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U.S. opens rare criminal trial versus bank stemming from 2008 crisis

[October 10, 2017] By Tom Hals

WILMINGTON, Del. (Reuters) - The U.S. government, long criticized for a dearth of successful prosecutions tied to the 2008 financial crisis, was set to open a rare criminal trial on Tuesday that gives it a chance to improve its record.

Opening statements are expected in a trial of Wilmington Trust Corp, its former president and three other former executives, accused of deceiving the government about nonperforming loans after receiving federal bailout money.

The bank and the former executives were indicted on 19 counts for allegedly hiding from regulators and investors the deteriorating condition of its loans in 2009 and 2010, when it was bought by M&T Bank Corp of Buffalo, New York.

M&T was not charged.

Wilmington Trust faces potential criminal penalties and could be restricted from conducting certain business if found guilty, according to M&T's annual report.

Founded by the du Pont family in 1903, Wilmington Trust is the only bank that received federal bailout money under the Troubled Asset Relief Program (TARP) to be indicted, although 97 individuals have been indicted as a result of TARP-related investigations.

The financial crisis was sparked by the bursting of a housing bubble that had been fueled by loose lending standards.

During the crisis and accompanying recession, regulators seized more than 300 banks, including huge lenders such as IndyMac Bank and Washington Mutual. Most bankers who were prosecuted came from smaller institutions.

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The case against Wilmington Trust, former president Robert Harra and the other defendants stems from allegations they concealed past-due commercial loans from U.S. Securities and Exchange Commission and U.S. Federal Reserve.

The other defendants are David Gibson, a former chief financial officer, William North, former chief credit officer and Kevyn Rakowski, the bank's former controller.

Wilmington Trust had received $330 million in TARP funds in 2008, which were to cushion the bank against any deterioration in its balance sheet.

When Wilmington Trust raised $273.9 million in a February 2010 stock offering, it reported just $10.8 million in commercial loans that were 90 days past due. But prosecutors said the real figure was $344 million and it continued to grow.

In November 2010, Wilmington Trust agreed to be acquired by M&T for $3.84 per share, an unusual 46 percent discount to its most recent closing price, and $9.41 below the price in the stock offering.

The case is U.S. v. Wilmington Trust Corp et al, U.S. District Court, District of Delaware, No. 15-cr-00023.

(Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Jonathan Stempel in New York; Editing by David Gregorio)

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