Man Indicted in Fraud With Link to Bank of N.Y. : Courts: S.F. case studied for possible ties to larger probe of alleged laundering of Russian money at bank.

A federal grand jury has charged a San Francisco-area businessman with defrauding investors out of more than $1.5 million and laundering the proceeds through the Bank of New York, the venerable institution that may have been used to conceal billions of dollars drained from the former Soviet Union.

Investigators are reviewing the corporate account in the name of a financial management firm, A&A; Financial, to determine whether it is tied to the scandal unfolding in New York. The bank, one of the nation’s oldest, is the subject of a wide-ranging probe into accounts held by Peter Berlin, director of a business linked to a Russian crime syndicate.

People close to that case say federal and New York state investigators are poring over thousands of transactions to determine the source of at least $4.2 billion--and up to $10 billion--that flowed through the bank since late 1997. Regulators from the Federal Reserve Board are also conducting a review of the bank, these people said. No one has been charged in that inquiry.

According to the indictment unsealed in San Francisco on Thursday, A&A; Financial’s sole owner, Alexander Lushtak, solicited funds from Russian emigres and Russian-owned businesses and told them the money would be invested in U.S. and overseas markets. Lushtak is believed to be a naturalized U.S. citizen who was born in Russia.

Lushtak instructed his investors to wire their money directly to his corporate account at the Bank of New York, and made periodic “lulling payments” out of the account to keep customers convinced that the investments were paying off, the indictment states.

He then converted much of the money to personal use, including gambling expenses and payments to contractors working on his Tiburon home, investigators said. Lushtak, 33, was indicted on 23 counts of wire fraud and money laundering. He pleaded innocent and was detained pending a Sept. 7 bail hearing.

Release of the indictment comes amid an internal review of the Bank of New York’s procedures and oversight of its accounts. Bank officials said they retained KPMG Peat Marwick to assist in the inquiry.

Already, the bank has fired two executives and suspended a third.

Bank spokesman Cary Giacalone declined comment on the indictment.