Thursday, June 6, 2013

Fraud Convictions for Former Bank Executives

Late last month, three former executives of the Bank of the Commonwealth were convicted of fraud by a federal court in Norfolk, Virginia.  They now each face a penalty that can include up to 30 years in prison.
While this trial concerned a bank and its executives in the state of Virginia, the conviction in this case reignites concerns about mortgage fraud in our country.  It also makes clear that the government will prosecute financial executives, in Illinois and elsewhere, for crimes that affect the public and put our financial institutions at risk.
Background to the Fraud Scheme
According to, the convictions stem from a fraud scheme that began in 2008 and ultimately led to the bank’s failure in 2011.
The former executives convicted include Edward J. Woodard, the former bank CEO and chairman; Stephen G. Fields, the former Executive Vice President; and Troy Brandon Woodard, the CEO’s son and a former employee at the bank.  In addition to the former execs, the federal court also convicted a “favored borrower” in the fraud scheme, Dwight A. Etheridge.
A news release from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) showed that the bank approved and funded loans that didn’t adhere to industry standards, or even to “the bank’s own internal controls.”  As a result, the bank had a “buildup of troubled loans and foreclosures by 2008.”
Between 2008 and 2011, Edward Woodard and Fields reportedly tried to hide the financial problems at the bank.  According to the SIGTARP report, they did this by “overdrawing demand deposit accounts to make loan payments, using funds from related entities to make loan payments, using change-in-terms agreements to make loans appear current, and extending new loans or additional principal on existing loans to over payment shortfalls.”
In addition to cutting corners, so to speak, the execs also provided fraudulent assistance to troubled borrowers like Etheridge in order to mask non-performing assets.
In short, the execs hid significant financial problems at the bank for their “own personal benefit and to the detriment of the bank,” according to a news release from the Federal Bureau of Investigation (FBI).  And all in all, the men ended up costing the Federal Deposit Insurance Corporation (FDIC) about $268 million due to the bank’s failure, and the bank itself lost about $115 million.
Bringing Bank Executives to Justice
The recent conviction came after a multi-week trial in which the government hoped that guilty verdicts would show that the Federal Reserve System and the Consumer Financial Protection Bureau are “committed to bringing to justice bank executives who engage in illegal activities that undermine public trust.”
Echoing this concern, Neil H. MacBride, the U.S. Attorney who prosecuted the case, referred to “the brazen greed and dishonesty” of the defendants, emphasizing how their fraudulent behavior actually “intensified the impact of the 2008 financial crisis on the public.”  MacBride indicated that the guilty verdict in this case puts all top bank executives on notice that the public has entrusted them with “the health of our financial institutions,” and if they violate the public’s trust, they’ll be put on trial and held accountable for their crimes.
All of the execs, as well as the “favored” borrower Etheridge, are scheduled for sentencing this September.
If you have questions about home financing or other questions concerning your relationship with your bank and lenders, an experienced attorney can answer your questions today.
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