ESM Government Securities
Government Securities Fraud Case
CLASSIFICATION: Financial Crime
LOCATION
Fort Lauderdale, Florida
TIME PERIOD
1985
VICTIMS
7 confirmed
On March 4, 1985, ESM Government Securities, Inc., a Fort Lauderdale-based government securities dealer, was shut down by the Securities and Exchange Commission due to massive fraud, resulting in estimated losses exceeding $300 million. The company's collapse severely impacted Home State Savings Bank, its largest client, which faced a loss of approximately $150 million, leading to a bank run and its closure on March 9, 1985. Key figures involved included founders Ronnie Ewton and George Mead, both of whom were sentenced to 15 and 14 years in prison, respectively, along with several other executives and a CPA partner, Jose Gomez, who received a 12-year sentence for his role in falsifying financial statements. The fallout from ESM's failure triggered runs on multiple banks in Ohio and the eventual declaration of a bank holiday by the governor, highlighting the systemic risks posed by the company's fraudulent activities.
The collapse of ESM Government Securities is believed to have been driven by massive fraud, with theories suggesting that the company pledged the same collateral to multiple lenders, leading to significant operating losses. The fallout is speculated to have triggered a domino effect, causing a run on Home State Savings Bank and contributing to the failure of numerous other banks in Ohio. Some believe that the close ties between ESM's founders and Home State Savings Bank may have facilitated the fraudulent activities.
The Rise and Fall of ESM Government Securities
In the mid-1970s, a trio of visionaries—Ronnie Ewton, Robert Seneca, and George Mead—embarked on a journey that would dramatically alter the financial landscape of Fort Lauderdale, Florida. Their brainchild, ESM Government Securities, Inc., was founded in 1975. The company's name was cleverly crafted from the first letters of their last names. Specializing in the complex world of repurchase agreements and reverse repurchase agreements, ESM carved out a niche in the government securities market.
The Foundations of ESM
The early days of ESM were marked by ambition and growth. However, not all founders stayed on board for the ride. Robert Seneca departed in 1978, leaving Ewton and Mead to steer the ship. Soon, Alan Novick joined the ranks and eventually ascended to the presidency of the company. Tragically, Novick's leadership was cut short when he succumbed to a heart attack in November 1984.
A significant connection in the ESM story was Stephen Arky, an attorney with ties to the company through his friendship with Ronnie Ewton, established during their service in the National Guard. Arky's family connections extended to Marvin Warner, the owner of Home State Savings Bank in Cincinnati, Ohio, a relationship that would later prove pivotal.
Unveiling the Fraud
The curtain fell on ESM's operations on March 4, 1985, when the Securities and Exchange Commission (SEC) swooped in, uncovering a maze of deceit. The company was placed into receivership, revealing massive fraud that shook the financial world. ESM had been hemorrhaging money, and in a desperate bid to stay afloat, it had pledged the same collateral to multiple lenders. The initial assessments suggested losses exceeding $300 million.
The Domino Effect: Home State Savings Bank
Home State Savings Bank, ESM's largest customer, bore the brunt of the debacle, staggering under a $150 million loss from its dealings with ESM. Panic ensued, and in a matter of days, depositors withdrew over $100 million. By March 9, 1985, the bank had shuttered its doors. This financial tremor didn't stop there; it sent shockwaves through other institutions insured by the Ohio Deposit Guarantee Fund. The revelation of the fund's inability to cover Home State's depositors sparked a bank holiday declared by Ohio's governor, affecting all banks under its protection.
The ripple effect of ESM's collapse wasn't confined to Ohio. Cities like Beaumont, Texas, Toledo, Ohio, Pompano Beach, Florida, Clark County, Nevada, and Clallam County, Washington, along with American Savings & Loan of Miami, Florida, found themselves ensnared in the financial chaos.
