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Fraud Friday – Borrower Defendants Testify Against Their Bankers in Bank of Commonwealth Collapse

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April 5, 2013

EmbezzlementWe have been following this fraud trial in Norfolk that involves a $71 million fraud against the now defunct Bank of Commonwealth.

In its third week, three former bank executives are among the five defendants on trial for numerous counts of bank fraud.

The case involves the usual tale of chummy relationships between borrowers and bankers that all too frequently cross the line.

However, in this instance two prominent borrowers are turning the tables on the bankers. The pair who received $40 million in loans from the bank are now the star witnesses of the trial. They are serving 11 plus years in a federal prison and are testifying against their former bankers in hopes of reducing their sentences.

There is a lot of dirty laundry being thrown about. Five year old emails are being used to support the case on both sides.

Bill Sizemore of the Virginian-Pilot is doing a great job of covering the case. We’ll dig into deeper next week, but here’s a taste of what is happening. . . . . .

Menden, a real estate developer, said that in turn, he and his partner did favors for bank executives, treating them to thousands of dollars worth of gifts and free lunches.

“It was kind of like, you scratch my back, and I’ll scratch yours,” Menden testified.

Typical of the relationship was a $16 million loan the pair got from the bank to convert the old Hotel Madison on Granby Street into condominiums – a plan that morphed into an office building when the condo market collapsed. The two had sought a loan for the project at another local bank but were turned down.

Menden said that he and Hranowskyj used some of the loan proceeds to make payments on other troubled loans and took at least $700,000 for their personal use.

In some cases, the memo line on the checks to the pair read “fun.”

“It was fun money,” Menden testified.

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