of Over $38 Million Embezzlement

Now recent court papers, filed by FDIC last month, allege bank fraud to the tune of over $38 million through the machinations of Sant Chatwal and other directors against the First Bank of New York, previously known as First Women's Bank.

To the Indian community here and abroad, Chatwal made his name and fame as a high flying restaurateur and operator of budget hotels. But few realized that around July 1987 Sant Singh Chatwal bought his way into the First Bank of New York and became one of its principal directors. At this time, it is not clear how much Chatwal paid for this privilege, but it is estimated to be around $2 million. What is clear, however, is that according to the FDIC, the bank suffered loses of over $38 million because some or all of the bank's directors abused their fiduciary responsibility. Specifically, it accuses Chatwal of being responsible for at least $25 million of the banks losses of which over $14 million were to his own entities.

Chatwal Loans $11.3 Million to Himself

Shortly and immediately after becoming a director of First Bank of New York, in a remarkable period of less than six months, between August 1987 and March 1988, Chatwal arranged seven different preferential loans from this bank to his own related business interests for a total of about $11.3 million – all in violation of New York State and U.S. banking regulations with respect to loans to bank insiders.

The first loan in August 1987 was for $3.9 million to Park Plaza Hotels, Inc. which was owned by Chatwal and other partners.$1.2 million of this amount was to be used by Chatwal to buy off his partners, and the balance $2.7 million was to be used to buy two mortgages of Palace International Hotels on Park Avenue South. The Palace International Hotel, in turn, was owned by Chatwal Hotel and Restaurants, Inc. this loan was extended and re-extended to about May 1991.

The second loan, in October 1987, was to Chatwal himself for $1 million. It was unsecured, nevertheless quickly approved. Each draw on the line was payable in a year. By August 1989, this line was exhausted, in arrears, and overdue. Sant claimed “cash flow difficulties."

The third loan came in February 1988, and again, it was to Chatwal himself for another $1 million. Presumably this was a construction loan for the President Hotel located on 48th street. Interestingly, the collateral provided for this loan besides Chatwal's personal guarantee was a second mortgage on International Inn, a hotel in Daytona Beach, Florida which was also owned by Chatwal.

In the same month, and at the same time, Chatwal received a fourth loan of $1.4 million for S.B. Restaurant of Bayshore, Inc. which was in effect a subsidiary of Bombay Palace.

A month later, march1988, Chatwal arranged three additional loans. $1.1million loan was given to LoGuidice Chatwal's interest in a property on 23rd street. Finally, additional loans of $1 million and $1.9 million were secured for Bambay Palace – despite the fact that they were unsecured and based on the cash flow of restaurants which showed “negative working capital for at least three years and an inability to meet debt service obligations."

In all of the above loan cases, FDIC asserts that there was reckless disregard of state and federal banking statues, that these loans contained more than the normal risk of payment and the loans were either “not attractive" or “sub- standard," that the loans were based on “un-audited and stale" financial statements, that the loans were not based on any substantive analysis, and that the loans represented “unsafe concentrations of credit." The First Bank of New York repeatedly wrote, extended or renewed the Chatwal loans" in spite of frequent criticism from the regulators.

Chatwal Buys $4 Million Penthouse

In September 1988, Chatwal arranged one last loan from First Bank of New York and that, too, on highly unusual and favorable terms. And this was for his 7,000 sq. ft. plus luxury penthouse at 300 East 93rd Street, which was appraised in October 1989 for at least $4 million.

This time the loan was for Chatwal's wife, Pardaman, for the sum of $1.8 million to acquire the vast condominium penthouse. Three years later, in September 1991, bank of India remitted $1.837 million to the First Bank of New York which then released its first mortgage on the penthouse.

At some point in time, the luxury penthouse was sold to KGW Real Estate Investment which leases the condominium to Chatwal's brother in his bankruptcy examination, Chatwal asserted that that he pays his brother $3,500 every month for rent and that his wife, Perdaman, pays an additional $1,500 per month. This, too, seems incredible since the monthly market rent for Chatwal's penthouse would be in excess of $15,000 according to real estate officials familiar with the place.

Between the loans for the business, the penthouse, and to himself, FDIC claims losses of over $14 million because of Sant Singh Chatwal's gross negligence and his as a fiduciary agent of the First Bank of New York. FDIC had to take over the bank when it want defunct in November 1992.

FDIC, Indian Banks, And Trustees Extend Deadlines

Yann Geron, the Trustee in Chatwal's bankruptcy case, has already extended the time to object to Chatwal's discharge till April 30, 1996 and may request additional extensions as he feels necessary or compelled by others.

Richard Last, speaking for the three Indian banks, applied for an extension to the bankruptcy court t by stating, “This is not a routine bankruptcy of an average debtor by any means. In reality, this is a $100 million bankruptcy which cannot be resolved within 60 day period within which to file objections." Moreover he also stated, “It is somewhat incredible that a person with $100 to his name can meet the Prime Minister of India with representatives of billion dollar multinational corporations, and so forth." And elsewhere, “The petitioners are not accepting Mr. Chatwal's excuses and are not taking his schedules at face value. The petitioners wished to have published public notices in various newspapers in an effort to investigate where Mr. Chatwal's assets may indeed be located, and whether in fact his schedules are true and accurate in all respects."

FDIC has similarly requested to file objections against Chatwal Till September 1996.

So far, all of these court documents lead to one conclusion – that Sant Singh Chatwal's full-court examination is yet to come and that it is only going to get worse. Next week, more on the man and his empire.

Source: India Monitor
Volume VI…No.290
New York
Sunday
March 10, 1996
Part 4