Executives at $330 Million TARP recipient Wilmington Trust made the bank appear heathier than it actually
was by concealing the total quantity of past due loans on its books from the Federal Reserve, the Securities
and Exchange Commission and the investing public. Using false security filings, Wilmington Trust raised
more than $273 million in a stock sale. As the conspiracy was ongoing, Wilmington Trust announced an
agreement to be acquired by M&T Bank at a discount of approximately 46% from the bank's share price the
prior trading day.
SIGTARP played a lead law enforcement role in uncovering the criminal conduct through data analytics, witness
interviews, evidence gathering, banking expertise, and trial testimony and support.
U.S. District Judge Richard G. Andrews said the investigation uncovered the "the biggest financial crime
in Delaware, at least in the past 35 years."
Former president Robert Harra and former chief financial officer David Gibson were sentenced to six years
in prison. Former chief credit officer William North was sentenced to four and half years in prison and
former controller Kevyn Rakowski was sentenced to three years in prison. Wilmington Trust agreed to pay
$60 million to resolve a criminal indictment.
In separate but related parts of the case three other Wilmington Trust bankers and a co-conspirator were
convicted and sentenced to terms up to two and half years. James Ladio, former chief executive officer of
MidCoast Community Bank and a co-conspirator in the case, was sentenced to two years. All bankers were
also banned from banking.
Leading up to and during the financial crisis, former chief executive officer Sean Clark Cutting
and former chief loan officer Brian Scott Melland conspired to make millions in excessive and
illegal loans. The bankers recommended the loans to "straw" borrowers, knowing the proceeds would
actually go to a single real estate developer. They then tried to cover up the scheme by falsifying
the bank's books and lying to the bank's regulators. The illegal loans resulted in massive losses and
eventually caused the bank to fail.
The prosecution was the result of a multi-year investigation by SIGTARP and its law enforcement partners.
When asked why the bank was taking TARP funds, Cutting said that when the government provides a jar of
cookies it only made sense to for the bank to take some. All $8.6 million in TARP bailout funds were lost
when the bank failed.
The court sentenced both Cutting and Melland to eight years and four months in prison. David Lonich, an
attorney co-conspirator, was sentenced to six years and three months in prison. The real estate developer
died prior to the trial. As part of restitution, the court ordered forfeiture of real estate involved in
the crime worth more than $20 million.
Goldman Sachs, Morgan Stanley, and Ally Bank misled investors about the quality of residential
mortgage-backed securities (RMBS) each company issued, marketed and sold.
In the three separate cases, SIGTARP was part of a task force that uncovered the fraud.
Misleading investors about the quality of RMBS was a key type of abuse that contributed to the financial crisis.
In separate enforcement actions with the Justice Department, each company acknowledged wrongdoing under the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), made corporate changes, and paid
significant monetary penalties totaling nearly $8 billion.
Ally also discontinued operations of its registered broker-dealer, Ally Securities. Goldman, which paid a $5.06
billion penalty that included homeowner relief, admitted that it made false and misleading representations to
prospective investors about the characteristics of the loans it securitized and the ways in which it would protect
investors in its RMBS from harm. Morgan Stanley, which paid a $2.06 billion penalty, admitted that it failed to
disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS,
and about its due diligence practices. Ally, which paid a $52 million penalty, acknowledged that it failed to inform
investors about deficiencies and material changes to its underwriting and diligence process.
After aggressive and risky loan-fueled growth, management of TARP recipient United Commercial Bank (UCB) fraudulently inflated the bank's
financial performance by hundreds of millions of dollars.
The bank later failed - one of the largest failures since the Great Depression - and $300 million in TARP funds were lost.
Instead of relying on traditional notions of bank fraud, SIGTARP compared UCB's bank information to red flags we developed.
Electronics stored in a warehouse that served as collateral for a major loan turned out to be fake-staged like a Hollywood movie set.
But UCB did not write the loan down.
Then U.S. Attorney Melinda Haag said UCB was "one of the largest criminal prosecutions brought by the U.S. Department of Justice of wrongdoing by bank officers arising out of the 2008 financial crisis."
UCB's former chief credit officer was sentenced to eight years in prison.
This case and others have brought accountability to senior executives at TARP banks who commit crimes.
TARP recipient General Motors (GM) knew about an ignition switch defect that lead to driver deaths but did not recall the part.
Instead, GM concealed the defect for years from consumers and regulators.
SIGTARP played a lead role in finding the criminal conduct through interviews of 70 witnesses and analysis of millions of pages of documents
GM could have corrected the ignition switch defect for less than one dollar per vehicle.
As part of GM's deferred prosecution agreement with the Justice Department, the auto manufacturer admitted to criminal conduct and made changes to prevent future fraud.
GM also paid $900 million to the U.S. government, helping offset a TARP loss of $11 billion.
This case brought industry-wide changes. GM's federal regulator revised its recall practices.
Auto manufacturers now respond more quickly respond to recall defective auto parts.
Vehicle recalls have skyrocketed from 20 million in 2013 to more than 50 million in 2014 and 2015.
The City of Fort Wayne, Indiana awarded all Blight Elimination Program demolition
contracts to Martin. But instead of filling the post-demolition excavation sites with
clean fill dirt as required, from February to September 2017 Martin filled the holes
with construction debris and then falsely billed and received payments from the TARP program.
SIGTARP investigated Martin for fraud on the program. In 2017, SIGTARP
released an audit
warning about the risk of fraud related to contaminated soil.
This case marks the first law enforcement action brought as a result of SIGTARP's
investigation into the Hardest Hit Fund Blight Elimination Program.
