The Securities and Exchange Commission today filed fraud charges against four former officers of Wilmington Trust for intentionally understating past due bank loans during the financial crisis. The former Delaware-based bank holding company was acquired by M&T Bank in May 2011 and paid $18.5 million in September 2014 to settle related SEC charges of improper accounting and disclosure fraud.
The SEC’s complaint, filed in federal district court in Wilmington, Delaware, alleges the four took part in a scheme to mask the impact of real estate market declines on the bank’s portfolio of commercial real estate loans. According to the SEC’s complaint, the former officials improperly excluded hundreds of millions of dollars of past due real estate loans from financial reports filed by Wilmington Trust in 2009 and 2010, violating a requirement to fully disclose the amount of loans 90 or more days past due.
“Corporate officials bear important responsibility for ensuring that corporate filings provide the investing public with accurate information about the company’s financial condition. 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,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
The complaint names the bank’s former Chief Financial Officer David R. Gibson, former Chief Operating Officer and President Robert V.A. Harra, former Controller Kevyn N. Rakowski, and former Chief Credit Officer William B. North. The complaint alleges that Gibson, Rakowski, and North omitted approximately $351 million of matured loans 90 days or more past due from Wilmington Trust’s disclosures in the third quarter of 2009, so that the bank disclosed only $38.7 million of such loans. The four former officials allegedly omitted approximately $330.2 million of these loans in the fourth quarter of 2009, so that the bank’s annual report disclosed just $30.6 million in matured loans 90 days or more past due.
In addition, the complaint alleges that Gibson, Rakowski and North schemed to materially misreport this category of past due loans in the first half of 2010. Gibson also is alleged to have materially understated the amount of non-accruing loans in Wilmington Trust’s portfolio in the third quarter of 2009 and the bank’s loan loss provision and allowance for loan losses in the fourth quarter of 2009. Gibson, Harra, Rakowski and North are each charged with violating or aiding and abetting violations of the antifraud provisions of the federal securities laws. Each also is charged with aiding and abetting violations of the reporting, recordkeeping, and internal controls provision of the federal securities laws. The SEC is seeking to have all four return allegedly ill-gotten gains with interest and pay civil monetary penalties, and to have Gibson and Harra barred from serving as corporate officers or directors.
In a related action, the U.S. Attorney’s Office for the District of Delaware today announced criminal charges against Rakowski and North.
The SEC’s investigation has been conducted by Margaret Spillane, James Addison, and Thomas P. Smith, Jr. of the New York Regional Office. Jack Kaufman and Ms. Spillane will lead the SEC’s litigation. The SEC appreciates the assistance of the U. S. Attorney’s Office for the District of Delaware, Federal Bureau of Investigation, Federal Reserve, and Office of the Special Inspector General for the Troubled Asset Relief Program.