David Saks: Executives, Borrower Convicted of Fraud That Led to Collapse of Bank

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Executives, Borrower Convicted of Fraud That Led to Collapse of Bank

Executives, Borrower Convicted in Virginia of Massive Fraud Scheme That Led to Collapse of Bank of the Commonwealth
Bank Collapse Largest in Virginia Since 2008 Financial Crisis

U.S. Attorney’s Office May 24, 2013
  • Eastern District of Virginia (757) 441-6331
 

NORFOLK, VA—Following a multi-week trial, three top executives and a favored borrower have been convicted by a federal jury in Norfolk, Virginia.

Accused of masking non-performing assets at the Bank of the Commonwealth for their own personal benefit and to the detriment of the bank, those in this long-running scheme contributed to the failure of the bank in 2011, costing the Federal Deposit Insurance Corporation (FDIC) an estimated $268 million.

Neil H. MacBride, U.S. Attorney for the Eastern District of Virginia; Royce E. Curtin, Special Agent in Charge of the FBI’s Norfolk Field Office; Thomas J. Kelly, Special Agent in Charge of the Internal Revenue Service-Criminal Investigation’s Washington, D.C. Field Office (IRS-CI); Christy L. Romero, Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); and Mark Bialek, Inspector General of the Board of Governors of the Federal Reserve System and Consumer Financial Protection Bureau (FRB-CFPB OIG) made the announcement.

“The brazen greed and dishonesty of these four defendants toppled one of Virginia’s largest financial institutions and intensified the impact of the 2008 financial crisis on the public during the height of the fiscal storm,” said U.S. Attorney Neil H. MacBride. “Today’s verdict sends a clear message to top executives and insiders in the financial services industry that those entrusted with the health of our financial institutions will be held accountable when they violate that trust.”

“Today, those responsible for the corruption leading to one of the biggest bank failures in Virginia history impacting our Hampton Roads community were held accountable,” said FBI Special Agent In Charge Royce E. Curtin. “The extensive two-year investigation led by FBI Norfolk Division, in conjunction with IRS, SIGTARP, FDIC-OIG, and FRB-CFPB OIG, identified and unraveled a criminal enterprise conducting complex fraudulent financial transactions. This case reflects the FBI and its partners’ commitment to protect our communities by aggressively investigating and bringing to justice individuals exploiting their influence or position for personal gain.”

“Today’s conviction is a reminder that IRS-Criminal Investigation is committed to unraveling complex financial transactions of individuals who scheme to defraud U.S taxpayers,” said Thomas J. Kelly, Special Agent in Charge, IRS-Criminal Investigation, Washington DC Field Office. “We will continue to work with our law enforcement partners to protect the integrity of our financial system.”

“Today’s verdict shows that the same rules apply to bank executives as to any other citizen, and the verdict should stand as a warning to anyone engaged in fraud related to TARP: you will be held accountable and brought to justice for your crimes,” said Christy Romero, Special Inspector General for TARP (SIGTARP). “Edward Woodard and other senior executives at Bank of the Commonwealth and their network of co-conspirators cultivated a culture of deceit and corruption at the bank, exchanging personal favors and lining their pockets while defrauding customers, shareholders, and federal regulators and driving the bank into the ground. The selfishness required to engage in such a fraud with the expectation that taxpayers and members of the community would clean up the mess is both legally and morally offensive. I would like to commend U.S. Attorney MacBride and the Assistant U.S. Attorneys for their exceptional work prosecuting the case.”

“The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General is pleased to join our law enforcement colleagues in bringing these individuals to justice,” said FDIC Inspector General Jon T. Rymer. “We applaud the efforts of the U.S. Attorney’s Office, its staff, and the special agents who worked this lengthy, complex investigation and trial. We especially appreciate the willingness of the Eastern District of Virginia to devote the time and resources needed to bring this case to trial. This case involves the largest bank failure in the Commonwealth of Virginia—one that caused more than $268 million in losses to the FDIC’s Deposit Insurance Fund and harmed people and businesses in the Tidewater, Virginia community. We are particularly concerned when individuals occupying positions of trust in a bank abuse their positions, conspire with others, and engage in criminal activities. We will continue to pursue such offenders in the interest of maintaining the integrity of our nation’s banks and protecting the Deposit Insurance Fund.”

“Our office is committed to bringing to justice bank executives who engage in illegal activities that undermine the public trust,” said Mark Bialek, Inspector General of the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau. “We will continue to work with our law enforcement partners to vigorously pursue wrongdoers whose fraudulent actions materially impact the Federal Reserve Board’s supervision program.”

Edward J. Woodard, 70, who served as the bank’s chief executive officer and chairman of the board for more than three decades until he was forced to step down as chairman and ultimately retire from the bank in December 2010, was convicted of conspiracy to commit bank fraud, bank fraud, false entry in a bank record, unlawful participation in a loan, and false statement to a financial institution.

