When federal regulators shut down a century-old bank in Bridgeport in December 2017 amid an investigation of massive fraud and its president’s suspicious death, they scrambled to find another bank to step in.
They needed one that could manage $140 million in savings and checking accounts from the tiny but clout-heavy Washington Federal Bank for Savings and reassure the closed bank’s 4,000 customers their money was safe.
Up stepped Royal Savings Bank, another small bank, based on Chicago’s Southeast Side.
Royal took over the Washington Federal deposits even as federal investigators were working to untangle what they later determined was $82.6 million in fraudulent or questionable loans made under Washington Federal president John F. Gembara — who was found dead in a bank customer’s bedroom in Park Ridge, with a rope around his neck, shortly before the bank was shut down.
Now, as federal authorities prepare within the next month to bring what they have said will be criminal charges against “many” of those involved, sources tell the Chicago Sun-Times:
- The investigation of the bank collapse has found evidence of income-tax fraud.
- Some Washington Federal customers could be out hundreds of thousands of dollars because their accounts exceeded the $250,000 maximum insured by the Federal Deposit Insurance Corporation when the Gembara family-run bank collapsed.
And Royal Bank, which describes itself as “the good guys” in this saga, could end up paying a heavy price for stepping in to safeguard the money of Gembara’s former customers. It paid the FDIC $1.4 million to acquire Washington Federal’s two buildings — the Bridgeport bank headquarters and a branch in Little Italy.
But it’s faced an exodus of customers, FDIC records show. The $140 million in deposits it took over from Washington Federal have plummeted over the past two years to $43 million — a 70 percent drop — as customers have steadily withdrawn their money, the records show.
“I am perplexed with the outflows of the cash, which is not normal in FDIC situations such as this,” says Leonard Szwajkowski, Royal’s president and chief executive officer. “We are taking care of the customers.”
Royal is in the midst of an effort to reassure customers that it had nothing to do with the troubles of Gembara’s bank and that it remains on solid financial footing.
Washington Federal was founded in 1913 by Gembara’s late grandfather. At first geared toward serving the Polish immigrants who once populated that part of the South Side neighborhood, the bank remained in the family until Gembara’s death.
Gembara, 56 — who was chairman of the board, CEO and president of Washington Federal and owned 21.4 percent of its stock, making him the largest shareholder — was found dead Dec. 3, 2017, inside the million-dollar Park Ridge home of Marek Matczuk.
Matczuk was a longtime Gembara friend and bank customer who had five outstanding loans from Washington Federal totaling nearly $1.8 million. His home went into foreclosure about five months before Gembara was found dead in the master bedroom.
Twelve days after Gembara’s death, which the Cook County medical examiner’s office ruled a suicide, federal regulators shut down his bank, citing “unsafe and unsound practices” that the FDIC continues to investigate along with the FBI and a federal grand jury.
Authorities say Gembara’s bank lost at least $80 million in suspicious loans, some made with no collateral to back them up or even any paperwork.
Federal investigators have found that many of those loans didn’t require any repayments from the customers, who in some cases also received additional cash advances.
Among Gembara’s loans, the 11th Ward Regular Democratic Organization — which the Daley family has run for decades — borrowed $80,000 for repairs to its headquarters at 3659 S. Halsted St. That loan, arranged by Ald. Patrick Daley Thompson (11th), wasn’t secured by any collateral at the time the FDIC shut down Washington Federal.
It since has been rewritten by Royal and is now secured with a mortgage against the property.
Thompson’s financial dealings with Gembara’s bank are part of the investigation, according to sources.
William M. Mahon, one of the Daley family’s longtime precinct captains, sat on the Washington Federal board of directors for about 20 years. Mahon also was chairman of the board’s loan committee, sources told the Sun-Times, until the bank was closed amid the investigation into fraudulent loans.
During the time he was on the bank’s board, Mahon also was working for the city of Chicago. He’s now a deputy commissioner in the city Department of Streets and Sanitation, paid $125,000 a year.
A federal grand jury subpoenaed records from City Hall in February 2019 regarding building permits for Mahon’s Bridgeport three-flat, for which Washington Federal provided three loans totaling more than $1 million, sources say.
Mahon’s brother-in-law Michael Huels, a first cousin of former Ald. Patrick Huels, is a retired accountant who once audited the bank while he worked for Bansley & Kiener, a clout-heavy auditing firm that gave the bank a clean bill of health a few months before regulators shut it down. Huels, who lives next door to Mahon, retired from Bansley several years ago.
Mahon has been under federal investigation, sources told the Sun-Times, along with the three other Washington Federal board members:
- Gembara’s sister Janice Weston, who also was the bank’s vice president.
- George Kozdemba, a retired electrician with the Metropolitan Water Reclamation District of Greater Chicago.
- Lester Stepien, who is comptroller of a Chicago meat-packing company.
The FDIC took depositions last spring from Mahon, Weston, Kozdemba and Stepien, sources say.
Their attorney didn’t respond to calls seeking comment.
Washington Federal’s board had been bonded by Colonial American Casualty and Surety Company. In September, Colonial American agreed to pay $1.25 million to settle a $15.6 million claim filed by the FDIC, which is trying to recover as much of the money Gembara’s bank lost as it can.
Washington Federal’s biggest creditor is Gembara’s longtime friend Robert M. Kowalski, a Chicago lawyer who also has developed property with loans from the bank.
After the FDIC demanded that Kowalski repay $20 million in loans from the bank — some of which Kowalski said he already had repaid, though he couldn’t provide documentation of that — he filed for bankruptcy protection.
He and his sister Janice Kowalski have since been charged with fraud. They’re accused of hiding assets from the bankruptcy court.
The bankruptcy trustee has been liquidating Kowalski’s assets, which include a 46-foot boat named “Expelliarmus” that he co-owned with his brother William Kowalski and Gembara. It’s unclear whether William Kowalski still has an ownership interest in the boat.
Huntington National Bank has a $177,840 lien against the boat, which is dry-docked at a marina near Hegewisch. The bank is planning to appraise the boat, which Kowalski valued at $180,000.