Washington Federal Bank for Savings failure trial lays bare how CEO John F. Gembara told employees to conceal delinquent loans for millions owed by ‘friends of John.’
By Tim Novak
Mar 3, 2023, 5:30am CST
John F. Gembara took over the small Bridgeport bank that his father and grandfather had run for decades, and he ran it into the ground.
That much already was clear from the government-ordered shutdown of Washington Federal Bank for Savings, one of the rare failures in recent years of an American bank.
But now testimony in the first trial to focus heavily on the bank’s collapse has laid bare how Gembara kept giving away money and real estate to customers in an elite circle who came to be known to his trusted employees as “Friends of John.”
These “friends” got millions of dollars in loans from Washington Federal with what prosecutors have described as the kind of terms most people could only dream of getting: They would never have to repay any of it.
When the bank’s computers spit out “pink slips” for customers who’d fallen behind on repaying their loans, Gembara ordered a loyal employee to shred any involving his friends, according to testimony during the first two weeks of the embezzlement trial of his close friend and business partner Robert M. Kowalski, a lawyer and developer who was one of the bank’s biggest clients.
When other borrowers fell behind on their mortgages and ended up surrendering their homes, apartments and other collateral to the bank to avoid foreclosure, Gembara didn’t resell their property to recover the bank’s money, testimony has shown. Instead, witnesses have testified, he gave it to Kowalski.
Robert M. Kowalski, now on trial for charges including embezzlement in the first trial to focus heavily on the collapse of Washington Federal Bank for Savings.
Witnesses have testified that Gembara — who was president, chief executive officer and the major shareholder of Washington Federal — ordered employees to remove the names of delinquent borrowers who walked away and put the loans in the names of his friends. They said he had his staff manipulate loan records, telling them to lower or raise the amounts of the debts and to forge borrowers’ signatures.
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And he covered up what he was doing for years, ordering his secretary to delete dozens of delinquent loans from reports that Washington Federal was required to give auditors and federal banking regulators.
This created the illusion that Washington Federal had no customers who were behind on their loans, which would be a very peculiar situation for any bank in the United States to find itself in.
More than five years after federal regulators shut down the bank in December 2017 and Gembara was found dead at the home of a bank customer, new details of his scheme have been coming out as Kowalski faces trial on charges he embezzled $8 million from the bank, hid assets when he pursued bankruptcy court protection and cheated on his federal income taxes. He’s one of 14 people indicted in connection with the bank’s collapse.
Kowalski’s defense? Blame the dead man. Presenting his defense himself, he made that clear in his opening statement. He’s set to begin presenting witnesses Monday.
Kowalski is trying to convince jurors he was a victim of Gembara, that the bank’s records — which federal authorities have said were nonexistent for many loans — can’t be trusted and that he would not even be on trial if Gembara were still alive.
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The judge has told him that no matter what anyone else might have done that was illegal, he is on trial for crimes that prosecutors say he committed.
Washington Federal Bank for Savings, 2869 S. Archer Ave., was shut down in December 2017 for “unsafe or unsound practices” days after John F. Gembara, its president and chief executive officer, was found dead at a bank customer’s home. A federal audit uncovered massive fraud at the bank.
The roots of the case date at least as far back as September 2017.
That’s when authorities say Washington Federal filed its final fraudulent report with banking regulators.
Already at that point, they had discovered, after a tip from a bank official who has not been identified, that Gembara’s bank kept different sets of books in an effort to conceal a “massive fraud” that initially cost the Federal Deposit Insurance Corp. $90 million, the Chicago Sun-Times previously has reported.
Gembara’s reign as the head of the bank ended on Nov. 28, 2017. That’s when, acting on orders from banking regulators, Washington Federal’s board of directors — which included his only sister and a top City Hall official who is part of the Daley family’s political organization that ruled Bridgeport for decades and borrowed money from the bank — placed Gembara on suspension.
Five days after that, Gembara, 56, was found dead, seated in a chair, with a rope around his neck and around the railing of a spiral staircase, in the main bedroom of the million-dollar home of a Park Ridge contractor who owed the bank millions of dollars and had lost much of that gambling at casinos, according to court records.
