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Former CEO And Chief Loan Officer Of Failed Sonoma Valley Bank, And Borrower's California Attorney, Sentenced To Multi-Year Prison Terms For Bank Fraud And Other Crimes

$8.6 Million in TARP funds were lost when the bank failed. The court ordered asset forfeiture of defendant's interest in real estate worth approximately $20.8 million as proceeds of the crimes.

Our top law enforcement priority is unlawful conduct by any of the 130 banks and other financial institutions who Treasury has already paid billions or millions of TARP dollars in HAMP. This critical law enforcement is necessary to bring justice and safeguard the $9 billion Treasury is committed or obligated to pay in the future.

- Special Inspector General Goldsmith Romero

SIGTARP uses an innovative, intelligence-based approach to identify and investigate crime at financial institutions participating in TARP, including in the TARP foreclosure prevention programs.

Our special agents have the authority to search, seize, and arrest. When they and our investigators build a strong case against an individual or institution, SIGTARP then works with the Justice Department and other prosecutors to obtain convictions or a guilty plea.

Notable Investigations

The Crime
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.

SIGTARP's Role
The prosecution was the result of a multi-year investigation by SIGTARP and its law enforcement partners.

Investigation Fact
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.

Prosecution
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.


The Crime
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.

SIGTARP's Role
Instead of relying on traditional notions of bank fraud, SIGTARP compared UCB's bank information to red flags we developed.

Investigation Fact
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."

Prosecution
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.


The Crime
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's Role
SIGTARP played a lead role in finding the criminal conduct through interviews of 70 witnesses and analysis of millions of pages of documents and emails.

Investigation Fact
GM could have corrected the ignition switch defect for less than one dollar per vehicle.

Prosecution
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 Wrongdoing
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's Role
SIGTARP investigated Martin for fraud on the program. In 2017, SIGTARP released an audit warning about the risk of fraud related to contaminated soil.

Investigation Fact
This case marks the first law enforcement action brought as a result of SIGTARP's investigation into the Hardest Hit Fund Blight Elimination Program.

The Enforcement
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.


The Crime
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.

SIGTARP's Role
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."

Investigation Fact
The bank failure, the largest in Virginia history, was at the time the seventh largest bank failure in the country.

Prosecution
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.


The Crime
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's Role
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.

Investigation Fact
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.

Prosecution
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.


The Crime
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's Role
SIGTARP led the investigation that uncovered the criminal conduct and SunTrust's unwillingness to put resources in HAMP despite taking billions in TARP funds.

Investigation Fact
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.

Prosecution
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.


The Crime
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.

SIGTARP's Role
This 10-year fraud was undetected until Colonial Bank applied for TARP and SIGTARP discovered the fraud.

Investigation Fact
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."

Prosecution
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.

The fraud SIGTARP's investigations uncovers reduces banks' ability to lend through a vicious cycle: the fraud causes losses, bank capital is reduced, and less money flows to local businesses and communities

- Special Inspector General Goldsmith Romero