A Delaware federal judge has refused to roll back a jury verdict finding four former Wilmington Trust executives guilty of orchestrating a scheme to hide hundreds of millions of dollars in bad loans from regulators and investors.
U.S. District Judge Richard G. Andrews of the District of Delaware on Thursday denied post-trial motions for acquittal and a new trial for David R. Gibson, Robert V.A. Harra, William B. North and Kevyn N. Rakowski, who were convicted in May on 15 counts of fraud and conspiracy.
Harra, North and Rakowski formerly served as Wilmington Trust’s president, chief credit officer and controller, respectively. Gibson, the bank’s former CFO, was convicted on three additional counts of making false certifications in financial reports.
In a 56-page memorandum opinion, Andrews turned away arguments from defense attorneys that federal reporting requirements ambiguously defined “past due” loans and that the former executives hadn’t intended to deceive the public by concealing the amount of ”toxic” real estate loans on its books between October 2009 and November 2010.
The ruling also rejected the defendants’ main argument at trial that federal prosecutors had failed to prove a conspiracy among some of the bank’s top brass ever even existed. According to the defendants, they were engaging in a “routine, decades-old business practice” at the bank, and the government had presented no evidence suggesting the intent to coordinate in order to commit a crime.
Here is the full memorandum opinion:
But Andrews said prosecutors had refuted the defendants’ good-faith argument at trial, and the jury was justified in thinking that the executives “worked together with the common purpose to misrepresent the banks’ amount of ‘past due’ loans to federal regulators and the public.”
“Thus, I conclude there was sufficient evidence for the jury to conclude that defendants intentionally entered an agreement knowing of its objectives to defraud the United States, commit securities fraud, and make false statements to federal regulators,” he wrote.
All four executives were accused in May 2015 of concealing the amount of ”toxic” real estate loans on Wilmington Trust’s books between October 2009 and November 2010. According to the indictment, Wilmington avoided mandatory disclosures to the U.S. Securities and Exchange Commission and the Federal Reserve Bank by “waiving” matured loans from the reporting requirements for past-due loans.
Prosecutors said that by the end of 2009, the bank reported just $10.8 million of the $344.2 million in commercial real estate loans that were past due by 90 days or more, giving investors and regulators a false impression of the Delaware financial institution’s health. Under pressure to eliminate the past-due and matured loans, the executives hatched a plan to “mass-extend” more than 800 commercial loans worth around $1.3 billion.
Once the public learned the scope of the toxic loans, Wilmington Trust was purchased in a fire sale by M&T Bank for just $3.84 per share—about $9.41 per share less than its value when the bank raised $273.9 million in a public offering nine months prior, according to the indictment.
Wilmington Trust’s former chairman and CEO Ted Cecala was never charged, but the bank itself became the first financial institution to face criminal charges in connection with the federal government’s Troubled Asset Relief Program. Wilmington Trust reached a $60 million settlement with prosecutors last October, just as the trial before Andrews was set to begin.
On May 3, a 12-member jury returned guilty verdicts for all four defendants after about a week of deliberations. The executives have maintained their innocence and vowed to mount a challenge to the U.S. Court of Appeals for the Third Circuit.
On Friday, David Wilkes, an attorney for North, the chief credit officer, said “we certainly respect Judge Andrews’ decision, but believe very strongly in our arguments and in Mr. North’s innocence.”
“We will take the case to the Third Circuit and press the fight there,” he wrote in an emailed statement.
Bartholomew Dalton, who represents Rakowski, declined to comment. Attorneys for Harra and Gibson did not respond Friday afternoon to requests for comment.