LOS ANGELES–A former chief executive of a credit union who allegedly embezzled $40 million from his Studio City employer over the past two decades pleaded not guilty on Thursday to a federal criminal complaint charging him with siphoning off the funds to pay for gambling, expensive cars and watches and travel by private jet.
Edward Martin Rostohar, 62, of Studio City, was arrested on March 12 and charged with two felony counts, bank fraud and aggravated identity theft. He has been ordered detained as both a flight risk and an “economic danger to the community.”
At his arraignment hearing Thursday before U.S. District Magistrate Karen L. Stevenson of the Central District of California in Los Angeles, the former credit union executive waived the indictment filed against him last month by the U.S. Attorney’s Office – a legal maneuver that takes the case directly to a jury trial, now scheduled for June 11 before federal Judge Otis D. Wright II in Los Angeles.
Before a prosecutor can pursue a criminal charge, the prosecutor must prove to a court at a preliminary hearing or to a grand jury that there is sufficient evidence to meet the government’s burden of proving guilt beyond a reasonable doubt.
If the right to a grand jury or preliminary hearing is waived — which is what Rostohar did on Thursday – this essentially is an admission that the government has enough evidence to move forward to trial.
The waiver agreement is sometimes done if the prosecutor is offering a plea bargain that may go away if the evidence is challenged.
Adam Olin, a public defender representing Rostohar, declined to comment on the waiver.
Possible Sentence
If convicted on both charges, Rostohar faces a maximum 30 years in federal prison and a $1-million fine on thee bank fraud counts and a mandatory consecutive term of two years in prison on the aggravated identify theft count.
The charges against Rostohar were made in conjunction with the U.S. Attorney’s Office by NCUA, which liquidated the $20-million C B S Employees Federal Credit Union and discontinued its operations after determining the financial institution was insolvent. The $715-million University Credit Union, located in the northeastern Los Angeles suburb of Westwood, asset C B S Employees’ assets, loans and all member shares on March 29.
Prior to his 30 years of employment at the C B S Employees credit union, Rostohar was an examiner with the NCUA. As CUToday.info reported here, Rostohar allegedly disclosed to law enforcement investigators this is what gave him the background on how to elude NCUA’a examiners each year, according to a copy of the affidavit filed with the criminal complaint.
What Affidavit States
The affidavit states that, beginning before 2000 and continuing until about a month ago, Rostohar used his position as CEO to make online payments from the credit union to himself or by forging the signature of another credit union employee on checks made payable to himself.
Stuart Perlitsh, a former chief executive officer who retired from Glendale Area Schools Federal Credit Union in Glendale, Calif. in March 2017 and who attended the hearing Thursday, said he was astonished at how Rostohar could have perpetrated the fraud for so many years.
In the Los Angeles area, several credit union heads, including himself and several with entertainment-related credit unions, would meet on a quarterly basis at the Smoke House restaurant in Burbank or at their institutions to discuss best practices in the industry, the latest government regulations impacting business or consumer fraud.
‘Never Seen Him Before’
“I have never seen him before today,” said Perlitsh, whose Glendale credit union is 15 miles to the east of the C B S Employees institution. “I’ve never seen him at any credit union conference. The credit union industry of CEOs is a small network. I think it helped that he stayed out of the limelight.”
Perlitsh said he was angered not so much at Rostohar’s behavior, but more with the NCUA, as the agency had failed to detect the fraud in 20 years of examinations and the filing of more than 80 quarterly call reports.
“The credit union industry will end up paying for this through its deposit insurance fund. Their job (NCUA) is to protect the share insurance fund,” he said. “They will have to replenish it.
How Scheme Was Uncovered
As CUToday.info reported, the alleged scheme was uncovered on March 6 when Chery Sicka, the former assistant manager at C B S Employes, found a $35,000 check made payable to Rostohar, and the check did not include the reason for the high-dollar amount, according to court documents. Sicka conducted an audit of the credit union checks issued since January 2018 and discovered $3.775 million in checks made payable to Rostohar that contained the forged signature of Anna Nalbandyand, a member service rep, without Nalbandyand’s knowledge.
Later, after Rostohar was asked to leave the credit union and had returned home, court documents show Rostohar’s wife in Studio City called a 911 emergency hotline to inform the dispatcher that her husband had stolen money from work and was leaving the country.
An NCUA examination up to Feb. 28, 2019, revealed a potential loss to the credit union of $40,541,130, nearly double the size of the institution at the time it was liquidated.
Rostohar allegedly said he gambled away much of the money and spent the rest on traveling by private jet, buying expensive watches, and giving his wife a weekly allowance of $5,000.
He also said that he bought two cars – a Porsche and a Tesla – with money he stole from the credit union, the court papers state.
Rostohar also allegedly admitted to starting a business with another woman in Reno Nev. in December 2018, and wrote “tens of thousands of dollars" worth of checks to himself to cover the business’s cost as well as to pay a $5,000 monthly mortgage on a million-dollar home in Reno that he recently purchased.