Ex-Wilmington Trust officials convicted of fraud, conspiracy

May 3, 2018 GMT

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 of fraud and conspiracy charges.

The former Wilmington Trust executives were convicted after a six-week trial in which prosecutors said the defendants deliberately misled banking regulators and investors by not reporting hundreds of millions of past due loans.

Former bank president Robert Harra Jr., former chief credit officer William North, former chief financial officer David Gibson and former controller Kevyn Rakowski were convicted on charges of fraud, conspiracy and making false statements to federal regulators.

Several of the offenses carry maximum prison terms of 30 years, but it’s unclear whether any of the four will spend time behind bars. No sentencing date has been set, and defense attorneys vowed to appeal.

This isn’t over yet,” said Ken Breen, an attorney for Gibson.

The bank itself reached a $60 million settlement with prosecutors last year just as a trial was set to start. In reaching the settlement, Wilmington Trust did not acknowledge any liability.

Prosecutors alleged that in the wake of the 2008 financial crisis, bank 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 government’s Troubled Asset Relief Program.

“It was the gold standard for many number of years in the state of Delaware, and its demise was a significant development in this community,” said U.S. Attorney David Weiss.

“The defendants were a victim of their own arrogance,” Weiss added.

Weiss said the defendants recklessly loaned money to a small group of developers, mostly for projects in central and southern Delaware, then hid the truth when the loans became past due and weren’t paid.

Instead of reporting the true amount of past due loans, bank officials “waived” millions of dollars in matured loans from reporting requirements if the loans were designated as “current for interest” and in the process of being extended, even if the necessary paperwork had not been done.

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.

“That’s the bank paying itself,” prosecutor Jamie McCall told jurors.

Before the fire sale to M&T Bank, Wilmington Trust raised $287 million in a 2010 stock offering, intended in part to help repay the TARP funds, while concealing the truth about its shaky financial condition from investors, prosecutors said.

“The public has an absolute right to know how these financial institutions are keeping score.... The jury understood this,” Weiss said. “They’ve got car loans. They’ve got mortgages. They’ve got credit cards. There are no extensions when your bill comes due, there’s no waiver. You pay it off or the bank comes to see you about what you owe.”

Prosecutors said 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, 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.

Defense attorneys argued 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.

“We are stunned by the jury’s decision in this case,” attorneys for Harra said in a prepared statement. “The simple fact is that our client is an honorable man who never in his life thought about committing a crime.”

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.