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April 1, 2013–September 30, 2013
The OIG's Office of Investigations conducts criminal, civil, and administrative investigations related to Board and CFPB programs and operations. The OIG operates under statutory law enforcement authority granted by the U.S. Attorney General, which vests our special agents with the authority to carry firearms, make arrests without a warrant, seek and execute search and arrest warrants, and seize evidence. OIG investigations are conducted in compliance with CIGIE's Quality Standards for Investigations.
On May 24, 2013, after a 10-week trial, a former vice president and chief lending officer of the Bank of the Commonwealth, another former vice president, and a favored borrower who was a commercial real estate developer were convicted by a federal jury in the Eastern District of Virginia in Norfolk, Virginia. They were found guilty of masking nonperforming assets at the Bank of the Commonwealth, a state member bank, for their own personal benefit and to the detriment of the bank. This long-running scheme contributed to the failure of the bank in 2011, costing the FDIC an estimated $333 million.
According to the evidence presented at trial, in 2006, leaders at the Bank of the Commonwealth began an aggressive expansion to take the bank beyond its traditional focus area of Norfolk and Virginia Beach, to include branches in northeastern North Carolina and the Outer Banks. By December 2009, the bank's assets reached approximately $1.3 billion. These assets were built largely through brokered deposits.
Evidence showed that many of the bank's loans were funded and administered without regard to industry standards or the bank's own internal controls. By 2008, the volume of the bank's troubled loans and foreclosed real estate soared. From 2008 through 2011, bank insiders masked the bank's true financial condition out of fear that the bank's declining health would negatively impact investor and customer confidence and affect the bank's ability to accept and renew brokered deposits.
To fraudulently hide the bank's troubled assets, bank executives overdrew demand deposit accounts to make loan payments and used funds from related entities, often without authorization from the borrower. They also changed the terms of the loans to make loans appear current and extended new loans or additional principal on existing loans to cover payment shortfalls.
In November 2008, the Bank of the Commonwealth submitted to the Federal Reserve System an application requesting approximately $28 million from the Troubled Asset Relief Program (TARP). Based on the concerns of the bank's regulator about the health of the bank, the Federal Reserve System later requested that the bank withdraw its TARP application, which it did.
From 2008 up to its closing in 2011, the Bank of the Commonwealth lost nearly $115 million. The bank's failure resulted in an estimated $333 million loss to the DIF.
On September 16, 2013, the former vice president and chief lending officer of the Bank of the Commonwealth was sentenced to 17 years in prison for conspiracy to commit bank fraud, false entries in bank records, misapplication of bank funds, and false statement to a financial institution. Further, the court ordered the former vice president and chief lending officer to pay $331.9 million in restitution to the FDIC and to forfeit $61.6 million in proceeds from the offense.
On September 18, 2013, the commercial real estate developer was sentenced to 50 months in prison for conspiracy to commit bank fraud, bank fraud, false statements to a financial institution, and aiding and abetting misapplication of bank funds. Further, the court ordered the commercial real estate developer to pay nearly $5 million in restitution to the FDIC and to forfeit $11.1 million in proceeds from the offense.
On September 30, 2013, the other former vice president was sentenced to 8 years in prison for conspiracy to commit bank fraud, false entries in bank records, misapplication of bank funds, and false statement to a financial institution. Further, the court ordered the former vice president to pay $2.4 million in restitution to the FDIC and to forfeit $4.1 million in proceeds from the offense.
This investigation is being worked jointly by the Federal Bureau of Investigation (FBI), the FDIC OIG, the Internal Revenue Service--Criminal Investigation Division, SIGTARP, and the Board-CFPB OIG. The case is being prosecuted by the U.S. Attorney's Office for the Eastern District of Virginia.
This case was initiated based on a request by the U.S. Attorney's Office of Delaware regarding allegations that the board of directors at the Wilmington Trust Corporation (WTC), a Federal Reserve--regulated institution, may have made false Call Report entries.2 The alleged false entries affected the Allowance for Loan and Lease Losses provisions and ultimately impaired WTC's capital position. WTC's commercial loan portfolio sustained over $1 billion in losses. Additionally, WTC had applied to Treasury for $330 million in TARP funds under the Capital Purchase Program. On October 29, 2008, the Federal Reserve Bank of Philadelphia approved WTC's request for TARP funds, and WTC received the funds in December 2008. Subsequently, SIGTARP discovered that WTC had not repaid dividends to Treasury, and SIGTARP opened an investigation into WTC's deteriorating loan portfolio. In March 2010, WTC completed a public offering of $13.25 per share to raise additional capital. In November 2010, WTC was acquired by M&T Bank Corporation for $3.84 per share.
