Fraud trial of former Wilmington Trust executives begins
Four former executives of Wilmington Trust Corporation went on trial Monday on federal fraud and conspiracy charges, with prosecutors telling jurors the defendants hid hundreds of millions of dollars in bad loans as the bank's commercial real estate loan portfolio cratered after the 2008 financial crisis.
Prosecutors said the four concealed the truth from regulators and investors about the bank's loan portfolio shortly before the century-old institution was hastily sold in 2011, near the edge of collapse. The bank, which was founded by members of the DuPont family, imploded despite receiving $330 million from the federal government's Troubled Asset Relief Program.
Before the fire sale to M&T Bank, Wilmington Trust also raised $287 million in a 2010 stock offering while concealing the truth about its shaky financial condition to investors, prosecutors told jurors Monday.
"The defendants lied and put other people's money at risk," assistant U.S. Attorney Lesley Wolf said in her opening statement.
Former bank president Robert V.A. Harra Jr., along with former chief financial officer David Gibson, former chief credit officer William North, and former controller Kevyn Rakowski, are charged with fraud, conspiracy and making false statements to federal regulators.
The bank itself — the only financial institution to be criminally charged in connection with the federal bank bailout program — reached a $60 million settlement with prosecutors last year just as the trial was set to start.
In reaching the settlement, Wilmington Trust did not acknowledge any liability, and the individual defendants have maintained their innocence.
"The evidence will show that these people didn't lie," Harra's defense attorney, Michael Kelly, told jurors. "The evidence will show that this is a dispute about reporting."
Prosecutors allege that Wilmington Trust concealed the quantity of past due loans on its books from October 2009 through November 2010. Specifically, authorities say Wilmington Trust failed to disclose to regulators its practice of "waiving" matured loans designated as current for interest and in the process of being extended from the reporting requirements for past due loans.
In the fourth quarter of 2009, for example, Wilmington Trust officials reported that only $10.8 million in commercial loans were 90 days or more past due, concealing more than $316 million in past due loans subject to the waiver practice, Wolf said.
"We are not talking about a few loans or a few dollars," said Wolf.
Wolf told jurors that after an October 2009 meeting to discuss mature loans and "how to make them go away" by year's end, bank officials decided on a "mass extension." That, she said, involved temporarily extending more than 800 commercial loans worth $1.3 billion.
During that same period, North sent an email to Harra in December 2009 referring to certain loans as "credit turds."
Kelly, the defense attorney, told jurors that Wilmington Trust had engaged in the loan waiver practice long before the period in question, and that it was no secret to federal bank examiners. He also noted that former Wilmington Trust chairman and CEO Ted Cecala, who has not been charged in the case, served on the board of the Federal Reserve Bank of Philadelphia during the time of the alleged conspiracy.
"Nobody said to them, 'Don't do this, it's illegal,'" Kelly said.
Three other former Wilmington Trust officers, vice president Joseph Terranova, Delaware Market Officer Brian Bailey, and loan officer Peter Hayes have pleaded guilty in the case and are awaiting sentencing. Bailey and Terranova are expected to testify for the prosecution at the trial of their former colleagues.
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.