‘You Dream of Crosses Like This’

On Friday, December 11, 2009, Vera Sung, director of Abacus Federal Savings, a small community bank in Chinatown, was in the middle of a routine home closing. As the last few documents were about to be signed, the borrowers, a young couple, mentioned two checks they’d given to Abacus loan officer Ken Yu, who wasn’t present. Those checks were going toward the closing costs, right?

Checks written to Yu personally? Sung became alarmed. When she talked to him, Yu hemmed and hawed, and she called off the closing. The next business day, her sister, Jill, the CEO and president of Abacus, fired Yu. Jill also notified the bank’s compliance officer and hired a third party—a former federal prosecutor—to help with an internal investigation. Combing through the bank’s loans, they found more irregularities, which led to additional firings and resignations. 

All of this was reported to law enforcement, their regulators at the Office of Thrift Supervision, and Fannie Mae. And then, Jill says, “The DA’s office started asking us questions. We thought they were there to help us uncover the fraud and get the guilty parties. Then you find that you’re the subject of an investigation.”

The DA’s office wound up bringing 240 charges of fraud, larceny and conspiracy against 12 former Abacus employees, as well as the bank itself. With $300 million in assets, Abacus was the 2,651st largest bank in the U.S.; but in May 2012, it became the only U.S. bank to be prosecuted in the aftermath of the global financial meltdown. 

But the Sungs assembled a formidable legal team, including co-counsels Kevin Puvalowski and John “Rusty” Wing, and Rob Friedman and Sarah Aberg of Sheppard Mullin.

“Vera Sung and I were prosecutors together in the ’90s in Brooklyn,” Friedman recalls. “We were friends and colleagues. So I already knew the whole family. After I went into private practice I represented the bank on several matters over the years. When this situation arose, I was involved from the beginning. I brought in my partner, Kevin, to take the lead in the case.”

Puvalowski had worked more than seven years as an assistant U.S. attorney in the Southern District and nearly two years as co-founder and deputy special inspector general of SIGTARP—which audits TARP programs. He knew banking and financial crime law.

“It’s very unusual for a company to fight the government,” notes Friedman. “In addition to the possibility of conviction, there are other adverse effects, reputationally, with customers and bank regulators. So usually when the government either brings charges or threatens to, there is a plea, a civil or criminal resolution that involves avoiding trial.”

“The mistake the DA’s office made,” Aberg says, “was thinking that [the Sungs] would roll over and take it.”

Thomas Sung, Vera and Jill’s father, was born in Shanghai, immigrated to the United States, and became a successful attorney and real estate investor. He had also experienced the difficulty Chinese people often had getting loans from banks. That’s why he founded Abacus in 1984. “A lot of people had been able to buy their first home, start their first businesses, and purchase their own properties thanks to the bank,” says Jill. “And he did a lot of pro bono work for the community.” 

That’s key. The DA’s office, Aberg explains, “didn’t appreciate that this family was incredibly proud of what their father created, and how important it was to preserve his legacy.”

She says the government’s case was shot through with weaknesses. First, there was this question: Out of all the wrongdoing during the global financial meltdown, how did Abacus wind up targeted? “There was a great moment during voir dire,” Aberg says, “when one of the potential jurors asked, ‘What are we doing here? Why isn’t one of the national banks sitting here?’”

Then there was the matter of the harm done to the alleged victim: Fannie Mae. “We were fortunate they made [the Fannie Mae witness] the first major witness they called,” Wing says. “It was so helpful for us in that we were able to establish right at the beginning that the alleged victim didn’t lose any money.” 

A third major deficiency was lack of evidence that Abacus’ upper management had been involved in the fraud. “In New York State,” Wing says, “in order to convict a corporation of a felony, the prosecution has to prove that high managerial agents are involved.” 

But the government’s own witnesses made it clear they weren’t. “A lot of the borrowers were effectively cross-examined to show that everyone was trying to hide [from upper management] what was happening from the bank,” Friedman says. “So how could they be complicit?”

The government’s witnesses ended up being one of the defense’s strongest assets. 

“The people’s witnesses gave us gifts that defense lawyers just never get,” says Puvalowski. “You dream of crosses like this. You catch them in 20 lies in succession to the point where the jury is laughing at them. There were ‘gotcha’ moments you see in the movies that you don’t see in real life—and we had dozens of them.”

Case in point: the DA chose Yu as its lead cooperating witness. “Ken Yu,” Puvalowski says, “committed perjury over and over and over again.”

“There were so many amazing moments,” Aberg says. “I was questioning a witness claiming she made less than $10,000 a year. We looked up her house on Google Maps. The picture of her house showed a car in the driveway that looked like a BMW. When we asked her if that was her car, and if it was a BMW, she said, ‘No, no, it’s not a BMW. It’s an Audi.’ Stuff like that happened over and over and over.”

At the same time, it was tough on the Sungs. They lost employees, they were being watched by regulators, and they found that dealing with the trial was essentially a second job—and a draining one. “We would go to trial during the day and then at 4 p.m. go to the bank and get our work done,” Jill says.  

Asked what it was like to defend a family of lawyers, Puvalowski says, “Doctors are the worst patients and lawyers are the worst clients—but that wasn’t true in this case. In this case it was absolutely a good thing. … This is a great family. They’re very close-knit, and they’re all very bright.”

On the 67th day of trial, Puvalowski gave the defense’s closing arguments. Calling the state’s case “a bizarro prosecution,” he pointed out that the borrowers of the supposedly fraudulently obtained mortgages were, in fact, qualified, as almost none defaulted. “Fannie Mae has received every penny, every dime, every dollar that it’s entitled to. It’s never lost a penny. How is that stealing?”

The jury deliberated for 10 days. “There were 240 total counts against the bank and two banking employees,” says Puvalowski. “The conventional wisdom was that they’d lose something.”

They didn’t. The jury acquitted the bank and the two employees on all 240 charges.

“When the not-guilty verdict was read that day,” remembers Vera, “the court stenographer was crying. Rusty had tears rolling down his face. Sarah did, too.” Family members wept and embraced each other. They’d won their case, but they’d lost some faith in the U.S. justice system.

“You do become rather cynical,” says Vera. “You realize that there may be other reasons [besides actual crime] why people choose to prosecute. In this case, we felt the DA was trying to pick on us to say he was the first person ever to indict a bank.”

“You can see why people give up,” adds Jill, given “the enormous amount of resources it takes to prove you’re innocent—not just money, but intellectual resources and experience. It breaks you down; you feel overwhelmed.”

“They took a very courageous position to take this to trial,” says Puvalowski. “They did it largely on principle. They probably could have settled it for less money than they spent to defend.”

“Within our own community,” Vera says, “people are very, very grateful that we chose to stand up and to fight, within the system, and won. That may encourage other people to fight when they know something is seriously wrong.”

December 1984: Abacus Federal Savings Bank is founded by Thomas Sung

July 29, 1991: The Bank of Credit and Commerce International is charged with fraud, money-laundering and theft—the last bank before Abacus to be indicted in New York 

December 11, 2009: Abacus first discovers evidence of illegal actions by employee Ken Yu

May 31, 2012: The New York DA’s office brings 184 charges of fraud, larceny and conspiracy against Abacus

March 13, 2015: The trial begins in state Supreme Court in Manhattan

May 19, 2015: Kevin Puvalowski gives the defense’s closing arguments 

June 4, 2015: The jury acquits Abacus on all charges

September 11, 2016: Abacus: Small Enough to Jail premieres at the Toronto International Film Festival; it’s nominated for an Academy Award for best feature documentary