Jessica Masulli Reyes, and Saranac Hale Spencer

The News Journal

A federal grand jury has criminally charged Wilmington Trust Corp.

Charge is the first time a major bank has been prosecuted for role in the 2008 financial meltdown.

M&T Bank assumed Wilmington Trust's assets and liabilities.

A federal grand jury has criminally charged Wilmington Trust Corp., an unusual move that marks the first time a bank that received federal bailout money has been indicted.

M&T Bank could be on the hook for any obligations because it assumed Wilmington Trust's assets and liabilities when it purchased the bank at a steep discount in 2011.

The grand jury returned a second superseding indictment Wednesday that added Wilmington Trust as a defendant to the indictment already pending against former senior bank executives David Gibson, Robert V.A. Harra, William North and Kevyn Rakowski.

"I did not make the decision lightly to seek charges against the Wilmington Trust Corp.," United States Attorney Charles M. Oberly III said in a statement released Wednesday evening. "Ultimately, I have determined that bringing the second superseding indictment is necessary to achieve justice and attempt to make whole those members of our community who suffered significant financial harm as a result of the alleged criminal conduct perpetrated by Wilmington Trust Corporation and its multiple senior bank officers."

Wilmington Trust indictment unique in financial world

Former Wilmington Trust controller pleads not guilty

It is unusual for executives to be criminally charged and equally unusual for a bank or a corporation to be criminally charged, said University of Delaware business professor Charles Elson, who spoke generally about the issue.

If the case stems from a company cheating shareholders out of money, as this one does, and the end result of the lawsuit is a monetary penalty, it would be a "double whammy" for shareholders, Elson said, because they're ultimately the ones who would pay for it.

The 19-count indictment, which was not publicly available on Wednesday night, charges the executives and bank for their roles in concealing from federal regulators and bank shareholders the total amount of past-due loans on Wilmington Trust’s books from October 2009 to November 2010.

Prosecutors have alleged the bank and its officials hid the true condition of the bank’s loan portfolio during the banking crisis through a practice of waiving past-due loans. The defendants are charged with making false statements in securities filings and to agencies of the U.S. government.

"Wilmington Trust Corp. had an obligation, to its shareholders and to the public, to accurately report the important financial metrics which enable investors to make informed decisions," Oberly said in the statement. "Difficult financial times may present significant business challenges, but they do not excuse anyone or any entity from complying with the law."

Wilmington Trust received $330 million in TARP funds, Oberly said, referring to one of the federal government's first efforts to ease the subprime mortgage crisis of 2008 – the Troubled Asset Relief Program. Wilmington Trust is the first TARP recipient to be indicted, according to Oberly.

M&T Bank officials could not be reached for comment on Wednesday night.

The 107-year-old bank founded by du Pont family members was brought to its knees in 2010 with the real estate crash in Kent and Sussex counties. The bank had made a big bet on development in southern Delaware during the last decade and became a major commercial lender.

In an eleventh-hour deal in October 2010, the bank agreed to be sold at a stunning discount to M&T Bank Corp. Without "a strategic transaction" acceptable to regulators, the bank would likely "face significant regulatory actions in the near term, which would likely result in a significant impairment of its business prospects," a 2011 proxy statement reads.

The "merger" with M&T went through in early 2011. The deal resulted in shareholders taking huge losses and nearly 1,000 bank employees being cut from the workforce.

So far, the U.S. Attorney’s Office in Delaware has gotten five guilty pleas as a result of the Wilmington Trust investigation. Three of those convictions are from former bank officials, including Delaware market manager Brian Bailey.

No one has been sentenced, yet. Harra, Gibson, North and Rakowski say they are not guilty and have vowed to fight the charges in court.

Contact Jessica Masulli Reyes at (302) 324-2777, jmreyes@delawareonline.com or Twitter @JessicaMasulli.