Opinion ID: 796856
Heading Depth: 3
Heading Rank: 2

Heading: Discovery of Check Kiting Scheme Leads to Uncovering of Embezzlement by Steven Miller

Text: 9 Unfortunately for Oakwood, the bank's CEO, Steven Miller, was embezzling from Oakwood. It was the check kiting scheme that led to the discovery of Miller's embezzlement. When Liberty began returning checks to Oakwood in November 2001, Oakwood became overdrawn and was forced to borrow from the Federal Reserve three times over the course of four days. This amount of borrowing activity raised red flags because it was unusually high. Jason Tarnowski, chief enforcement officer of the Federal Reserve Board, went to Oakwood to meet with Miller and discuss his concerns. Tarnowski reviewed Oakwood's records of the WCOP account. In examining WCOP's tax return for 2000 and related bank records, Tarnowski thought it odd that WCOP had total receipts in 2000 of $35.2 million and checking account activity in October 2001 of over $43 million. Tarnowski examined the WCOP account activity and determined that a check kite was occurring between the WCOP account at Oakwood and the SMAS account at Liberty. At the time, Tarnowski estimated the loss from the check kite at $5.8 million, a loss large enough to cause Oakwood to fail. Tarnowski and other agents with the Federal Reserve and the State of Ohio met with Oakwood's Board of Directors, explaining to them the nature of the check kite and the potential loss to the bank. The WCOP account was thereafter subject to monitoring by the Federal Reserve, and Miller was sending daily and weekly reports to Tarnowski. During the time that Tarnowski was keeping an eye on the WCOP account, everything appeared normal— there were no overdrafts and no issues with uncollected funds. However, Miller stopped sending in the daily reports and Tarnowski made an unannounced visit to Oakwood on January 28, 2002. During this visit, Tarnowski discovered a $4.8 million transaction and the description of the transaction indicated that it involved Winkle checks. Upon the discovery of other unexplained transactions, Miller eventually confessed to embezzling $40 million from Oakwood. Oakwood closed February 1, 2002. Eventually it was determined that Miller cooked the books in December in an attempt to make the WCOP account appear normal. In Tarnowski's opinion, there was no connection between the Miller embezzlement and the check kiting scheme until Miller's actions in December 2001.