The Associated Press is reporting that the shareholders who sued Wilmington Trust are asking a federal judge to approve a proposed $210M bank fraud settlement reached with the bank. The plaintiffs contend that the bank fraudulently hid billions of dollars in bad loans while bank officials misled investors and regulators about overdue commercial real estate loans prior to its sale to M & T Bank Corp. (MTB) several years ago.
As part of the settlement, Wilmington Trust would pay $200M. KPMG, an auditing firm, would pay $10M.
The wrongdoing alleged in the shareholder lawsuit addresses a longer time period than what was noted in a parallel criminal case, in which four ex-Wilmington Trust executives were convicted on conspiracy and fraud charges. Wilmington Trust is the only financial institution to be subject to criminal charges related to TARP (Troubled Asset Relief Program) to date.
In 2008, the government issued $33M in bailout funds to Wilmington Trust. In 2010, the bank raised $273.9M in a sale that was supposed to pay back the funds. Wilmington Trust told regulators that it had only $10.8M in commercial loans that were overdue 90 days even though, according to prosecutors, that number was actually $334M and going up.
According to the lawyers for the plaintiffs, the proposed $210M settlement is nearly 40% of the maximum damages that are expected to be recovered. This maximum figure was offset in a settlement agreement arrived at between prosecutors and Wilmington Trust Corp. A $44M civil forfeiture from that deal is supposed to go to the shareholders of the bank.
Former Wilmington Trust Executives Were Found Guilty
In their criminal trial, ex-Wilmington Trust president Robert Harra Jr., ex-CFO David Gipson, ex-chief credit officer William North, and former controller Kevyn Rakowski were convicted of conspiracy, securities fraud, and making false statements. They were accused of hiding the bank’s failing commercial real estate loan portfolio. All four of them are now asking a judge to overturn the convictions. They claim that the evidence wasn’t solid enough to support the guilty verdicts.
Meantime, three other ex-Wilmington Trust executives, including loan officer Peter Hayes, former vice president Joseph Terranova, and Delaware Market Officer Brian Bailey, pleaded guilty to the criminal charges against them. Co-conspirator Salvatore Leone, a businessman, must pay $784K and serve a year and a day in prison. Another co-conspirator, ex-MidCoast Community Bank CEO James Ladio must pay $700K in restitution and spend two years behind bars.
Prosecutors accused Leone of conspiring with developer Michael Zimmerman, who is now deceased, of turning in fraudulent requests to Wilmington Trust related to construction loans. The two of them are accused of using the funds for other purpose, including their own expenses.
It was in October that Wilmington Trust arrived at a $60M settlement to resolve related criminal charges. This included the $16M settlement reached with the US Securities and Exchange Commission in 2014. The government had accused the bank of hiding how much in overdue loans it had from 10/209 through 11/2010 and not telling regulators that it had a habit of “waiving” loans that had matured and were earmarked as current for interest. In settling the criminal case, Wilmington Trust did not admit liability. However, it accepted responsibility for its actions and acknowledged that the $44M was proceeds connected to “unlawful activity.”
Contact our bank fraud lawyers at Shepherd Smith Edwards and Kantas, LTD LLP today.
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