Legal Ramifications and Legislative Action
The investigation that followed unveiled a sordid tale of corruption. Jose Gomez, a partner at the accounting firm Alexander Grant & Company, had been bribed to falsify ESM's financial statements. The legal proceedings culminated in April 1986 with seven individuals, including Ronnie Ewton, George Mead, and Gomez, pleading guilty to their roles in the scheme. Ewton and Mead faced sentences of 15 and 14 years respectively, while Gomez received a 12-year sentence.
The scandal took a tragic toll on individuals as well—Stephen Arky, unable to withstand the fallout, took his own life in July 1985. Henry Earl Riddel, ESM's controller, followed suit in November 1986. Marvin Warner, implicated in the Home State Savings Bank debacle, was convicted in March 1987 on nine counts of fraud-related charges, serving 28 months in prison.
In the wake of these events, Alexander Grant & Co. found itself paying a staggering $173 million in damages and legal fees. The legislative response came with the enactment of the Government Securities Act of 1986, aimed at preventing future debacles akin to ESM's collapse.
Conclusion
The saga of ESM Government Securities serves as a stark reminder of the fragility of trust in financial markets. It is a tale of ambition gone awry, of connections that led to ruin, and of a financial system that had to pick up the pieces after one company's deception brought it to its knees.
Sources
For further reading, you can access the original Wikipedia article here.
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ESM Founded
ESM Government Securities, Inc. is founded in Fort Lauderdale, Florida.
President Dies
Alan Novick, president of ESM, dies of a heart attack.
ESM Shut Down
The SEC shuts down ESM after discovering massive fraud.
Home State Bank Closes
Home State Savings Bank closes after losing $150 million from ESM.
Bank Runs Begin
Bank runs occur on multiple banks insured by the Ohio Deposit Guarantee Fund.
Guilty Pleas
Seven individuals, including ESM executives, plead guilty to fraud.
Warner Convicted
Marvin Warner is convicted of fraud-related charges and sentenced.
Government Act Enacted
U.S. Congress enacts the Government Securities Act in response to ESM's failure.
On March 4, 1985, ESM Government Securities, Inc., a Fort Lauderdale-based government securities dealer, was shut down by the Securities and Exchange Commission due to massive fraud, resulting in estimated losses exceeding $300 million. The company's collapse severely impacted Home State Savings Bank, its largest client, which faced a loss of approximately $150 million, leading to a bank run and its closure on March 9, 1985. Key figures involved included founders Ronnie Ewton and George Mead, both of whom were sentenced to 15 and 14 years in prison, respectively, along with several other executives and a CPA partner, Jose Gomez, who received a 12-year sentence for his role in falsifying financial statements. The fallout from ESM's failure triggered runs on multiple banks in Ohio and the eventual declaration of a bank holiday by the governor, highlighting the systemic risks posed by the company's fraudulent activities.
The collapse of ESM Government Securities is believed to have been driven by massive fraud, with theories suggesting that the company pledged the same collateral to multiple lenders, leading to significant operating losses. The fallout is speculated to have triggered a domino effect, causing a run on Home State Savings Bank and contributing to the failure of numerous other banks in Ohio. Some believe that the close ties between ESM's founders and Home State Savings Bank may have facilitated the fraudulent activities.
The Rise and Fall of ESM Government Securities
In the mid-1970s, a trio of visionaries—Ronnie Ewton, Robert Seneca, and George Mead—embarked on a journey that would dramatically alter the financial landscape of Fort Lauderdale, Florida. Their brainchild, ESM Government Securities, Inc., was founded in 1975. The company's name was cleverly crafted from the first letters of their last names. Specializing in the complex world of repurchase agreements and reverse repurchase agreements, ESM carved out a niche in the government securities market.
The Foundations of ESM
The early days of ESM were marked by ambition and growth. However, not all founders stayed on board for the ride. Robert Seneca departed in 1978, leaving Ewton and Mead to steer the ship. Soon, Alan Novick joined the ranks and eventually ascended to the presidency of the company. Tragically, Novick's leadership was cut short when he succumbed to a heart attack in November 1984.
