WILMINGTON, Del. (AP) Four former executives for the only financial institution to be criminally charged in connection with the federal bank bailout program were convicted Thursday on fraud and conspiracy charges.
Jurors found the former Wilmington Trust executives guilty after a six-week trial.
Prosecutors alleged that in the wake of the 2008 financial crisis, the defendants misled regulators and investors about Wilmington Trust's massive amount of past-due commercial real estate loans before the bank was hastily sold in 2011.
The century-old bank imploded despite receiving $330 million from the federal Troubled Asset Relief Program.
Defense attorneys argued that the "waiving" of millions of dollars in matured loans from reporting requirements for past due loans was appropriate because the loans were designated as current for interest and in the process of being extended.
Founded by members of the DuPont family in 1903, the bank imploded despite receiving $330 million from the federal government's Troubled Asset Relief Program. Before the fire sale to M&T Bank, Wilmington Trust raised $287 million in a 2010 stock offering, intended to help repay the TARP funds, while concealing the truth about its shaky financial condition from investors, prosecutors claimed.
"They misled the Federal Reserve, they misled the public, and they turned around and raised $287 million off of that lie," prosecutor Jamie McCall told jurors in his summation April 25.
Former Wilmington Trust president Robert Harra Jr., former chief credit officer William North, former chief financial officer David Gibson and former controller Kevyn Rakowski were charged with fraud, conspiracy and making false statements to federal regulators.
The bank itself the only financial institution to be criminally charged in connection with the federal bank bailout program reached a $60 million settlement with prosecutors last year just as the trial was set to start. In reaching the settlement, Wilmington Trust did not acknowledge any liability.
Prosecutors alleged that Wilmington Trust officials deliberately concealed the quantity of past due loans on their books from October 2009 through November 2010, failing to disclose the waiver practice to regulators, even after federal officials found serious problems during a 2009 examination. The examination resulted in a memorandum of understanding in October 2009 requiring the bank, among other obligations, to submit past-due loan information monthly, instead of quarterly.
In the fourth quarter of 2009, for example, Wilmington Trust officials reported only $10.8 million in commercial loans as 90 days or more past due, concealing more than $316 million in past due loans subject to the waiver practice, according to prosecutors.
To ensure that loans that were well past the date for repayment were "current for interest" and thus purportedly exempt from reporting requirements, the bank lent even more money to struggling developers just so they could make the interest payments on the underlying loans.
Defense attorneys for the four executives maintained that their clients did nothing wrong and that they acted transparently while trying to steer the bank through difficult times. They repeatedly attacked the credibility of a key government witness, former Wilmington Trust loan official Joseph Terranova, portraying him as a "serial liar" out to save his own skin.
"You have to embrace the liar in order to convict these people. It's as simple as that," David Wilks, an attorney representing North, told jurors.
After the verdict was announced, Wilks issued a statement saying North "remains steadfast" that he did not commit a crime and did not participate in a conspiracy to defraud the government or the public. Wilks said North's defense team believes it was "fundamentally unfair" to allow a criminal prosecution for false public reporting, where the prosecution's focus was on the bank's decades-old process for public reporting.
Wilks said he plans to appeal.
"In that context, we have always feared that the case presented a slippery slope and potential for confusion to any jury in assigning criminal culpability, particularly with respect to Mr. North, who did not work in the public reporting side of the bank," he said.
Terranova and two other former Wilmington Trust officers, Delaware Market Officer Brian Bailey and loan officer Peter Hayes, have pleaded guilty and are awaiting sentencing.
Two other co-conspirators already have been sentenced. James Ladio, former CEO of MidCoast Community Bank, was sentenced to two years in prison and ordered to pay $700,000 restitution. Businessman Salvatore Leone was sentenced to a year and a day in prison and ordered to pay $784,000.
Dover developer Michael Zimmerman, a business partner of Leone and client of Terranova, was indicted on charges of conspiracy, money laundering and making false statements to a financial institution, but he died before his case went to trial.
Court documents filed by prosecutors in the Terranova and Zimmerman cases shed light on the cavalier attitude in which Wilmington Trust loan officers, called "relationship managers," doled out money to struggling developers.
"Send $1,000,000 ASAP I have to pay my bar tab," Zimmerman wrote to Terranova in a 2008 fax. Zimmerman got the money even though conditions for the loan had not been met.