The Park Ridge police said Gembara died by suicide, and the Cook County medical examiner’s office agreed, though the bank CEO’s widow and Kowalski have questioned whether someone else actually killed him.
Soon after Gembara’s death, federal regulators shut down the bank on Dec. 15, 2017.
Since then, a federal grand jury investigation has resulted in criminal charges against three members of Washington Federal’s board, including Gembara’s sister, five more bank employees and five customers, including Kowalski and his brother, accused of embezzling money with Gembara’s help. Also, Kowalski’s only sister Jan Kowalski has pleaded guilty to helping him conceal assets from the bankruptcy court.
The investigation also led to criminal charges against then-Ald. Patrick Daley Thompson (11th) and his conviction last year for cheating on his income taxes regarding money he borrowed from Gembara’s bank.
For all of the prosecution testimony regarding Gembara’s role in looting his own bank, Kowalski’s trial so far has provided no answers about why the bank boss would have stolen from his own bank, where his wife and many other relatives had worked.
Another question that’s so far gone unanswered: When did the embezzlement scheme begin?
But a hint of how long it might have been going on was contained in an email that Kowalski sent Gembara on Oct. 26, 2012 — more than five years before the bank collapsed. In it, Kowalski warned Gembara that they could end up in prison with former Gov. Rod Blagojevich.
“There will be no trailer retirement. More likely time with Blagojevich in orange jumpsuits is on the horizon,” Kowalski said in the email, which federal prosecutors presented to the jurors who’ll decide his fate.
That email was among evidence and testimony from four dozen witnesses that prosecutors have presented to jurors in U.S. District Judge Virginia Kendall’s courtroom.
In response, Kowalski, 60, plans to present testimony from witnesses including Therese Gembara, Gembara’s widow.
She had called the police in Palos Hills, where the couple lived, telling them her husband was involved in unspecified “illegal activity” and that she planned to call the FBI five years before the bank was ordered closed, the Sun-Times reported last May. It’s unclear whether she did.
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Key prosecution testimony against Robert M. Kowalski
Here’s a look at some of the key prosecution testimony against Robert M. Kowalski from people who knew John F. Gembara, who ran the defunct Washington Federal Bank for Savings:
Alicia Mandujano, 50, of Oak Lawn, was fresh out of high school when she landed a job as a bank teller under Gembara’s father Emil Gembara. Five years later, she was the secretary for John Gembara, who eventually made her the bank’s sole loan servicer, helping him falsify records until she was fired shortly before regulators shut the bank.
Alicia Mandujano: Made sure that “Friends of John” Gembara didn’t face consequences of not repaying loans from Washington Federal Bank for Savings.
Cooperating with prosecutors, Mandujano has pleaded guilty to conspiracy and faces five years in prison.
She told jurors the bank’s computers would regularly issue “pink slips” — notices that were supposed to be sent to customers with delinquent loans.
Gembara was “the one who instructed me which slips to send out and which to shred,” she said, explaining that the customers whose “pink slips” were shredded came to be known as “Friends of John.” Kowalski was among those friends, she said.
She described how Gembara directed her to doctor the bank’s books, making it appear his friends were making payments on their loans even though they weren’t. She detailed how she paid property taxes for Kowalski and other customers because their escrow funds had negative balances, then inflated their loan balances by the amount of taxes she paid.
During cross-examination, Kowalski told her these schemes inflated one of his loans from $250,000 in 1999 to more than $3 million.
At the end of the bank’s fiscal year, Mandujano said Gembara “would ask for a list of loans with balances that were too high. He would then give me the dollar amount to reduce each loan,” including Kowalski’s loans.
Under questioning by Kowalski, she said she would shut her office door and close the curtains when she altered records. She explained how she switched the names of borrowers on delinquent loans, saying she put Kowalski’s name on a loan that had been made to Benito Romero, a prosecution witness who surrendered his property to avoid having the bank foreclose on him.
“John Gembara ordered me to put it in your name,” Mandujano replied to one of Kowalski’s questions. “I was just following orders. I didn’t question him. I just did what he told me to do. I wanted to keep my job.”
Jane Tran Iriondo, who has pleaded guilty and is cooperating with prosecutors in the investigation of the collapse of Bridgeport’s failed Washington Federal Bank for Savings.
