Feds dropping case against former Wilmington Trust execs
DOVER, Del. (AP) — After being dealt a stunning setback by an appeals court, federal prosecutors in Delaware have declined to retry four former executives for the only financial institution to be criminally charged in connection with the federal bank bailout program in the wake of the 2008 financial crisis.
U.S. Attorney David Weiss said in statement issued Tuesday that his office has opted not to retry the former Wilmington Trust executives on fraud and conspiracy charges.
Weiss attributed the decision to the difficulty of obtaining new convictions, competing public safety priorities such as violent crime and the opioid epidemic, and finite resources.
The decision came almost six months after an appeals court panel in Philadelphia reversed the convictions of the former bank executives for making false statements to federal regulators and ordered that acquittals be entered. The court also ordered a retrial of conspiracy and securities fraud charges.
The January ruling was a blow to the government’s case against 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 government’s pursuit of Mr. North was misguided from the beginning and we made it clear to the government ten years ago that this case was an atrocious waste of time and resources,” North’s attorney, David Wilks, said in an email Tuesday. “On top of that, four innocent people’s lives have been destroyed.”
The four officials were convicted in 2018 of fraud, conspiracy and making false statements. The bank itself also was criminally charged but reached a $60 million settlement with prosecutors just as a trial was set to start. Wilmington Trust’s settlement included a civil forfeiture of $44 million and $16 million it previously paid to the Securities and Exchange Commission in a related lawsuit.
Harra and Gibson were sentenced to six years in prison. North received 4½ years and Rakowski was sentenced to three years. All four remained free on bail pending appeal.
Prosecutors alleged that in the wake of the 2008 financial crisis, the executives 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 while bordering on collapse.
Founded by members of the DuPont family in 1903, the bank imploded despite receiving $330 million from the federal Troubled Asset Relief Program.
Prosecutors said bank officials waived millions of dollars in matured loans from reporting requirements if they were designated as “current for interest” and in the process of being extended. To ensure that loans well past their repayment dates were purportedly exempt from reporting requirements, the bank lent even more money to struggling developers just to make the interest payments.
In the fourth quarter of 2009, 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 the waiver practice, prosecutors said.
After a meeting to discuss matured loans and “how to make them go away” by year’s end, bank officials went beyond the waiver practice and decided on a mass extension that involved temporarily extending more than 800 commercial loans worth $1.3 billion, prosecutors said. In an email to Harra, North referred to certain loans as “credit turds.”
Before its 2011 fire sale to M&T Bank, Wilmington Trust raised $287 million in a 2010 stock offering, intended partly to help repay the TARP funds, while hiding the truth about its shaky financial condition from investors, prosecutors said.
Defense attorneys argued that the waiver practice had been in place for decades and was no secret. They also maintained that instructions for filing reports with the Federal Reserve and for disclosing financial information in Securities Exchange Commission filings were ambiguous, and that the term “past due” was not clearly defined.
The appeals court agreed in ruling for the defendants that the reporting requirements were ambiguous.
In a separate civil action, Wilmington Trust agreed to pay $200 million cash to settle a shareholder lawsuit alleging fraudulent concealment of billions of dollars in bad loans. Auditing firm KPMG agreed to pay an additional $10 million as part of the settlement.
Separately, a federal judge last year rejected a request by Harra and North to dismiss a civil suit filed by securities regulators. Gibson and Rakowski finalized settlements with the SEC in 2019, agreeing to pay more than $70,000 and $44,000, respectively, to the SEC.