A significant connection in the ESM story was Stephen Arky, an attorney with ties to the company through his friendship with Ronnie Ewton, established during their service in the National Guard. Arky's family connections extended to Marvin Warner, the owner of Home State Savings Bank in Cincinnati, Ohio, a relationship that would later prove pivotal.
Unveiling the Fraud
The curtain fell on ESM's operations on March 4, 1985, when the Securities and Exchange Commission (SEC) swooped in, uncovering a maze of deceit. The company was placed into receivership, revealing massive fraud that shook the financial world. ESM had been hemorrhaging money, and in a desperate bid to stay afloat, it had pledged the same collateral to multiple lenders. The initial assessments suggested losses exceeding $300 million.
The Domino Effect: Home State Savings Bank
Home State Savings Bank, ESM's largest customer, bore the brunt of the debacle, staggering under a $150 million loss from its dealings with ESM. Panic ensued, and in a matter of days, depositors withdrew over $100 million. By March 9, 1985, the bank had shuttered its doors. This financial tremor didn't stop there; it sent shockwaves through other institutions insured by the Ohio Deposit Guarantee Fund. The revelation of the fund's inability to cover Home State's depositors sparked a bank holiday declared by Ohio's governor, affecting all banks under its protection.
The ripple effect of ESM's collapse wasn't confined to Ohio. Cities like Beaumont, Texas, Toledo, Ohio, Pompano Beach, Florida, Clark County, Nevada, and Clallam County, Washington, along with American Savings & Loan of Miami, Florida, found themselves ensnared in the financial chaos.
Legal Ramifications and Legislative Action
The investigation that followed unveiled a sordid tale of corruption. Jose Gomez, a partner at the accounting firm Alexander Grant & Company, had been bribed to falsify ESM's financial statements. The legal proceedings culminated in April 1986 with seven individuals, including Ronnie Ewton, George Mead, and Gomez, pleading guilty to their roles in the scheme. Ewton and Mead faced sentences of 15 and 14 years respectively, while Gomez received a 12-year sentence.
The scandal took a tragic toll on individuals as well—Stephen Arky, unable to withstand the fallout, took his own life in July 1985. Henry Earl Riddel, ESM's controller, followed suit in November 1986. Marvin Warner, implicated in the Home State Savings Bank debacle, was convicted in March 1987 on nine counts of fraud-related charges, serving 28 months in prison.
In the wake of these events, Alexander Grant & Co. found itself paying a staggering $173 million in damages and legal fees. The legislative response came with the enactment of the Government Securities Act of 1986, aimed at preventing future debacles akin to ESM's collapse.
Conclusion
The saga of ESM Government Securities serves as a stark reminder of the fragility of trust in financial markets. It is a tale of ambition gone awry, of connections that led to ruin, and of a financial system that had to pick up the pieces after one company's deception brought it to its knees.
Sources
For further reading, you can access the original Wikipedia article here.
No Recent News
No recent news articles found for this case. Check back later for updates.
No Evidence Submitted
No evidence found for this case. Be the first to submit evidence in the comments below.
Join the discussion
Loading comments...
ESM Founded
ESM Government Securities, Inc. is founded in Fort Lauderdale, Florida.
President Dies
Alan Novick, president of ESM, dies of a heart attack.
ESM Shut Down
The SEC shuts down ESM after discovering massive fraud.
Home State Bank Closes
Home State Savings Bank closes after losing $150 million from ESM.
Bank Runs Begin
Bank runs occur on multiple banks insured by the Ohio Deposit Guarantee Fund.
Guilty Pleas
Seven individuals, including ESM executives, plead guilty to fraud.
Warner Convicted
Marvin Warner is convicted of fraud-related charges and sentenced.
Government Act Enacted
U.S. Congress enacts the Government Securities Act in response to ESM's failure.