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Fraud Friday — Appeal Court Overturns Community Banker’s Fraud Conviction

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April 15, 2016

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Appeal Court Overturns Community Banker’s Fraud Conviction

David Weimert’s 18-month sentence for bank fraud has been nullified on appeal and he walked out of a federal prison this week.

Weimert was president of Wisconsin-based Anchor Bank’s real estate subsidiary. During the height of the recession he brokered a deal to sell a $6 million bank REO for $8.5 million. He would earn a $311,000 fee, and 4.9% of the project.

This conflict of interest was fully disclosed to the board of directors.

Outside counsel advised the board that Weimert’s involvement was not illegal. He asked the board two questions: first, whether the transaction could be completed without Weimert’s involvement; and second, whether the transaction was necessary and in the best interest of the company.

The board members said they understood that Weimert “had to be involved or the (buyer) was not going to be a purchaser,” and that the deal was good for the company, especially with the need to raise cash to make the looming payment due to U.S. Bank at the end of March.

The attorney advised the board to waive the conflict and go forward with the sale.

On this advice, the board waived the conflict, accepted the purchase offer, and approved the four percent fee for Weimert.

Four years later, the bank filed bankruptcy causing a loss to the Treasury Department’s TARP investment.

SIGTARP and the FBI poured over the bank’s transactions. In examining the sale of the REO, it was discovered Weimert had told the buyer the seller wanted him to be part of the transaction, and vice versa. He was slapped with wire fraud charges and convicted on five counts last year. The Judge determined Weimert’s actions led to a $992,000 loss of TARP funds.

Weimert appealed.

During the oral arguments of his appeal, Judge Hamilton said that “it appears that you all (federal prosecutors) are grabbing the minnow when the sharks are swimming upstream with cash to the holding company.” He said that the negotiations “were capitalist acts among consenting adults.”

The 7th Circuit Court of Appeals agreed and reversed all of Weimert’s convictions.

The Court found that while many specific kinds of omissions or misstatements could amount to fraud — such as failing to disclose known environmental problems at a property — keeping certain things to yourself like a bottom line price, or the relative importance of other terms of the deal, do not.

The court wrote, “The better answer is that negotiating parties, and certainly the sophisticated businessmen in this case, do not expect complete candor about negotiating positions, as distinct from facts and promises of future behavior.

“He led the successful buyer to believe the seller wanted him to have a piece of the deal. He led the seller to believe the buyer insisted he have a piece of the deal. All the actual terms of the deal, however, were fully disclosed and subject to negotiation,” the majority found in a 2-1 vote.

“Federal wire fraud is an expansive tool, but as best we can tell, no previous case at the appellate level has treated as criminal a person’s lack of candor about the negotiating positions of parties to a business deal.”

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