The former chairman of failed Premier Bank in Wilmette, along with his wife and two other defendants, have been indicted in Cook County Criminal Court on fraud charges in what was described as the first case in the country accusing former bank officers and directors of running a "criminal enterprise" to defraud the federal bank bailout program.

Dr. Zulfikar Esmail, 70, of Evanston, a medical doctor who launched the bank in 2000, is charged with financial institution fraud and being the organizer of a financial crimes enterprise, according to the indictment, brought by Illinois Attorney General Lisa Madigan's office. If convicted, he faces mandatory jail time of six to 30 years.

Also charged were his wife Shamim Esmail, 65, and two board members: Robert McCarty, 51, of Geneva, and William Brannin, 53, of Chicago. They each face two sets of charges, one that would mandate prison time of six to 30 years and the other that would mean possible prison time of four to 15 years.

(Read the indictment at the end of this story.)

The four were arrested at their homes last month and released after posting bonds.

At his arraignment today, Dr. Esmail pleaded innocent, said his attorney, Chris Gair.

"There is no evidence of wrongdoing by Dr. Esmail and this is overreaching by the Illinois attorney general's office. We're going to be looking forward to establishing Dr. Esmail's innocence," Mr. Gair said.

Ms. Esmail's attorney, Mark Rotert, said "She isn't guilty of the charges in the indictment. She intends to defend herself and we're looking forward to clearing her name."

The Esmails were accused of defrauding the Treasury Department out of $6.8 million in bailout funds issued under the Troubled Asset Relief Program (TARP). In addition to the lost taxpayer funds, when Premier Bank failed last year, it cost the Federal Deposit Insurance Corp.'s insurance fund an estimated $64.1 million.

According to the indictment, the Esmails engineered a scheme to “shake down” one of the bank's biggest borrowers, requiring that he hand over equity interests in some of his projects to the Esmails' grown children as a condition for obtaining loans to expand.

George Dernis, former owner of the Michael's Fresh Market chain of grocery stores, had made similar allegations in a civil lawsuit he brought last year against the Esmails.

The indictment also accused the Esmails of concealing the condition of the bank from state banking regulators by, among other things, lending money to borrowers to buy out the failing projects of other borrowers. That enabled the bank not to have to disclose certain loans as delinquent on its quarterly reports of its financial condition.

Mr. Esmail also allegedly improperly charged the bank for construction work done on his home and some rental properties he owned, according to the indictment.

“Esmail, the former chairman of TARP recipient Premier Bank, stands charged of orchestrating a criminal enterprise by using Premier Bank as his personal fiefdom and of exploiting TARP to finance an alleged long-running criminal enterprise while fattening his own pockets at the expense of customers and federal taxpayers,” said Christy Romero, special inspector general for TARP, in a release.

In the release, Ms. Madigan said the defendants used “taxpayer funds to further their own shakedown scheme at a time when our country was on the brink of disaster.”

Also participating in the investigation was the FDIC's Office of Inspector General.

Attorneys for the other two defendants didn't respond to requests for comment.

(Editor's note: The headline on this story has been changed to remove a reference to this being the first fraud prosecution involving TARP funds. It's the first time former bank officers and directors have been charged with running a "criminal enterprise" to defraud the bailout program. Also, the four were indicted last week and appeared at their arraignment hearing today.)