He is scheduled to be sentenced on September 26, 2013. Each charge carries a maximum penalty of 30 years in prison.

Stephen G. Fields, 49, served as an executive vice president and commercial loan officer until he was terminated in December 2010. Fields was convicted of conspiracy to commit bank fraud, false entry in a bank record, false statement to a financial institution, and misapplication of bank funds.

He is scheduled to be sentenced on September 16, 2013. Each charge carries a maximum penalty of 30 years in prison.

Troy Brandon Woodard, 36, the son of CEO Edward Woodard, was employed by a wholly owned subsidiary of the bank as a vice president and mortgage loan specialist until he was terminated in January 2011.

Brandon Woodard was convicted of conspiracy to commit bank fraud and unlawful participation in a loan. He is scheduled to be sentenced on September 30, 2013. Each charge carries a maximum penalty of 30 years in prison.

Dwight A. Etheridge, 48, a favored borrower, owned and operated a residential and commercial development company, as well as an employment staffing company.

Etheridge was convicted of conspiracy to commit bank fraud, misapplication of bank funds, and false statement to a financial institution. He is scheduled to be sentenced on September 18, 2013. Each charge carries a maximum penalty of 30 years in prison.

According to the evidence adduced 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. Brokered deposits are a financial tool that allows investors to pool their money and receive higher rates of return. Because of the high volatility of these deposits, an institution must remain well-capitalized to accept and renew 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—Edward Woodard and Fields—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, these bank insiders overdrew demand deposit accounts to make loan payments, used funds from related entities—at times without authorization from the borrower—to make loan payments, used change-in-terms agreements to make loans appear current, and extended new loans or additional principal on existing loans to cover payment shortfalls.

In addition, the evidence showed that bank insiders also provided preferential financing to troubled borrowers to purchase bank-owned properties. The troubled borrowers were already having difficulty making payments on their existing loans; however, the financing allowed the bank to convert a non-earning asset into an earning asset, and the troubled borrowers obtained cash at closing to make payments on their other loans at the bank or for their own personal purposes. The troubled borrowers purchased or attempted to purchase property owned by bank insiders and Brandon Woodard.

These real estate loans were fraudulently funded by the Bank.

The evidence also established that in late 2008, Edward J. Woodard caused the bank to pay approximately $100,000 in fraudulent invoices purportedly for the bank’s Suffolk branch when in fact they were for renovations at the personal residence of Troy Brandon Woodard.

In November 2008, the Bank of the Commonwealth submitted to the Federal Reserve, an application requesting approximately $28 million from the Troubled Asset Relief Program (TARP). Based on its regulator’s concerns about the health of the bank, the Federal Reserve later requested that the bank withdraw its TARP application, which the bank did.

From 2008 up to its closing in 2011, the bank lost nearly $115 million.

It is estimated that the bank’s failure cost the federal government, through the deposit insurance fund, approximately $268 million.

Simon Hounslow, 48, served as an executive vice president and chief lending officer until the bank closed in September 2011. Hounslow was acquitted of all charges.

The investigation was conducted by the FBI’s Norfolk Field Office, IRS-CI, SIGTARP, FDIC-OIG, and FRB-CFPB OIG. Assistant United States Attorneys Melissa E. O’Boyle, Katherine Lee Martin, and Uzo Asonye are prosecuting the case on behalf of the United States.

The investigation has been coordinated by the Virginia Financial and Securities Fraud Task Force, an unprecedented partnership between criminal investigators and civil regulators to investigate and prosecute complex financial fraud cases in the nation and in Virginia. The task force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, an interagency national task force.

President Obama established the Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Eastern District of Virginia at http://www.justice.gov/usao/vae .

source: FBI



David Saks



Time&Temp Memphis

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Comment balloon 4 commentsDavid Saks • May 27 2013 08:06AM

Comments

David, thanks for bringing these court cases to our attention.  So often, we do not really hear about WHAT is happening behind the scenes of these loan scams.  Glad to know, they folks are convicted and remove them from our real estate industry!!

Posted by Dan Hopper, Denver Realtor / Author / Advocate/Short Sale (Keller Williams Realty Downtown LLC) over 6 years ago

Good Morning David

 

Thanks for the post and information. The effect of these fraudulent activities has a multiplier effect throughot the communities we serve. Have a great week

Posted by Patrick White, Driven to bring New Yorkers home (Home Driven Realty, Inc) over 6 years ago

Thank you for reviewing the press release, Dan. It's an especially disturbing crime.

Posted by David Saks ((retired)) over 6 years ago

Thank you for your comment, Patrick.

Posted by David Saks ((retired)) over 6 years ago

This blog does not allow anonymous comments