STUDIO CITY, Calif.–Court documents filed as part of an alleged $40-million embezzlement by the former CEO of a credit union here offer additional insights into how the fraud was perpetrated, uncovered and investigated.
As CUToday.info reported here, Edward Martin Rostohar, 62, the former CEO of the now defunct C B S Employees FCU, has been charged with embezzling more than $40 million from the credit union, which reported $21 million in assets at the time it was merged into University Credit Union, over a two-decade span.
The complaint filed in the U.S. District Court for the Central District of California reveals how Rostohar allegedly said he was able to fool NCUA examiners for so long, states Rostohar’s wife dialed 911 fearing for his life, and that at the time of his arrest he was carrying a significant amount of cash.
The alleged embezzlement began sometime before 2000 and continued until March 6, 2019, when prosecutors say a credit union employee found a $35,000 check made out to Rostohar without a reason listed for the high-dollar amount. An employee who conducted an audit found $3.7 million in checks had been made out to Rostohar since January 2018, the U.S. Attorney said. Rostohar was suspended shortly afterward.
FBI is Contacted
According to a complaint filed with the U.S. District Court for the Central District of California, Lysa Simon, an attorney representing C B S Employees Federal Credit Union contacted the FBI National Threat Operations Center to report an embezzlement by Edward Rostohar. Rostohar was to be suspended as CEO of C B S Employees Credit Union by the board the next day, the complaint states.
Court documents state officers from the Los Angeles Police Department arrested Rostohar on March 12 at his home in Studio City, Calif., with Det. Oscar Garza saying that when Rostohar was arrested he was driving a car that contained more than $200,000 in cash, and was also carrying his passport. Although he was later released on bond, police said they believed Rostohar to be a flight risk.
One day later, the FBI went to Rostohar’s residence where he was read his Miranda rights before being interviewed. According to investigators, during that interview Rostohar said he had been embezzling funds from the credit union for approximately 20 years. “He kept going as it snowballed as he tried to cover his activity,” the documents read.
Lessons Learned as an Examiner
“Prior to his employment at CBSEFCU, Rostohar was an auditor at NCUA for several years. Because of that, Rostohar knew what NCUA auditors looked for in their exams and audits of the credit unions,” the documents state. “Rostohar explained that the auditors themselves never operated a financial institution, and thus didn't really know what to look for. Rostohar knew how to respond to the auditors so that his theft would not be discovered.”
According to the documents, Rostohar told investigators one of the items the auditors looked for were quarter end records, which was historical.
“In order to hide his theft, Rostohar adjusted the balance in General Ledger Account 9999999, which was a clearing account. Expenses and income went through this account,” the documents state. “Rostohar deposited fake income into this account, drawing the funds from the credit unions' clients' certificate of deposits. The funds were not taken from individual CDs belonging to the clients but from the overall CD balance held by the credit union. Then the real expenses would be processed through the account.”
Rostohar allegedly also told the FBI and LAPD that another item NCUA auditors looked for were negative earnings, and that he would alter the credit union's records so that the credit union would appear to operate with positive earnings, even if it was as little as $1,000.
As CUToday.info reported earlier, C B S Employees CU's year-end 2018 5300 indicates the credit union had approximately $120,000 in income.
Where Did the Money Go?
Investigators said they pressed Rostohar for where the more than $40 million suspected of being embezzled has gone, and he responded by claiming to have lost most of it gambling. “He also described spending money freely, such as traveling by private jet, giving his wife an allowance of $5,000 a week, and buying expensive watches. He also bought his Porsche and Tesla with funds stolen from the credit union,” according to the court documents.
Rostohar also told investigators he started a cafe in Reno, Nev., with his business partner, Ellen Burcham, and purchased a real estate lot in Reno with stolen funds from the credit union.
When asked what his recent large checks that were in the tens of thousands of dollars from CBSEFCU were used for, the documents state Rostohar responded by saying his Reno business had just launched and he needed more money as it was only opened in December. He added that his mortgage payment for his house was $5,000 a month.
Rostohar also indicated he owns a quarter share of a residence in Cabo Mexico, and one half share of a house in Reno.
Rostohar told investigators he deposited CBSEFCU checks into his personal bank accounts at Citibank and Chase, according to the court filings.
Prior to his arrest, court documents indicate Alice Tsujihara of the FBI’s White Collar Crimes Squad spoke with Rostohar’s wife, Linda Tlemsani, on March 14, after Tlemsani called 911 “because she was afraid that he would harm himself and that it was the right thing to do after he said he stole from the credit union."
“When I asked her what she meant by ‘doing the right thing by calling 911,’ she responded that if someone steals and did something bad, she believed in the justice system,” Tsujihara stated in court documents. “She also believed at that time Rostohar was in a state of panic and she didn’t know what he would do. She was afraid for his safety, that he might kill himself, or do something stupid. She also didn’t know where he was call so she called the police.”
According to the report Rostohar did not ask Tlemsani to go with him.
Unaware of Scope of Theft?
“Tlemsani stated that Rostohar knows he is going to jail, but Tlemsani is hoping it is not for the rest of his life,” the documents state. “Tlemsani received $5,000 a week from Rostohar and spent most of it on food, clothes, and expenses related to her work as an aspiring recording artist. Tlemsani advised that making a music video and taking various classes was very expensive but that she hoped to become a recording artist in the near future.”
According to the court filing, Tlemsani does not “know the magnitude of the theft and was hopeful that her residence…would cover the loss amount.”
According to Zillow.com, Rostohar’s residence at 4318 Beck Ave. in Studio City is worth $2.77 million.
“When she was told that it was many times that amount, she said she hoped he could give the money back,” court documents read. “She explained, ’He is not a spender. I am more of a spender than he is.’”
Two Felony Counts
According to NCUA, it has provided a rough preliminary loss estimate of $40,541,130 from the alleged embezzlement.
Rostohar has been charged with two felony counts: bank fraud and aggravated identity theft.
CUToday.info will have ongoing coverage.