Wilmington Trust Convictions Appeals Panel Says

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DOVER – Lawyers representing former executives of the only financial institution to face criminal charges under the federal bank bailout program have asked a panel of the Federal Court of Appeal to overturn their convictions.

Defense lawyers argued on Tuesday that prosecutors had failed to prove that former Wilmington Trust executives deliberately lied to federal regulators about the extent of the bank’s delinquent commercial real estate loans before Wilmington Trust did ‘imploded and was hastily sold in 2011.

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The term “overdue” was not clearly defined in the reporting requirements for submitting documents to the Securities and Exchange Commission and the Federal Reserve, and prosecutors therefore failed to prove beyond a reasonable doubt. that the defendants had made false statements, defense lawyers say.

“The term ‘past due’ can be reasonably interpreted as not including the loans at issue here, and the available regulatory guidance did not unambiguously require the reporting of these loans,” said George Hicks Jr., counsel for the former Wilmington Trust Credit Manager. William North.

Assistant U.S. Attorney Robert Kravetz noted that the trial judge found that the defendants’ interpretation of the overdue term was not “logical” and that there was no ambiguity in the requirements for reports.

“Rather, the instructions specifically tie the past due status to the loan agreement and the payment, or lack thereof, of interest or principal,” Kravetz said, citing a ruling by U.S. District Judge Richard Andrews.

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A three-judge panel from the Third Circuit court took the case under advisement after hearing arguments for more than two hours. The panel initially only allowed lawyers 20 minutes per side.

“We recognize that this is an important case,” said Judge Cheryl Ann Krause.

North, former Wilmington Trust bank chairman Robert Harra Jr., former CFO David Gibson and former Controller Kevyn Rakowski were convicted in May 2018 of fraud, conspiracy and misrepresenting federal regulators.

Harra and Gibson were sentenced to six years in prison. North was sentenced to 4.5 years and Rakowski to 3 years. All four have remained free on bail pending their appeals.

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The bank itself reached a $ 60 million settlement with prosecutors, without acknowledging any responsibility, just as a trial was due to begin.

Prosecutors alleged that following the 2008 financial crisis, bank executives misled regulators and investors about Wilmington Trust’s massive amount of delinquent commercial real estate loans before the bank was shut down. hastily sold in 2011, on the verge of collapse. Founded by members of the DuPont family in 1903, the bank imploded despite receiving $ 330 million from the federal government’s distressed asset relief program.

After the trial, Andrews dismissed the defense motions for acquittal judgments or a new trial. He rejected defense arguments that the instructions for filing reports with the Federal Reserve, including quarterly financial documents known as appeal reports, and for disclosing financial information in filings with the Securities Exchange Commission, were ambiguous. He also found that there was sufficient evidence for a rational jury to conclude that the defendants had acted with the requisite criminal intent.

“The defendants knew they were dishonest,” he wrote.

Prosecutors argued that instead of reporting the actual amount of delinquent loans, bank officials had “exempted” millions of dollars of overdue loans from reporting obligations if the loans were designated as “short-interest” and being extended – even though the necessary paperwork had not been done. To ensure that loans well beyond their repayment date were up to date for interest and therefore allegedly exempt from reporting obligations, the bank loaned even more money to struggling promoters just so they could pay interest on the underlying loans.

In the fourth quarter of 2009, Wilmington Trust officials reported just $ 10.8 million in commercial loans 90 days or more past due, concealing more than $ 316 million in delinquent loans subject to the forgiveness practice, according to prosecutors.

Defense attorneys argued that the practice of waiver had been in place for decades and was no secret.

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