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Ex-city official gets 18 months in prison for role concealing multimillion-dollar embezzlement scheme that led to Bridgeport bank collapse

A former high-ranking city official was sentenced to 18 months in prison Wednesday for helping to conceal a multiyear embezzlement scheme that led to the failure of Washington Federal Bank for Savings, a family-run institution that had been a mainstay in Chicago’s Bridgeport neighborhood for more than a century.

William Mahon, 57, pleaded guilty last year to conspiring to falsify bank records to deceive federal regulators and help hide millions in collateral-free loans authorized by then-bank President John Gembara that prosecutors alleged had essentially turned Washington Federal into a piggy bank for insiders and friends.

As part of the scheme, Mahon concealed a $130,000 payment he received directly from Gembara to use as a down payment on a loan to build a three-flat in Bridgeport, records show.

Mahon, who was the $139,000-a-year deputy commissioner of the Streets and Sanitation Department when he was charged in 2021, also admitted in a plea agreement he underreported income on his tax returns for years that cost the IRS more than $60,000.

In asking for probation, Mahon’s attorney, Thomas Breen, said Mahon was a bit player in the bank scheme and didn’t participate or benefit directly from the embezzlement itself.

Instead, Breen said, Mahon trusted Gembara, his longtime friend, who purposefully put Mahon on the bank’s loan committee because he knew Mahon had no banking experience and would not recognize the financial malfeasance going on behind the scenes.

Gembara killed himself in December 2017 just as regulators were about to take over.

“Don’t anybody mix him up with Gembara,” Breen said. “He’s not a thief. He’s not a schemer in that regard. ... To throw Bill Mahon into the same group is absolutely unfair.”

But U.S. District Judge Virginia Kendall said that regardless of Mahon’s inexperience, his decision to repeatedly stick his head in the sand and blindly follow Gembara’s instructions, falsify documents and lie to regulators who started asking questions, not only left many ordinary bank customers out of money but eroded their faith in the country’s financial systems.

“You are a smart man. You are a man who has no mental infirmities that would prevent you from thinking through these actions,” Kendall said. “And so you chose not to follow the policies in place that would protect the money of those people.”

In addition to the 18-month sentence, Kendall ordered Mahon to pay a $75,000 fine, representing most of the money he made while serving on the bank’s board.

Mahon must report to prison by April 26.

Before the sentence was handed down, Mahon stood in court and read a statement apologizing to his friends, family, and victims of the bank’s collapse for his actions.

“I have tremendous remorse and guilt for not taking my role more seriously,” Mahon said, struggling to contain his emotion. “I made bad choices. I own them.”

Mahon said that his failings have taken a massive toll on his family, particularly his daughters, who have had to step in and help with their father’s financial affairs, including managing the three-unit rental that was part of the case.

“Instead of preparing my daughters for weddings, I’m trying to prepare them for me being absent from their lives,” Mahon said, as his daughters wiped away tears while watching from the courtroom gallery. “I’m aching because I’m asking them to cover for me and that is the last thing I would ever want to do.”

Mahon was one of 16 people charged in the sprawling investigation into the Washington Federal’s collapse, including the bank’s former chief financial officer, treasurer, and other high-ranking employees who prosecutors accused of conspiring to embezzle at least $31 million in bank funds.

The probe also led to the downfall of Chicago Ald. Patrick Daley Thompson, the then-11th Ward alderman and scion of the Daley political dynasty, who was convicted in 2022 of two counts of lying to federal regulators about loans he had with Washington Federal and falsely claiming mortgage interest deductions on his tax returns.

Thompson, who by law was forced to step down immediately after his conviction, was sentenced to four months in prison.

Police records show Gembara, 56, was found dead Dec. 3, 2017, in the Park Ridge home of bank customer Marek Matczek, where he had been staying. An autopsy report showed Gembara was found seated in a chair in his bedroom with a rope tied to the banister and around his neck. His death was ruled a suicide by the Cook County medical examiner’s office.

Matczek, 60, was convicted at trial in September of conspiring to commit embezzlement and falsify bank records, as well as aiding and abetting embezzlement by bank employees. He is awaiting sentencing.

One of the bank’s largest debtors was Gembara’s good friend, attorney Robert Kowalski, who was convicted at trial of conspiring with Gembara to rack up millions in collateral-free loans, then lying about and concealing assets and income in bankruptcy proceedings and on his tax returns.

Kowalski is currently jailed at the Chicago Metropolitan Correctional Center and awaiting sentencing.

On Friday, Assistant U.S. Attorney Michelle Petersen asked for a sentence of two years in prison for Mahon, saying that while he was earning a hefty taxpayer-funded salary from the city, he was purposefully helping to remove financial guardrails at the bank.

“Washington Federal was a neighborhood bank, where people deposited their paychecks, bought CDs for their kids,” Petersen said. “If he had told (regulators) the truth, it might have stopped the embezzlement.”

Petersen said the sentence should serve as a message “that when people serve on a board of a financial institution they have to do their job, and that they certainly cannot lie to regulators that their job is being done.”

jmeisner@chicagotribune.com