Four former officers of Wilmington Trust have been charged with fraud by the Securities and Exchange Commission, which accused the bankers of intentionally understating past-due loans in 2009 and 2010. Two of the bankers face criminal charges.
The SEC complaint, filed in federal district court in Wilmington, Del., on Wednesday, names as defendants: David R. Gibson, former chief financial officer; Robert V.A. Harra, former chief operating officer and president; Kevyn N. Rakowski, former controller; and William B. North, former chief credit officer.
The U.S. Attorney's Office for the District of Delaware indicted North and Rakowski on Wednesday for their alleged roles in making false statements to government agencies.
The civil and criminal charges against the four come about nine months after Brian Bailey, who oversaw the company's lending activity in Delaware, pleaded guilty to conspiracy charges related to his concealing of the company's financial condition. Two years ago, Joseph Terranova, a former Wilmington Trust loan officer, pleaded guilty to bank fraud.
Banks are required to fully disclose the amount of loans that are 90 or more days past due, but the SEC complaint claims that Gibson, Rakowski and North did not disclose $351 million of such past-due loans in the third quarter of 2009. At the time, the $11 billion-asset company reported a mere $38.7 million of past-due loans. The following quarter, the SEC claims, the four bankers didn't report $330.2 million of past-due loans. In its annual report, the company said its past-due loans were $30.6 million.
Among other charges, the SEC said, each is "charged with aiding and abetting violations of the reporting, recordkeeping, and internal controls provision of the federal securities laws."
The SEC wants the four to return allegedly ill-gotten gains with interest and to pay civil money penalties. It also wants Gibson and Harra barred from serving as corporate officers or directors.
"Corporate officials bear important responsibility for ensuring that corporate filings provide the investing public with accurate information about the company's financial condition," Andrew M. Calamari, director of the SEC's New York regional office, said in a press release. "We allege these defendants doctored a key financial metric to make it appear to investors that the bank was financially sound, when the reality was quite the contrary."
Wilmington Trust was acquired by M&T in Buffalo, N.Y., in 2011 for $351 million. In September 2014, M&T paid $18.5 million to settle related SEC charges of accounting and disclosure fraud, the agency said in a press release. M&T also settled in 2014 with the heirs of Mennen Co., who sued the company over losses on its investment in Wilmington.
The U.S. Attorney's office noted in its press release that investors and regulators rely on the 90-day number in evaluating the health of a bank's loan portfolio and noted that the company was acquired at a 46% discount from its prior-day share price.