Dear Money & Crisis Reader,
Yesterday, we heard the story of the “Sultan of Coins,” the Iranian gold dealer who was convicted of manipulating the price of gold…
And was executed for his crimes.
The Sultan, as he became known in the press, was put to death for hoarding over two tons of coins to create scarcity, drive up demand and hike the price of gold.
Now, I don’t believe this man should have been executed for this crime. But willfully manipulating the markets for your own greed isn’t a victimless crime.
Especially in a crisis economy like Iran, where folks have to use gold coins to make everyday purchases.
It reminded me of a story closer to home that we touched on earlier this year, about one banker who was so careless and greedy that he actually managed to cause an entire financial crisis all on his own.
His name is Joseph Mollicone Jr. And if you’re a native of Rhode Island, you’re probably all too familiar with his name… and his crimes.
In the early 90s, Mollicone embezzled $13 million dollars of his customer’s money and set in motion a series of events that would result in a statewide financial crisis.
Piggybank for the Mob
Mollicone ran the Heritage Loan & Investment Bank… and he ran it like his own personal clubhouse.
The board of directors was stacked with his family and friends. He embezzled millions of dollars. And years later, an anonymous official would tell the New York Times Mollicone was laundering mob money through the bank.
This accusation was never proven conclusively. But if it was true, it wouldn’t surprise anyone familiar with the case.
Mollicone’s father had been the personal banker to Raymond Patriarca — the head of Providence’s most notorious crime family. And rumors persisted throughout his career that Mollicone had maintained ties to the family.
Between 1968 and 1990, Mollicone fabricated 128 fake loans, made out to a random assortment of people and businesses that never received any of the money.
Now, this was by no means a foolproof plan. Mollicone was no genius after all.
Over time, he stole more than 80% of the bank’s money and left a paper trail a mile long. It was only a matter of time before he was caught. But he lived like a king until the state finally cracked down on him.
Kevin Bristow, one of the prosecutors responsible for bringing Mollicone to justice, told Target 12 News that, “[Mollicone] would go into the vault if he was leaving for Las Vegas with two or three men that he wanted to impress — people he viewed as potential co-investors. He’d basically clean out the vault, go to a first-class place [and] buy everybody $800 leather jackets.”
At his trial, Mollicone would say he didn’t think he was hurting anyone by stealing the money. After all, it was all insured.
But, unfortunately for the people of Rhode Island, the money was insured by the Rhode Island Share and Deposit Indemnity Corporation (better known as RISDIC).
Now, normally this would be a good thing.
But RISDIC had started only a few years earlier as a tiny agency, intended to insure just a few small banks. But with a little political influence, cronyism and some kickbacks for politicians, the business grew rapidly.
By 1991, RISDIC was insuring 45 of Rhode Island’s banks and credit unions… but the money it kept in reserve to pay out claims was dragging severely behind its rapid growth.
With just $25 million in reserve, RISDIC couldn’t afford to payout the $13 million to Heritage Loan & Investment and still be able to cover 45 banks and credit unions.
It wasn’t long before the entire agency collapsed.
The Rhode Island Banking Crisis
On New Year’s Day 1991, the Governor of Rhode Island announced the closure of all 45 banks and credit unions insured by RISDIC.
More than $1.7 billion, belonging to more than 300,000 depositors, was frozen.
It was a lean year for Rhode Island. Families were locked out of their savings… and small businesses hit by the freeze were suffering from a double dose of tightening.
Without cash, they struggled to pay their employees. And because a third of the state’s population had their accounts frozen, consumer spending took a nosedive. That year, bankruptcy filings increased a 62%.
The state took measures to help folks recoup their losses — and eventually, everyone would get their money back — but progress was slow as molasses.
Repayments didn’t begin until six months after the initial closure. And eight months in, more than 200,000 customers still could not access their deposits worth about $1.2 billion.
Two and a half years after the closure, some depositors still did not have access to their money. And you can be darn sure there wasn’t a dime of interest paid to those late collectors.
And that’s how one man triggered a statewide financial crisis.
In April 1993, Joseph Mollicone Jr. was convicted on 26 counts, including embezzlement and bank fraud. He was sentenced to 30 years in prison and ordered to repay $12 million in restitution as well as fines of $420,000.
Mollicone was released on parole after serving just 10 years of his sentence. And today, the 73-year-old Warwick resident continues to chip away at his $12 million debt.
At his current rate of repayment — just $217 a month — it’s going to take Mollicone 4,597 years to repay Rhode Island.
All the best,
Editor, Money & Crisis
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