With Martin closing its business, the United States Attorney Northern District of Ohio
resolved False Claims Act charges pre-suit. In addition to Martin returning payments
received and a penalty, there will be substantial costs to remediate the properties.
Former chief executive officer and chairman Edward Woodard orchestrated a massive fraud that drove the bank into the ground.
Greedy for aggressive growth, he made risky loans.
When the loans resulted in losses, bank officers cooked the books to hide $800 million in past due loans, overdrew checking accounts by $100,000 to make loan payments, and made loans to straw borrowers knowing that the money would pay down delinquent borrowers' loans.
Bank of the Commonwealth applied for $28 million in TARP funds using false books and records.
SIGTARP's investigation with our law enforcement partners uncovered the massive fraud. Former U.S. Attorney Neil MacBride, who prosecuted the case, said that the fraud "intensified the impact of the 2008 financial crisis."
The bank failure, the largest in Virginia history, was at the time the seventh largest bank failure in the country.
Woodard was sentenced to 23 years in prison, former executive vice president Stephen Fields - who previously worked at the Federal Reserve as a bank examiner - was sentenced to 17 years in prison, and former vice president Troy Brandon Woodard was sentenced to eight years in prison.
Four co-conspirators were also sentenced to prison.
This and similar SIGTARP cases like Colonial Bank and Tier One have brought accountability to senior executives who tried to get TARP funds to cover up fraud in banks' books.
Jefferies and RBS fraudulently increased the profitability of residential mortgage backed securities (RMBS) trades by repeatedly misleading customers, including the TARP-funded Public-Private Investment Program, a $18.6 billion effort designed to unlock frozen credit markets during the crisis.
SIGTARP was the first to uncover this wrongdoing in the securities industry.
The Special Inspector General sent letters to all broker dears involved in PPIP asking them to self-report.
At Jefferies, members of management in the fixed income division were aware of the misrepresentations but did nothing to stop it.
At RBS, supervisors and compliance personnel took steps to prevent victims and honest RBS employees from discovering and exposing the scheme.
As part of their enforcement actions with the United States Attorney for the District of
Connecticut, Jefferies and RBS paid $25 million and $35 million penalties, respectively, and
changed their RMBS sales practices. These cases prompted widespread change: broker dealers throughout
the securities industry revised their RMBS sales practices.
When former chief executive officer Gilbert Lundstrom's aggressive strategy to expand TierOne Bank's portfolio into
risker areas like commercial real estate failed, he and other executives intentionally and repeatedly concealed more
than $100 million in losses from investors and regulators. They also used unrealistic loan collateral values to make
it appear that the bank met required capital ratios. The conspiracy included applying for an $86 million bailout from
TARP using false bank books, which Lundstrom said the bank "would be dead without." These lies dug TierOne into an even
deeper financial hole and, in June 2010, the bank failed. TierOne Bank was the second largest bank in Nebraska and had
more than 750 employees and 69 branches.
The prosecution was the result of a multi-year investigation by SIGTARP and its law enforcement partners.
Chief credit officer James Laphen conspired with Lundstrom to create a separate set of books for regulators that hid
astronomical write downs on loans. Banks officers call the books "smoke and mirrors" and "hiding the ball."
Lundstrom was sentenced to 11 years in prison and ordered to pay $500,921. Laphen was sentenced to two years and 10 months
in prison and ordered to pay $225,000. Former chief credit officer Don Langford was sentenced to one year and nine months
SunTrust committed fraud while administering the Home Affordable Modification Program (HAMP), causing serious financial harm to thousands of homeowners who applied through the bank.
SunTrust made material misrepresentations to homeowners applying for lower interest rates.
It failed to process applications in a timely fashion.
And it made mass denials and then lied to Treasury about the reason why applicants were denied.
SIGTARP led the investigation that uncovered the criminal conduct and SunTrust's unwillingness to put resources in HAMP despite taking billions in TARP funds.
The floor of the room where SunTrust dumped unopened Fed-Ex packages of HAMP applications and other homeowner documents buckled under the packages' sheer weight.
As part of their enforcement action with the Justice Department, SunTrust made corporate
changes and paid $320 million to victim homeowners, housing non-profits, and the government.
Former Taylor, Bean & Whitaker (TBW) Chairman Lee Bentley Farkas spearheaded an undetected decade long $2.9 billion fraud scheme that ultimately contributed to the failure of the mortgage lender and Colonial Bank.
Facing mounting losses at TBW, Farkas and his co-conspirators hid them through a variety of crimes.
They secretly overdraw the firm's accounts with Colonial Bank.
They lied about securing $300 million in funds from private investors.
And they submitted financial data and filings that had materially false and misleading information, among other crimes.
During the fraud, Farkas lived in the lap of luxury using the more than $38 million that he stole from TBW and Colonial Bank - buying a jet, expensive antique and collector cars including a Rolls Royce, and multiple vacation homes.
This 10-year fraud was undetected until Colonial Bank applied for TARP and SIGTARP discovered the fraud.
The fraud contributed to the failure of Colonial Bank, one of the 25 largest banks in the nation with $25 billion in assets, the third largest bank failure since the crisis, and the sixth largest bank failure in U.S. history, as well as the failure of TBW which was one of the largest mortgage lenders in the nation.
Then U.S. Attorney Neil McaBride said the scheme "affected those at the heart of the financial crisis, including major financial institutions, government agencies, taxpayers, and employees and investors."
SIGTARP saved $553 million in TARP funds that Treasury had already approved to invest in the bank.
Eight defendants were sentenced to prison, including Farkas and former Colonial Bank senior vice president Catherine Kissick; they received 30 and eight year sentences, respectively.