July 30 (Bloomberg) -- A former Citigroup Inc. secretary must serve 4 1/2 years in prison for stealing $1.3 million from William Salomon, the 99-year-old former Wall Street banker who is the son of the founder of Salomon Brothers, a judge ruled.
Karen Febles, 48, was sentenced today in federal court in Newark, New Jersey, where jurors convicted her Jan. 14. Prosecutors said Febles was an executive assistant who looted her boss’s bank accounts, betraying him for a luxurious lifestyle. She used the money she stole to pay for cars, real estate, cruises and jewelry, prosecutors said.
At the hearing, U.S. District Judge William Martini criticized Salomon for paying his employees in cash for more than 20 years and not deducting payroll taxes, which he termed “a violation of the law.” Salomon began work in 1933 at Salomon Brothers, the investment firm founded by his father and uncles. He was a managing partner from 1963 to 1978.
“There was a lot of cash being moved around at the direction of Mr. Salomon,” Martini said. “At some point, she decided to cheat. It’s not right, and she should be punished for it. I’m not suggesting that Mr. Salomon didn’t get hurt. But he also hurt the government, over a period of many years.”
Salomon, who testified against Febles at trial, attended the hearing in a wheelchair. Outside the courtroom, he declined to comment on the sentence or Martini’s comments.
“I really have nothing to say,” Salomon said.
After retiring, Salomon signed a consulting pact that gave him an office, two secretaries and support services. Citigroup, which bought the firm that became Salomon Smith Barney Holdings Inc., assumed that contract.
Jurors deliberated less than three hours before convicting Febles of four counts of wire fraud, three counts of money laundering, two counts of tax evasion and one count of bank fraud. Under advisory guidelines, Febles faced nine to 11 years in prison. Prosecutors sought at least 10 years.
Martini said such a sentence would be “grossly excessive” and would serve as “pure punishment.” A more appropriate range was 4 1/2 years to just over five years, he said.
“She took advantage of a situation in which there was an opportunity to cheat, rather than her creating a scheme to cheat,” Martini said. “If it were not for the type of situation that Mr. Salomon created, she would not have been able to cheat the way she did.”
The judge also referred to Salomon as the “so-called victim.” He rejected the government’s argument that Febles’s sentence should be higher because he was a vulnerable victim.
“Just because he was elderly does not mean he was a vulnerable victim,” Martini said. “He was only vulnerable by the manner in which he chose to operate.”
At trial, Assistant U.S. Attorney Evan Weitz told jurors that Febles used the money she stole to buy a Range Rover and a Mercedes-Benz, spent $100,000 on cruises, and paid more than $50,000 in rent one year. Citigroup paid her $90,000 to $95,000 a year, the prosecutor said.
Febles altered some checks to make them larger than the ones signed by Salomon, he said.
The prosecutor asked Salomon at trial if he wasn’t careful in overseeing Febles’s check writing.
“There’s no reason to have a personal secretary if you can’t trust her,” Salomon said.
Weitz asked if Salomon trusted Febles, who worked for him from 2000 until New York-based Citigroup fired her in September 2011.
“I certainly did,” Salomon said.
Febles, who lives in Wallington, New Jersey, declined to speak at today’s hearing. The judge said that he didn’t understand her motivation.
“I still am at a loss to understand her conduct when she was committing this fraud and during the trial,” Martini said. “She may need mental help. There’s no evidence whatsoever or any indication of remorse so far. There may be some need for mental assistance here.”
Martini ordered Febles to pay $1.15 million in restitution and forfeiture, and surrender $38,000 in cash put toward her bail. Prosecutors had previously seized a Mercedes Benz sport utility vehicle, a Range Rover, and a bank account, raising more than $150,000 toward restitution and forfeiture.
A civil lawsuit, filed by Salomon against Citigroup May 9 in state court in Manhattan, claims Febles stole $3 million through her “systematic theft.”
Citigroup asked a judge on July 3 to throw out the suit, saying the complaint was based on an “implied” provision in its agreement with Salomon that the company was obligated “to provide a secretary who would not steal his personal funds.”
“Salomon claims that Citi has a contractual obligation to hold him harmless from the dishonest acts committed by a secretary whom Citi hired but whom Salomon himself decided to entrust to manage his personal financial affairs,” Citigroup said in the filing.
The case is U.S. v. Febles, 12-cr-00406, U.S. District Court, District of New Jersey (Newark).
To contact the reporter on this story: David Voreacos in Newark, New Jersey, at firstname.lastname@example.org
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