ESM Government Securities

Last updated
ESM Government Securities, Inc.
Founded1975;49 years ago (1975)
Founder
  • Ronnie Ewton
  • Robert Seneca
  • George Mead
DefunctMarch 4, 1985;39 years ago (1985-03-04)
FateShut down by Securities and Exchange Commission
Multiple employees imprisoned
Headquarters Fort Lauderdale, Florida, U.S.
Services Government securities dealing

ESM Government Securities, Inc. was a Fort Lauderdale, Florida-based government securities dealer, specializing in repurchase agreements and reverse repurchase agreements. The failure of the company in March 1985 precipitated the collapse of Home State Savings Bank, deposit runs on dozens of other banks in Ohio, and the downfall of the private Ohio Deposit Guarantee Fund.

Contents

History

ESM was started in 1975 by Ronnie Ewton, Robert Seneca and George Mead, taking the name of the company from the first letter of their last names. (Seneca resigned from the company in 1978.) Alan Novick joined soon afterwards and would later become president (but died in November 1984 of a heart attack). Stephen Arky, an attorney, met Ronnie Ewton in his National Guard unit, and introduced him to his father-in-law Marvin Warner, the owner of Home State Savings Bank in Cincinnati, Ohio.

Fraud shutdown

ESM was shut down on March 4, 1985, by the Securities and Exchange Commission and placed into receivership after massive fraud was discovered. ESM had suffered large operating losses and had pledged the same collateral to more than one lender, with initial estimated losses of over $300 million. [1]

Impact on Home State Savings Bank

Home State Savings Bank was the biggest customer of ESM and it was revealed that Home State would suffer a loss of about $150 million from their transactions with ESM. A run on the bank ensued with over $100 million withdrawn in a few days. The bank was closed on March 9, 1985. Bank runs ensued on other institutions insured by the Ohio Deposit Guarantee Fund after it was revealed that the fund had insufficient funds to pay off Home State depositors. A bank holiday was declared by the governor of Ohio for those banks covered by the Fund. [2] Other major victims of ESM included the cities of Beaumont, Texas; Toledo, Ohio; Pompano Beach, Florida; Clark County, Nevada; Clallam County, Washington; and American Savings & Loan of Miami, Florida.

An investigation showed that Jose Gomez, a partner in the Certified Public Accountant firm of Alexander Grant & Company, was given bribes to falsify the financial statements. [3] Seven people involved with ESM pleaded guilty in April 1986, including Ronnie Ewton, George Mead, four other executives of the firm, and Jose Gomez. [4] Ewton received 15 years in prison, Mead received 14 years, and Gomez received 12 years. [5] Stephen Arky committed suicide in July 1985. [6] Henry Earl Riddel, the company's controller, committed suicide in November 1986. Marvin Warner was convicted in March 1987 of nine counts of fraud-related charges relating to Home State Savings Bank and served 28 months in prison. [7] Alexander Grant & Co. paid out $173 million in damages and legal fees. [8]

The United States Congress enacted the Government Securities Act of 1986 in response to the failure of ESM and other similar government dealer failures and scandals. [9]

Related Research Articles

The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less.

A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two parties, buys them back shortly afterwards, usually the following day, at a slightly higher price.

<span class="mw-page-title-main">Savings and loan crisis</span> US financial crisis from 1986 to 1995

The savings and loan crisis of the 1980s and 1990s was the failure of 32% of savings and loan associations (S&Ls) in the United States from 1986 to 1995. An S&L or "thrift" is a financial institution that accepts savings deposits and makes mortgage, car and other personal loans to individual members.

<span class="mw-page-title-main">Canada Deposit Insurance Corporation</span> Canadian federal Crown Corporation

The Canada Deposit Insurance Corporation is a Canadian federal Crown Corporation created by Parliament in 1967 to provide deposit insurance to depositors in Canadian commercial banks and savings institutions. CDIC insures Canadians' deposits held at Canadian banks up to C$100,000 in case of a bank failure. CDIC automatically insures many types of savings against the failure of a financial institution. However, the bank must be a CDIC member and not all savings are insured. CDIC is also Canada's resolution authority for banks, federally regulated credit unions, trust and loan companies as well as associations governed by the Cooperative Credit Associations Act that take deposits.

