Prosecution rests in Wilmington Trust criminal trial without calling key witness

Editors note: A previous version of the story incorrectly described the nature of a government exhibit entered into the case docket. The story has been updated.

Prosecutors rested their case in the Wilmington Trust criminal trial on Wednesday without calling to the stand Brian Bailey, one of two former bankers who had pleaded guilty to fraud in connection with the 2011 demise of the once-iconic Delaware bank. 

A spokesperson for the government declined to comment on why Bailey was not called to testify, as expected. 

Proceedings will resume on Monday when parties argue for and against a defense motion for a judgment of acquittal, called a Rule 29.

If U.S. District Court Judge Richard G. Andrews denies the motion, the trial will continue on Tuesday when defense attorneys will be allowed to call their first witness.  

Prosecutors during the first month of trial called to the stand former Wilmington Trust employees, federal regulators, and independent auditors who described how the bank during the height of the Great Recession frantically struggled to respond to a tidal wave of commercial real estate loans that had matured but gone unpaid. 

The testimony was intended to buttress the government's claims that four former bank executives conspired to hide from regulators and shareholders hundreds of millions of dollars worth of toxic assets.  

Defendants include former Wilmington Trust President Robert Harra Jr., former Chief Financial Officer David Gibson, former Chief Credit Officer William North and former Controller Kevyn Rakowski. 

The white-collar criminal case is one of just a few nationally to arise from the remains of the Great Recession.

Jurors have sat through hours of dense testimony about how financial regulations direct bankers to properly record assets on a balance sheet. The legal definition of what constitutes a "past-due loan" has been at the heart of much of the arguments that have taken place between the defense and prosecutors.

Testimony likely became less convoluted for jurors last week when Joseph Terranova described how bankers gave loans more than a decade ago to "less-seasoned" Delaware developers in response to executives' pressure to rapidly expand the bank's portfolio.

Terranova, the former head of Wilmington Trust's commercial real estate division for Delaware, said he manipulated a lending rule to bypass bank loan scrutiny in order to maintain a healthy façade for his own nearly $600 million portfolio of souring loans.

He and other bankers carried out the scheme in full view of executives, he said.  

Terranova pleaded guilty to bank fraud in 2013, telling federal investigators that he had criminally “conspired to extend credit to customers."

During a ferocious cross-examination, a defense attorney asserted that Terranova's testimony was less about facts than about avoiding a long prison sentence. 

“You’re worried about saving your butt, right?” asked Steven Wood, attorney for Wilmington Trust's former President Robert Harra Jr.

“I don’t want to go to jail, that’s correct,” he replied.

Terranova's boss, Brian Bailey, pleaded guilty to conspiring in 2014 "to conceal the bank’s true financial condition,” according to the government.

He and Terranova will be sentenced following the trial.

Bailey sent an odd email sent in 2009 to Gibson, his chief financial officer, that appeared to mock the gravity of the situation facing the now-defunct financial institution. 

Prosecutors entered the email as an exhibit in the case last year. Judge Andrews ruled it inadmissible for the trial.

The email featured a dark-comedic adaptation of a classic scene in the movie "A Few Good Men," which bank officers were set to perform at a post-audit cocktail party.

An auditor, acting in the role of interrogator, questions Bailey, who defiantly rebuffs the inquiry, echoing a character played by Jack Nicholson.

“We make loans, son. We make loans or clients can’t live their lavish lifestyles beyond their means. It’s that simple. Are we clear?”

"Crystal," answers the auditor. 

Contact Karl Baker at kbaker@delawareonline.com or (302) 324-2329. Follow him on Twitter @kbaker6.