Jane Tran Iriondo, like Mandujano, landed a teller’s job at Washington Federal right after high school, then became Gembara’s secretary, a job she held until the bank was closed. She, too, has pleaded guilty to conspiracy to embezzle and faces five years in prison.
Iriondo, 42, said she kept a list of the bank’s delinquent loans, a list that included Kowalski and four others who have been charged with embezzlement.
The list that prosecutors presented in court also included the names of others who haven’t been charged, including Alex Pissios and his former business partner Edward H. Gobbo, whose late uncle William Hanhart went to prison for running a ring of jewelry thieves for the mob while he was the chief of detectives for the Chicago Police Department. Their companies got loans to build housing around the United Center. Both men went bankrupt, stiffing the bank on the loans.
Pissios went on to be president of Cinespace Chicago Film Studios, the post he held when federal prosecutors accused him of failing to disclose all of his assets in his bankruptcy and got him to work as an undercover mole for the FBI.
Pissios’ lawyer Thomas Breen says: “Any loans would have been paid off or discharged in bankruptcy years ago, 12-15 years ago. Mr. Pissios had no dealings with Mr. Gembara and has no idea how paperwork was created inside the bank. Linking Alex to any mismanagement or false paperwork in the bank is wrong.”
Testifying about altering bank records, Iriondo told jurors: “The decision to remove or alter came directly from John Gembara or Alicia Mandujano. I knew it was wrong. I didn’t want to lose my job.”
Iriondo also testified that, three or four years before the bank was shut down, she discovered Kowalski hadn’t been making payments on a loan even though records showed money flowing in and out of the account. She said she reported that to Janice Weston, Gembara’s sister, who was a vice president and member of the bank board, and to Gembara’s wife, the bank’s human resources manager.
But she said she was afraid to tell Gembara: “I was afraid I was going to get fired.”
Boguslaw Kasprowicz, a contractor whose loans were hidden from regulators, testified that he was working for Kowalski about 30 years ago when he was introduced to Gembara. Kasprowicz went on to get numerous loans from Washington Federal while Gembara had him perform maintenance projects for the bank and its employees. He also built some million-dollar homes in Bucktown.
Boguslaw Kasprowicz (right) at a court appearance in March 2021.
Kasprowicz, 65, has pleaded guilty to embezzling $14.5 million from the bank and cheating on his taxes. He faces 33 years in prison but hopes his cooperation will cut his prison time.
Kasprowicz said he used the money “for life,” buying cars, putting his kids through medical school, buying a house in Burbank, Calif. He also said that he used some of the embezzled money to pay Gembara’s credit-card bills and also to write Kowalski a $65,000 check that was deposited into Washington Federal.
Edwin A. Gausselin III, an attorney whose law license was once suspended for 90 days for “misconduct” after pleading guilty to mail fraud, had fallen behind on his $600,000 mortgages with Gembara’s bank for two apartment buildings in the 11600 block of South Vincennes Avenue. He said he surrendered the buildings to the bank in 2010, but they ended up in a land trust Kowalski controlled, and Gembara kept the mortgages on his books as unpaid loans. After the bank was shuttered, Kowalski filed for bankruptcy and the bankruptcy trustee sold the buildings for $210,000 to help the FDIC recover its losses.
Gausselin was among witnesses who testified they surrendered property to the bank to avoid foreclosure and that the bank then put the buildings in land trusts controlled by Kowalski, often without customers’ knowledge. Other testimony showed Kowalski often collected rent from tenants living in those buildings while also collecting federally subsidized housing-assistance payments from the Chicago Housing Authority, and he kept collecting those rent payments after he filed for bankruptcy.
When Gembara’s bank foreclosed on a three-unit condo building Perry & Perry Development built in the 6800 block of South Lafayette Avenue, it was sold at a 2010 sheriff’s sale to another land trust, which Kowalski controlled. Rather than close out the mortgage the bank issued to Perry & Perry, Washington Federal extended the mortgage and increased it, without the company owners’ knowledge.
Matthew Hendicksen, an attorney for what was then the bank’s law firm, Crowley & Lamb, testified that a few months later he emailed Gembara, suggesting that the bank collect rent from the tenants living in the condos on South Lafayette.
He said Gembara replied that the bank no longer owned the home.
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