Guarantee Security Life Insurance Company, or GSLIC, represented one of the most severe cases of insurance fraud in Florida history. According to the Florida Insurance Commissioner:

[GSLIC] was, almost from the beginning, a massive fraud, aided and abetted by blue-ribbon brokers and licensed professionals motivated by their own self-interest. The fraud at Guaranteed Security was a carefully orchestrated bank robbery. But the thieves disguised themselves with the help of accountants and brokers and lawyers rather than wearing silk-stocking masks.

<span class="mw-page-title-main">Securities Investor Protection Corporation</span> American financial non-profit

The Securities Investor Protection Corporation is a federally mandated, non-profit, member-funded, United States government corporation created under the Securities Investor Protection Act (SIPA) of 1970 that mandates membership of most US-registered broker-dealers. Although created by federal legislation and overseen by the Securities and Exchange Commission, the SIPC is neither a government agency nor a regulator of broker-dealers. The purpose of the SIPC is to expedite the recovery and return of missing customer cash and assets during the liquidation of a failed investment firm.

<span class="mw-page-title-main">National Bank of Detroit</span> Defunct American commercial bank

The National Bank of Detroit (NBD), later renamed NBD Bank, was a bank that operated mostly in the Midwestern United States. Following its merger with First National Bank of Chicago, the bank was ultimately acquired and merged into Bank One, at which point the NBD name was discontinued. Today, what was once NBD is owned by JPMorgan Chase & Co.

Raymond James Financial, Inc. is an American multinational independent investment bank and financial services company providing financial services to individuals, corporations, and municipalities through its subsidiary companies that engage primarily in investment and financial planning, in addition to investment banking and asset management. Headquartered in St. Petersburg, Florida, Raymond James is one of the largest banking institutions in the United States.

Great Western Bank was a large retail bank that operated primarily in the Western United States. Great Western's headquarters were in Chatsworth, California. At one time, Great Western was one of the largest savings and loan in the United States, second only to Home Savings of America. The bank was acquired by Washington Mutual in 1997 for $6.8 billion.

<span class="mw-page-title-main">Huntington Bancshares</span> Bank holding company headquartered in Columbus, Ohio

Huntington Bancshares Incorporated is an American bank holding company headquartered in Columbus, Ohio. Its banking subsidiary, The Huntington National Bank, operates 1047 banking offices, primarily in the Midwest: 459 in Ohio, 290 in Michigan, 80 in Minnesota, 51 in Pennsylvania, 45 in Indiana, 35 in Illinois, 32 in Colorado, 29 in West Virginia, 16 in Wisconsin, and 10 in Kentucky.

<span class="mw-page-title-main">Zions Bancorporation</span> U.S. financial services company

Zions Bancorporation is a national bank headquartered in Salt Lake City, Utah. It operates as a national bank rather than as a bank holding company and does business under the following seven brands: Zions Bank, Amegy Bank of Texas, California Bank and Trust, National Bank of Arizona, Nevada State Bank, Vectra Bank Colorado, and the Commerce Bank of Washington. It has 416 branches and over 1 million customers. It was founded by the Church of Jesus Christ of Latter-day Saints in 1873, although the church divested its interest in the bank in 1960.

Old Court Savings and Loan was a savings and loan association headquartered in Pikesville, Maryland, United States, that failed due to embezzlement by its president Jeffrey Levitt, which led to the failure of the state deposit insurance corporation.

<span class="mw-page-title-main">Lincoln Savings and Loan Association</span>

The Lincoln Savings and Loan Association of Irvine, California, was the financial institution at the heart of the Keating Five scandal during the 1980s savings and loan crisis.

Home State Savings Bank was an American savings and loan association based in Cincinnati, Ohio. Its failure in March 1985 led to a bank holiday for 70 other savings institutions that were insured by the Ohio Deposit Guarantee Fund, a private organization. The collapse of Home State Savings Bank drained Ohio’s private savings and loan insurance fund, and caused then Governor Richard Celeste to close 69 thrifts.

