Ex-bank execs remain free on bail after fraud convictions
DOVER, Del. (AP) — Four former executives of the only financial institution criminally charged in connection with the federal bank bailout program do not have to report to prison while their attorneys appeal their fraud and conspiracy convictions, a judge ruled Wednesday.
The decision by U.S. District Judge Richard Andrews came in response to requests by the former Wilmington Trust executives to be allowed to remain free on bail during appeals, which could take a year or more.
The four defendants were convicted of hiding Wilmington Trust’s massive amount of past-due commercial real estate loans before the bank, teetering on collapse, was hastily sold in 2011. The century-old bank, founded by members of the du Pont family, imploded despite receiving $330 million from the federal Troubled Asset Relief Program.
Former bank president Robert Harra and former chief financial officer David Gibson were sentenced to six years, while former chief credit officer William North was sentenced to 4½ years and former controller Kevyn Rakowski got three years.
“We are pleased that Judge Andrews has recognized both the unique nature of this appeal and the valuable contributions that Mr. North has made and will continue to make in his community,” said David Wilks, an attorney for North.
The U.S. Attorney’s Office in Delaware, which argued that the defendants should begin serving their sentences, had no comment on Andrews’ ruling, said spokeswoman Kim Reeves.
Andrews noted that prosecutors have not argued that the defendants would pose a flight risk or a danger to the community if allowed to remain free on bail, or that the purpose of their appeals was simply to delay justice.
The main issue, Andrews said, was whether there was a substantial question over whether the defendants acted in a knowingly false manner, based on the reporting requirements of various agencies regarding past due loans.
Defense attorneys have consistently argued that the defendants, in securities filings and in “call reports” to banking regulators, did not have to report matured loans as past due if the borrower was continuing to pay interest and the loan was “in the process of extension.” In doing so, they pointed to guidance from the Office of Thrift Supervision, a now-defunct Treasury Department agency that was separate from the Federal Reserve.
“I decided the relevant call report and SEC instructions were not ambiguous and that defendants’ arguments to the contrary were not reasonable,” Andrews wrote. “I still think I am right. But the fact that a government banking agency seemed to take a different view gives me pause. A jurist of reason might disagree with my ruling.”
The defendants were convicted on all counts last May after a six-week trial. Prosecutors said that, after the 2008 financial crisis, they deliberately concealed the truth about Wilmington Trust’s financial condition. In the fourth quarter of 2009, for example, bank 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 an internal “waiver” practice for reporting purposes.
Internal concerns about Wilmington Trust’s loan portfolio surfaced as early as 2007, when North indicated that the number of waived loans was too high and that bank officials needed to get the situation under control to avoid issues with examiners, auditors and executive management.
Wilmington Trust Corp., which was criminally charged in the case, reached a $60 million settlement with prosecutors in 2017 on the eve of a scheduled trial. The agreement included a civil forfeiture of $44 million and $16 million previously paid by Wilmington Trust to the Securities and Exchange Commission in a related lawsuit.
In a separate civil action, Wilmington Trust agreed to pay $200 million cash to settle a shareholder lawsuit alleging that the bank fraudulently concealed billions of dollars in bad loans. Auditing firm KPMG agreed to pay an additional $10 million as part of the settlement.