The former CEO of Flagstar Bank has been accused of steering clients away from money laundering investigations and discussing sensitive company matters, according to a whistleblower lawsuit filed in federal court.
Alessandro Dinello, who headed Flagstar following its merger with New York Community Bancorp in 2022, is under scrutiny for odd conduct. The lawsuit highlights an incident during a Zoom meeting in early 2024 involving an attorney from the prominent firm Skadden Arps.
Ross Marazzo, who was in charge of enterprise compliance at Flagstar Financial, alleges he was terminated after looking into Dinello’s possible financial misconduct, including money laundering and insider trading.
Another executive who witnessed the Zoom call turned whistleblower and provided evidence to Marazzo. Court filings reveal that Dinello made peculiar comments during a serious legal discussion, saying that a junior employee from NYCB “rubbed his head,” which seemed inappropriate.
Marazzo brought his concerns to the attention of the bank’s audit committee chairman, resulting in an external investigation by a lawyer from Cravath Swaine & Moore.
However, compliance officials believe Dinello faced no repercussions, dismissing the incident as merely a “misdemeanor.” Marazzo claims he was told by management that outside counsel said there was no policy against such behavior.
It’s worth noting that there are indications Dinello may consider taking legal action against the bank.
Michael J. Willemin, Marazzo’s attorney, pointed out that these allegations paint a troubling picture of a banker allegedly retaliating against those who challenged regulatory compliance. He stated that financial institutions shouldn’t operate outside the law without facing consequences.
The accusations against Dinello include interfering with a money laundering probe and threatening to fire Marazzo for adhering to federal regulations. For example, Dinello allegedly pressured Marazzo to keep a suspicious account open even after the bank’s surveillance flagged it.
During a private meeting, when Marazzo insisted on shutting down suspicious accounts as required, Dinello purportedly responded, “If that’s the case, I’ll fire you.”
The lawsuit claims that Dinello’s actions may violate federal rules that prohibit banks from notifying customers about ongoing investigations.
Marazzo was let go last September while he was still investigating Dinello’s financial transactions, including a troubling personal transfer that had raised red flags regarding potential money laundering or insider trading. His inquiry came to an abrupt end, cutting short any chance of notifying the authorities.
In court documents, Dinello claimed he had no paperwork for a multi-million dollar transaction and that he was simply “lending” money to “old friends.” This situation involved complex transfers that raised further questions.
Flagstar Financial, which rebranded from New York Community Bancorp, has faced various regulatory challenges lately, especially after it acquired assets from Flagstar Bank and the failed Signature Bank.
Signature Bank had to be taken over by the government due to significant regulatory infractions and issues linked to its assets.
Following over 40 years in compliance, Marazzo joined Flagstar in 2022 and initially received positive feedback for addressing compliance challenges. He was later asked to take on the role of interim chief risk officer in early 2024.
The lawsuit aims for damages under whistleblower protections established by the Sarbanes-Oxley Act, contending that Marazzo’s termination was retaliatory. It also includes a breach of contract claim, seeking $333,333 in unpaid retirement benefits.
Marazzo filed his lawsuit in federal court after previously alerting federal workplace safety regulators in January. He is seeking reinstatement, back pay, and damages for emotional distress and reputational damage.
Following the acquisition of Flagstar in December 2022, the institution expanded to nearly 400 branches across the country. Just a few months later, it acquired substantial deposits and assets from Signature Bank after regulators took over.
This situation with Signature Bank highlights issues of mismanagement, particularly related to uninsured crypto-related deposits. Almost 90% of customer funds were left unprotected.
The swift growth has put pressure on Flagstar’s financial stability, leading to a rebranding of its financial operations early in 2024. Although it ranks among the top 25 banks in the U.S. today, it still grapples with risks tied to its aggressive expansion strategies.
