DOVER, Del. (AP) — A federal judge on Thursday refused to overturn the fraud and conspiracy convictions of four former executives for the only financial institution to be criminally charged in connection with the federal bank bailout program.
In a 56-page ruling, Judge Richard Andrews refused to enter judgments of acquittal for the former Wilmington Trust executives. He also rejected their alternative request for a new trial.
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 in May on charges of fraud, conspiracy and making false statements to federal regulators. They face sentencing Oct. 10.
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.
Defense attorneys argued in court papers that the evidence wasn't strong enough to support the guilty verdicts, and that errors during the trial warranted the convictions being overturned, or a new trial.
But Andrews rejected defense arguments that the instructions for filing reports with the Federal Reserve, including quarterly financial documents known as call reports, and for disclosing financial information in filings with the Securities Exchange Commission, were ambiguous. He also found that there was sufficient evidence for a rational jury to conclude that the defendants acted with the requisite criminal intent.
"Indeed, looking at it as a whole, the way I see this case is pretty simple," Andrews wrote. "The bank's loan portfolio was heading south fast. The bank needed capital. Rather than disclosing the extent of its 90-day past due loans, it lied about that amount repeatedly. Defendants knew this, but participated in filing the false call reports and SEC reports anyhow. Defendants knew they were being dishonest."
The bank itself reached a $60 million settlement with prosecutors last year, without acknowledging any liability, just as a trial was set to start.
Prosecutors argued that 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 well past their repayment dates 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.
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.
Meanwhile, before the 2011 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.
Defense attorneys argued that the waiver practice had been in place for decades and was no secret.
In addition to the conviction of the four executives, a criminal investigation resulted in guilty pleas from three other former Wilmington Trust officers.