Ex-Wilmington Trust execs found guilty of 15 counts of fraud, conspiracy

Eleven women and one man returned guilty verdicts for all four defendants in the Wilmington Trust fraud trial Thursday.

They found that former bank President Robert Harra Jr., former Chief Financial Officer David Gibson, former Chief Credit Officer William North and former Controller Kevyn Rakowski lied to regulators and hid hundreds of millions of dollars worth of "toxic" commercial real estate loans. Prosecutors said they waived those loans off of disclosure reports to federal regulators, a practice that also contributed to the 2011 downfall of Wilmington Trust.

The former executives sat quietly by their lawyers as the verdict was read. All were convicted on 15 counts, including conspiracy to defraud the United States and making false entries in banking disclosure documents. Gibson was convicted of an additional three counts of making false certifications in financial reports.

The case is among only a few white-collar criminal convictions related to top executives actions taken during the Great Recession. The bank itself also had been a named defendant until an October settlement. It was the only financial institution to have received federal bailout dollars after the 2008 financial crisis to be criminally charged.

U.S. District Judge Richard G. Andrews said that a sentencing date would be set no sooner than four months from now. Andrews also allowed the executives to remain free on bail. Former bank CEO Ted Cecala was not facing charges in the matter.

How much prison time the convicted former executives will face has yet to be determined. But prosecutors said some of the individual charges carry a maximum sentence of 30 years in prison.

When asked at a Thursday afternoon press conference if he thought the defendants would see prison time, U.S. Attorney David Weiss said only that they would take a close look at the process and would make a recommendation.

"We will share our recommendations at the appropriate time," he said.

The conviction of the four executives was a feather in the cap of prosecutors in the Delaware office, some of whom had been working on the case for seven years.

Federal authorities hoped the conviction would send a message to others.

“When executives make false and misleading statements to conceal the truth, they must be held accountable in order to protect and preserve the integrity of our financial system,” FBI Special Agent Joseph Gordon said.

Weiss, who periodically observed the trial proceedings from the gallery, would not comment on Cecala's status.

“It’s unfair of me to comment as to why Mr. Cecala is not included in this group,” he said, adding that with every case they evaluate whether they have enough evidence to convict.

Weiss denied that Cecala’s position on the Federal Reserve had anything to do with their decision to not charge him.

Weiss referred to Wilmington Trust, founded in the early 1900s by the du Ponts, as “the gold standard" for many years in Delaware.

“The defendants’ actions contributed significantly to the bank’s demise,” he said.

Nearly two months of testimony describing interest reserves, working capital lines of credit and the definition of a past-due commercial loan were heard by the jury, who had deliberated since April 25 with the exception of Friday, Saturday and Sunday.

The defendants' lawyers argued there was a lack of evidence on the charges and no evidence of a conspiracy. Despite the fact that the toxic loans are delinquent, they were not past due, because the bank was still accruing interest.

The jury had asked Andrews in a written statement at the end of the first day of deliberations that read: “What if not all four are guilty, i.e. only two or three?”

That question was met with disagreement between counsel on each side. Andrews consulted with defense attorneys and prosecutors, who debated whether the jury's question was asking whether two or three defendants they deemed culpable could be found guilty or another interpretation, from the prosecutor, suggesting they were referring to a number of counts.

The jury left the courtroom Monday with another note suggesting a verdict was still far away.

Three days later, the jury ended the drama that began nearly a decade ago when the DuPont-founded financial institution was taken down by a volatile Sussex County real estate market, victimizing hundreds of local shareholders and workers, many of whom still feel betrayed by the alleged financial misdeeds.

In the years since, prosecutors snagged guilty pleas for criminal fraud from two Wilmington Trust bankers, one of whom had penned an odd email to his colleagues that appeared to mock the gravity of accusations.

The trial was originally slated to begin in January 2016, but Andrews granted requests to postpone to give the defendants more time to prepare.

The company in 2008 received $330 million from the federal government’s Troubled Asset Relief Program. The money came with financial disclosure requirements — ones that prosecutors successfully convinced a jury that the bank fraudulently flouted.

While a global financial meltdown ravaged in 2008, shareholders and former employees told The News Journal they believed Wilmington Trust was safe because for decades it had done banking the right way.

But loans the company had made to developers and others in booming southern Delaware in 2007 began to stink of default.

"Lots of goofy stuff going on in the market, and we certainly don't need an inflated level of commercial past dues on our books," North said in a company email in September 2008, referencing recent failures of numerous Wall Street institutions.

That email message was included in the indictment.

By year's end in 2009, prosecutor's alleged the bank waived more than $360 million and reported only $10.9 million in bad loans. They also alleged Wilmington Trust raised $287 million worth of investment from investors who weren't hearing the real story of the company's financial woes.

As losses mounted, Wilmington Trust executives in 2010 decided to shore up cash flows by issuing nearly $19 million in new stock at $13.25 per share.

Shortly after, the bank's public façade began to crumble as the extent of its toxic loan portfolio became known outside the walls of the bank, located across the street from Rodney Square in Wilmington's core business district.

In 2011, Buffalo, New York-based M&T Bank purchased Wilmington Trust and its $10.7 billion in assets for $3.84 per share, a 71 percent drop from the price of the new shares issued just a year earlier.

The sale cost shareholders billions of dollars and Delaware hundreds of jobs.

Harra, Gibson, North and Rakowski were set to face their trial in October of last year when, minutes before the start of trial, Andrews announced that the bank had reached a deal with federal prosecutors to trade criminal charges for a $44 million civil penalty, to be distributed to victims of the alleged financial crimes.

The U.S. Department of Justice is setting up a claims administration process, Kim Reeves, spokeswoman for Weiss, told The News Journal in March.

The multimillion-dollar settlement left attorneys for the four executives asking: How could an individual acting on behalf of a company be culpable of a crime if the company itself is not?

Months later, a jury gave them an answer.

The verdict was met with shock by former Delaware GOP leader John Fluharty, a friend of Robert and Linda Harra who was with the former bank president last weekend in Rehoboth.

"Knowing Rob and knowing his character, I just don’t see it,” Fluharty said. “I wasn’t there for the trial. I didn’t hear the testimony. But I just don’t see it.

“Harra, at his very soul, is a good man and good human being who cares about his family and deeply about the people around him."

Representing counsel plan to prove that in an appeal.

“We are stunned by the jury’s decision in this case," Harra's four-person McCarter & English trial team said in a statement. "The simple fact is that our client is an honorable man who never in his life thought about committing a crime. We will vigorously appeal this.”

North's attorney, David E. Wilks, said in a statement: "Although we respect their verdict, Mr. North remains steadfast that he never engaged in any criminal wrongdoing or that he took part in a criminal conspiracy to defraud the government or the public. … We will continue to challenge both the Government’s charging theory as a whole as well as the sufficiency of the evidence that resulted in the jury’s verdict."

Gibson's counsel and former chief financial officer for the bank, Kenneth Breen, said they maintain his innocence.

"This isn't over yet."

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