Breaking News: East-West Founder Fined $150K, Barred From Banking
John F. Gallagher, founder of Marlborough-based mortgage firm 1-800-East-West, has been fined $150,000 by the Federal Deposit Insurance Corp. and prohibited from participating in the affairs of any financial institution.
Gallagher was accused of "breaches of fiduciary duty (that) involve personal dishonesty...or demonstrate willful and/or continuing disregard for the safety and soundness of the bank," the FDIC said in a consent agreement signed late last month and released today.
The FDIC claims Gallagher violated the law after 1-800-East-West was bought by Worcester-based Commerce Bank & Trust Co. in 2000. Gallagher left the company in 2004.
The violations of which Gallagher is accused caused the bank to suffer "or probably suffer" financial loss, jeopardized the interests of the bank's depositors and were carried out for personal financial gain, according to the FDIC.
The FDIC order bars Gallagher from working in the banking industry, but does not require him to admit any wrongdoing. As part of the agreement, Gallagher was ordered in April to pay $150,000 for the alleged violations.
Gallagher, who is now retired and lives in Manchester, this afternoon denied the allegations made by the FDIC.
Gallagher said the FDIC allegations revolve around "compliance issues."
When East-West fell under the ownership of Commerce it was subject to additional compliance, reporting and disclosure requirements, he said.
Gallagher said he did not directly oversee East-West compliance but has now become the "scapegoat" for the allegations made by the FDIC. He said he has no plans to appeal the FDIC ruling.
Gallagher said he left East-West and Commerce in 2004 over an unrelated "contract dispute."
Dave Bernotas, president and CEO of 1-800-East-West, said today that he was aware of the FDIC order, but noted that he was not at East-West while Gallagher ran the company. Bernotas said, "I don't know many of the details," but said he believes the violations occurred "quite some time before" Gallagher, who also founded the web site Isoldmyhouse.com, left East-West.
Commerce President and CEO Brian Thompson said the bank was not involved in the FDIC's investigation.
"In the normal course of the examination process, they found some things they wanted to talk to (Gallagher) about, and subsequently brought the action against him on a compliance-related matter," Thompson said.
In 2005, East-West agreed to pay $150,000 to settle a kickbacks case brought against the company by the FDIC and the U.S. Department of Housing and Urban Development.
A year earlier, it was forced by the FDIC and the state Division of Banks to change its procedures for disclosing fees to customers after the two agencies determined that its practices violated state and federal banking regulations.
The FDIC declined to comment for this story.
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