Top officers of the former Wilmington Trust Corp. are among the highest-ranking bankers to face criminal charges and civil fraud charges for falsifying financial reports to bank and securities regulators and investors during the late 2000s financial crisis.
Wilmington Trust, the largest commercial lender based in the Federal Reserve District of Philadelphia at the time, was forced to sell to M&T Bank in 2010 at a fraction of its previous value after admitting hundreds of millions in losses from unpaid real estate development loans. More than 700 bank employees lost their jobs in the aftermath as M&T wrote off bad loans and consolidated operations.
In the criminal charges, William North, the bank's former Chief Credit Officer, and Kevyn Rakowski, the former Controller, each face three counts of making false statements to the Securities and Exchange Commission, and one count of lying to the Federal Reserve. North and Rakowski cooperated with "known and unknown" others "in concealing from the market and the Federal Reserve the total quantity of past due loans on the bank's books" in October and November, 2009, according to the federal grand jury indictment.
U.S. Attorney Charles M. Oberly III in a statement said the two bankers charged criminally "knew that the false information being provided to the Bank's regulator masked the true condition of its loan portfolio." He called this "criminal conduct (which) contributed to the decline of Wilmington Trust."
"It's disappointing that after a four-year investigation, in which Bill North spent the equivalent of three full days" helping federal agencies, "he would be accused of making false statements in documents he didn't prepare, didn't write, didn't sign and didn't have any control over," his lawyer, David Wilks. "He was one of the few people at the bank who objected to this practice which had been followed for decades, that regulators never objected to. He is not responsible for public reporting." Lawyers for the others were not immediately be reached for comment.
Two of the bank's former three top bosses, executive vice president Robert V.A. Harra Jr. and chief financial officer David Gibson, along with North and Rakowski, also face civil fraud charges levied by the SEC for allegedly hiding more than $350 million in bad loans - including loans North called 'credit turds' in a note to colleagues - while preparing 2009 financial reports and a last-ditch 2010 stock sale in an attempt to raise capital.
Harra "is surprised and deeply disappointed that the SEC has decided to file this civil action against him and he intends to vigorously fight the allegations in court," his New York lawyer, Andrew Lawler said. Gibson's lawyer didn't call back.
The SEC wants the executives to return some of the millions they were paid, the SEC said in this statement: http://www.sec.gov/news/pressrelease/2015-81.html -- Also, see SEC complaint at http://www.sec.gov/litigation/complaints/2015/comp-pr2015-81.pdf
Oberly and his counterparts in Philadelphia have indicted a series of former Wilmington Trust loan officers and managers who approved allegedly illegal transactions in the years before the bank's financial collapse.
No charges have been brought against former chief executive Ted T. Cecala. "The investigation is ongoing," Oberly spokeswoman Kimberly Reeves told me.
Where was Wilmington Trust's board? Lead independent director and a member of the audit committee was Louis Freeh, the onetime MBNA Corp. credit card marketer, FBI chief and author of the Penn State Sandusky report. He joined in October 2009; was he part of the solution?
Oberly's office says it was assisted by the FBI, the Treasury's Special Inspector General for the Troubled Asset Relief Program (TARP), IRS criminal investigators, the Federal Reserve and the Consumer Financial Protection Bureau. Prosecutors are Assistant U.S. Attorneys Robert "Rocky" Kravetz and Lesley Wolf.