<span class="mw-page-title-main">1986 USFL season</span> Sports season

The 1986 USFL season would have been the fourth season of the United States Football League. Plans and a schedule had been set for a 1986 season, which would have played in the autumn and winter months, but the failure to secure a large judgment or concessions through a landmark antitrust lawsuit against the National Football League, combined with the seizure of one of the team's assets, days before the season was to begin led the league to postpone, then ultimately cancel the season and cease operations. The federal court judgement found the NFL guilty of violating antitrust guidelines on July 29, 1986, but the USFL was only awarded $1 in damages plus court costs, as the jury found that the actions of the USFL owners had done as much in detriment to themselves as did the actions of the NFL. On August 4, the 1986 season was canceled. On August 7, all players were released from their contracts.

<span class="mw-page-title-main">Star Banc Corporation</span>

Star Banc Corporation was a Cincinnati, Ohio-based regional bank holding company that acquired Firstar in 1998 and took the Firstar name; the merged bank acquired U.S. Bancorp in 2001 and took the U.S. Bancorp name. The company can trace its origins back to 1863 when it was first founded as the First National Bank of Cincinnati.

American Savings and Loan Association was an American savings and loan based in Stockton, California. In 1988 it was the largest thrift failure and the federal government's costliest resolution during the savings and loan crisis at an estimated cost of $5.4 billion.

<span class="mw-page-title-main">Washington State Department of Financial Institutions</span> US Government Department

Washington State Department of Financial Institutions is an agency of the State of Washington charged with regulating financial institutions including banks, and prevention of financial fraud such as bank fraud, credit card fraud and payday loan issues. It is authorized by Revised Code of Washington (RCW) Title 43, Chapter 320.

<span class="mw-page-title-main">Third Federal S&L</span> American regional bank headquartered in Cleveland, Ohio

Third Federal S&L is a major savings and loan association in Cleveland, Ohio, founded in 1938 amid the Great Depression as Cleveland was the 5th largest city at the time with many young homeowners, before the United States entry into World War II. It does business in Ohio, Florida, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Iowa, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Virginia, Washington, and Wisconsin

<span class="mw-page-title-main">Marvin L. Warner</span> American diplomat (1919–2002)

Marvin Leon Warner was the United States Ambassador to Switzerland and Liechtenstein from 1977 until 1979 and the owner of the Birmingham Stallions. He was the owner of Home State Savings Bank, breeder of thoroughbred horses, part owner of the New York Yankees from 1973 until 1975 as well as the Tampa Bay Buccaneers.

References

  1. Postlewaite, Susan (June 17, 1986). "Former ESM Government Securities Inc. Chairman Ronnie Ewton testified..." UPI . Fort Lauderdale, Florida. Retrieved 2022-06-01.
  2. "Chronology of Home State Scandal". Toledo Blade . March 3, 1987. p. 4. Retrieved 2022-06-01.
  3. Sterngold, James (1985-04-05). "Accounting Firm Calls E.S.M. Case 'a Betrayal'". The New York Times. ISSN   0362-4331 . Retrieved 2022-06-01.
  4. Edwards, John G. (April 18, 1986). "Seven Plead Guilty In Esm Fraud Case". Sun Sentinel . Archived from the original on May 17, 2017.
  5. "Two securities dealers were sentenced to prison". Los Angeles Times . January 27, 1987. Archived from the original on December 9, 2015.
  6. Cosco, Joseph (July 24, 1985). "Miami Lawyer Kills Himself In Wake Of Esm". Sun Sentinel . Archived from the original on December 1, 2015.
  7. "3 CONVICTED IN FAILURE OF HOME STATE". The New York Times. 1987-03-03. ISSN   0362-4331 . Retrieved 2022-06-01.
  8. Clikeman, Paul M. (2013-07-24). Called to Account: Financial Frauds that Shaped the Accounting Profession. Routledge. pp. 88–95. ISBN   978-1-136-22490-4.
  9. Rogers, Terry F. (1987). "The Government Securities Market: In the Wake of ESM". Santa Clara Law Review . 27 (3). Santa Clara, California, U.S.: Santa Clara University: 587–605.

Further reading