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Appeals court panel weighs Wilmington Trust convictions

Tuesday, June 30, 2020 | Randall Chase, Associated Press

DOVER, Del. (AP) — Attorneys representing former executives for the only financial institution to be criminally charged in connection with the federal bank bailout program have asked a federal appeals court panel to overturn their convictions.

Defense attorneys argued Tuesday that prosecutors had failed to prove that the former Wilmington Trust executives deliberately lied to federal regulators about the extent of the bank’s past-due commercial real estate loans before Wilmington Trust imploded and was hastily sold in 2011.

The term “past due” was not clearly defined in reporting requirements for submitting documents to the Securities and Exchange Commission and the Federal Reserve, and prosecutors therefore failed to prove beyond a reasonable doubt that the defendants made false statements, defense attorneys contend.

“The term ‘past due’ can be reasonably interpreted not to encompass the loans at issue here, and available regulatory guidance did not unambiguously require the reporting of such loans,” said George Hicks Jr., an attorney for former Wilmington Trust chief credit officer William North.

Assistant U.S. Attorney Robert Kravetz noted that the trial judge found that the defendants’ interpretation of the term past due was not “logical,” and that there was no ambiguity in the reporting requirements.

“Rather, the instructions specifically tie past due status to the loan contract and to the payment, or lack thereof, of interest or principal,” Kravetz said, quoting from a ruling by U.S. District Judge Richard Andrews.

A three-judge panel of the Third Circuit court took the case under advisement after hearing arguments for more than two hours. The panel had initially allotted attorneys only 20 minutes for each side.

“We recognize this is an important case,” explained Judge Cheryl Ann Krause.

North, former Wilmington Trust bank president Robert Harra Jr., former chief financial officer David Gibson and former controller Kevyn Rakowski were convicted in May 2018 on charges of fraud, conspiracy and making false statements to federal regulators.

Harra and Gibson were sentenced to six years in prison. North was sentenced to 4½ years and Rakowski was sentenced to three years. All four have remained free on bail pending their appeals.

The bank itself reached a $60 million settlement with prosecutors, without acknowledging any liability, just as a trial was set to start.

Prosecutors alleged that in the wake of the 2008 financial crisis, the 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.

Following the trial, Andrews denied defense motions for judgments of acquittal or a new trial. He 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.

“Defendants knew they were being dishonest,” he wrote.

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.

Defense attorneys argued that the waiver practice had been in place for decades and was no secret.

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