Ex-Flagstar CEO Accused of Permitting Money Laundering

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A whistleblower is going after Flagstar Financial.

A former chief compliance officer at the bank has accused its former CEO of turning a blind eye to potential money laundering during his tenure, making suspicious transfers and deposits as well as raising ethical red flags related to his conduct with junior employees.

The compliance officer was fired by the bank while conducting an investigation into the executive’s potential money laundering and insider trading, according to a complaint filed Tuesday in federal court.

Flagstar is the biggest lender to New York City multifamily housing owners, with a large share of its portfolio tied to rent-stabilized housing stock. In 2023, it took over some of the housing portfolio from collapsed Signature Bank. Last year, the bank, then called New York Community Bank, nearly itself collapsed after disclosing internal loan review issues. A sell-off ensued and Flagstar took a $1 billion equity injection to pull it back from the brink.

The plaintiff, Ross Marrazzo, began working for the bank in 2022 after several decades in regulatory compliance. In 2024, he began reporting directly to Alessandro DiNello, then-executive chair, president and CEO.

DiNello has a multimillion-dollar account with the bank, the suit claims. Last summer, DiNello allegedly made a $5 million transfer to a millionaire’s LLC, receiving $1.7 million back from the same millionaire’s personal account. The transfers were flagged, resulting in an investigation. DiNello allegedly told Marrazzo that he lent the money to an old friend.

“Marrazzo held a good-faith belief that the transaction was an attempt to circumvent NYSE rules and that NYSE rules and SEC regulations regarding money laundering and/or insider trading might be violated,” the plaintiff wrote in the suit.

But Marrazzo was terminated while the investigation was ongoing, according to the complaint.

Earlier that year, Marrazzo claims DiNello resisted closing an account that an investigation had flagged for money laundering activity. DiNello spoke to the client directly, in violation of federal law, the complaint alleges, then told Marrazzo the client had a gambling problem.

Marazzo had closed the account prior to the conversation. When Marrazzo told DiNello that he would do it again, DiNello allegedly responded, “I would fire you if you did.”

The suit further alleges that Marazzo was informed by another employee about a meeting where DiNello disclosed sensitive information in front of a junior employee who was uncomfortably close to the executive. DiNello took a video call in early 2024 with counseling attorneys from Skadden, Arps, Slate, Meagher & Flom LLP, the suit alleges. DiNello attended the meeting with a “clearly-visible junior NYCB employee sitting on his lap and rubbing his head.”

Marazzo reported the incident to the chair of the audit committee, which pursued an internal investigation that did not yield disciplinary action against DiNello.

“This episode is indicative of the attitude of Flagstar’s leadership. Those at the helm of the Bank openly flout the law and defend one another when they need to do so,” the plaintiff wrote in the suit.

Marazzo was terminated by Flagstar in September 2024. The suit argues that terminating Marrazzo was retaliation for his investigations, a violation of the 2002 Sarbanes-Oxley Act.

DiNello served in a number of positions during the time period covered by the complaint, as the bank struggled to save itself from collapse. Prior to February, DiNello served as non-executive chairman of the boards. From February 23 to April 1, 2024, he served as president and CEO. From April 1 to June 4, 2024, he was back as nonexecutive chairman. Since June 2024, he has served as director of the boards.

Lawyers for the plaintiff are pursuing a jury trial.

“The allegations are serious,” said Michael Willemin, an attorney for the plaintiff with Wigdor LLP. “They involve serious violations of the law and should be concerning to anyone who relies upon the bank for any purpose.”

Plaintiff attorneys will not need to prove that money laundering or insider trading did indeed occur, only that Marrazzo was terminated for raising concerns about it.

It is unclear if a federal regulatory body is investigating the bank in light of these allegations. Flagstar Financial did not immediately respond to a request for comment.