On April 10, 2013, a former vice president/division manager of the Delaware Commercial Real Estate Division of WTC, entered a guilty plea agreement with the U.S. Attorney for the District of Delaware, for conspiracy to commit bank fraud. The former vice president/division manager conspired to extend credit to WTC customers under terms that were either inconsistent with those approved by the Bank Loan Committee or would not have been approved had they been presented to the Bank Loan Committee. Additionally, the former vice president/division manager further conspired to conceal the true financial condition of the bank, in part by extending new loans to clients to enable these clients to keep existing loans current and by causing the bank to misrepresent its reporting of past-due and nonperforming loans.
The case was investigated by the FBI, the Internal Revenue Service--Criminal Investigation Division, SIGTARP, the Board-CFPB OIG, and the U.S. Attorney's Office of Delaware.
On August 6, 2013, the chairman/chief executive officer and the chief financial officer of Coastal Community Bank as well as an attorney were charged by a federal grand jury in the Northern District of Florida with one count of conspiracy to commit wire fraud against the FDIC, seven counts of wire fraud, three counts of making false statements to the FDIC, and one count of aiding and abetting a false claim against the United States. A sealed indictment was returned by the federal grand jury on July 9, 2013, and it was unsealed on August 6, 2013.
The indictment alleges that Coastal Community Investments (CCI) was a Federal Reserve--regulated bank holding company that owned Coastal Community Bank, based in Panama City Beach, Florida, and Bayside Savings Bank, based in Port St. Joe, Florida. Coastal Community Bank and Bayside Savings Bank both failed on July 30, 2010.
The fraud alleged in the indictment involved the FDIC's Temporary Liquidity Guarantee Program (TLGP), which was created in October 2008, at the height of the financial crisis. The purpose of the TLGP was to encourage banks to begin lending to one another again and, thereby, help stabilize the economy. To do this, the TLGP provided that the FDIC would guarantee a loan made by one financial institution to another financial institution in an amount up to 125 percent of the borrower's existing senior unsecured debt, thus assuring repayment to the lender by the borrower or, in the event of default, by the FDIC.
The indictment further alleges that in October 2008, CCI had a $3 million loan with RBC Bank (USA) (RBC), which was secured by 100 percent of the stock of Coastal Community Bank and Bayside Savings Bank. At that time, the RBC loan was in default, thus giving RBC the ability to exercise its right to take the pledged stock and potentially rendering the defendants' shares in CCI worthless. The indictment alleges that under pressure from RBC to repay this debt, the defendants falsely certified to the FDIC that the RBC loan was unsecured, knowing that it was secured, so that CCI could obtain an FDIC-guaranteed loan under the TLGP.
The indictment further alleges that CCI obtained a nearly $3.8 million loan (125 percent of the RBC loan) from central Florida--based CenterState Bank, which, based on the defendants' misrepresentations, was guaranteed by the FDIC under the TLGP. CCI used the proceeds of this loan to repay the RBC loan. In June 2010, CCI defaulted on this nearly $3.8 million loan, and on August 7, 2010, CenterState Bank filed a claim with the FDIC for payment of the full amount due, plus interest. The FDIC paid CenterState's claim on August 13, 2010, by wiring $3.8 million in principal and interest from the FDIC to CenterState.
Finally, the indictment alleges that one executive, desiring to avoid losses to himself and his family as CCI's financial condition deteriorated, fraudulently sold and converted CCI stock owned by him and his family members to unwitting investors by misrepresenting the nature of the stock and CCI's financial condition and by providing loans from Coastal Community Bank to finance the purchases of CCI stock.
This case is the result of a joint investigation conducted by the Board-CFPB OIG, the FBI, the FDIC OIG, SIGTARP, and the U.S. Attorney's Office. The case is being prosecuted by the U.S. Attorney's Office for the Northern District of Florida.
