But Seattle-based Federal Savings had all the appearances of a bank. Its Web site carried what looked to her like a Federal Deposit Insurance Corp. logo, and she assumed that meant deposits were insured by the government agency.[...]Ironically, their web site claims that they are "the unbank" -- and turns out they were not a real bank afterall. So, you don't have to be a real bank to collect money! How many other "unbanks" are out there?
Federal Savings is not registered in the state of Washington or with any federal agency to sell certificates of deposits or any securities, said Martin Cordell, chief of enforcement with the state Department of Financial Institutions' securities division.
Two weeks ago, after investigating complaints about the company, DFI issued a cease-and-desist order against Federal Savings, First Bancshares Inc., JMA Northwest Investments and Jeremy M. Stamper, a Seattle businessman.
Copyright 2007, DannyHSDad, All Rights Reserved.
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Letter to note purchasers:
Dear Federal Savings investor,
I want to apologize personally for the delay, confusion and inconvenience surrounding the repayment of your Federal Savings™ fixed rate promissory note. I’m sorry if you have spent even one moment worrying that your investment might not be repaid. You deserve an explanation. Whatever the causes of the current situation, Federal Savings has now honored its commitment and has done so voluntarily.
In February 2007, Bank of America unexpectedly froze the Federal Savings’ bank account used for investor reimbursements. They gave no warning, no explanation and wouldn’t return our phone calls. I was eventually able to get through to someone in their corporate security department. They said they had reviewed our website and were concerned that investors might not be repaid. I told Bank of America the obvious: they were in danger of creating a self-fulfilling prophecy: without giving us access to the funds, how could we possibly repay investors?
Like many issuers, we had periodic requests for the early return of principal. However, Bank of America had frozen the only account we could use for reimbursements and refused to allow us to send money back to investors. In one case, I asked them to allow a refund check to go through to a particular investor. I left repeated messages but didn’t hear back from them. With over $1.6 million in the Federal Savings account, Bank of America let the check bounce.
After Bank of America froze our account, I was advised by a financial consultant to declare Federal Savings bankrupt and allow a government appointed receiver to distribute refunds to investors at pennies on the dollar. Although probably a smart financial strategy, I never considered it. Instead, I have personally spent over $200,000 in fees to hire a team of lawyers and a former IRS Special Agent to structure a payback plan. In addition, I have contributed almost $600,000 of my own money in supplemental funds to ensure that everyone is repaid with interest. Although I am now personally bankrupt, I have the satisfaction of knowing that every single investor will be repaid.
In retrospect, it’s apparent that I should have better understood the risks, including the fact that banks in the United States currently have broad powers to seize deposited funds with absolutely no notification or due process. Please accept my apologies for any wasted time, inconvenience or stress this situation has caused you.
Sincerely,
Jeremy M. Stamper
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