On August 7, 2013, the former president and six other officers of First National Bank of Savannah were indicted by a federal grand jury, accused of defrauding First National Bank of Savannah and other banks out of millions of dollars. The long-running scheme allegedly contributed to the failure of First National Bank of Savannah in 2010, which will result in a loss to the DIF of over $90 million. The Board-CFPB OIG initiated this investigation based on a referral by the FDIC OIG. First National Bank of Savannah was a wholly owned subsidiary of First National Corporation, a Federal Reserve--regulated bank holding company.
According to the allegations in the indictment, as the bank's financial condition began to deteriorate, the defendants schemed to hide from the bank, from members of the bank's board of directors, and from federal regulators millions of dollars in nonperforming loans. The defendants accomplished the scheme by unlawfully lending money to unqualified nominees to make interest and other payments on other nonperforming loans; enticing others to take over nonperforming loans with hidden promises, side deals, and other terms unfavorable to the bank; and recruiting other banks to fund nonperforming loans based on fraudulent misrepresentations about the quality of the loans.
To assist in their scheme, the defendants falsified and fabricated numerous bank documents and records through the Federal Reserve--regulated bank holding company. The scheme involved loans that required approval from several bank executives who held positions at the underlying bank and the bank holding company. These transactions flowed through the bank holding company and resulted in material misrepresentations to the Call Report and the FRY9SP Bank Holding Company Inspection Report.
This case is the result of a joint investigation conducted by the Board-CFPB OIG, the FDIC OIG, the Treasury OIG, the U.S. Secret Service, and the U.S. Attorney's Office. The case is being prosecuted by the U.S. Attorney's Office for the Southern District of Georgia.
On August 26, 2013, the chairman, president, and majority shareholder of Calvert Financial Corporation (CFC), which is a Federal Reserve--regulated bank holding company for Mainstreet Bank, entered into a plea agreement with the U.S. Attorney's Office for the Western District of Missouri. The chairman, who also serves as the chairman and chief financial officer of Mainstreet Bank, pleaded guilty to an information in federal court charging him with one count of making a false writing in violation of 18 U.S.C. § 1018.
According to the plea agreement, in November 2008, CFC applied to receive TARP funds. In January 2009, CFC received approximately $1 million in TARP funds. The chairman, as the duly authorized senior executive officer of CFC, signed all transaction documents related to the acquisition of these TARP funds. On February 2, 2009, the chairman used $381,487 of the TARP funds to purchase a luxury condominium in Fort Myers, Florida. The chairman purchased the condominium through a transfer of funds and executed all transaction documents for the purchase.
As part of its duty to supervise, audit, and investigate institutions that receive TARP funds, SIGTARP is required to annually submit to Congress a report detailing the use of TARP funds by institutions that received such funds. Accordingly, SIGTARP transmitted letters to various financial institutions, including CFC, seeking specific information as to how TARP funds were used by the institution.
In a February 10, 2009, letter of response to SIGTARP's use-of-funds inquiry, the chairman of CFC failed to disclose that a significant portion of the TARP funds allocated to CFC had been used to acquire the condominium. According to the plea agreement, the failure by the chairman to disclose the purchase of the condominium was a material misrepresentation of facts relating to the true use of TARP funds by CFC.
As part of the plea agreement, the chairman agreed to enter into a consent order of removal and prohibition with the Board in which he agrees not to become or to continue serving as an officer, director, employee, or institution-affiliated party, as defined in 12 U.S.C. § 1813(u), or participate in any manner in the conduct of the affairs of any institution or agency specified in 12 U.S.C. § 1818(e)(7)(A) without the prior approval of the appropriate federal financial institution regulatory agency.
This is a joint investigation by the FBI, SIGTARP, and the Board-CFPB OIG. This case is being prosecuted by the U.S. Attorney's Office for the Western District of Missouri.
|Investigations open at end of previous reporting period||54|
|Investigations opened during the reporting period||11|
|Investigations closed during the reporting period||6|
|Investigations open at end of the period||59|
|Investigative results for the reporting period|
|Referred to prosecutor||12|
|Referred to audit||0|
|Referred for administrative action||0|
|Oral and/or written reprimands||0|
|Terminations of employment||2|
|Criminal fines, restitution, and forfeiture||$341,758,970|