March 25, 2016
By Bob Coleman
Editor, Fraud Friday
Fraud Friday — Ex-Community Bank CEO Gets 11 Years in Jail
The 74-year old founder and former chief executive officer of Nebraska’s largest bank failure learned his fate this week — 11 years in jail for bank fraud.
Prosecutors said Lundstrom concealed delinquent and uncollectible loans from investors and regulators, making the bank look healthier than it was. At the end in 2010, when TierOne was seized and shuttered by regulators, shareholders were left with worthless stock that had tanked from a high in 2006 of $35 a share. Loans not being paid as agreed ballooned to 22 percent of loans, many times the 3.2 percent that was the average for Nebraska banks at the time.
Lundstrom’s attorneys argued that while he had made bad business decisions, he never intentionally misled anyone about the bank’s condition and instead relied on information from executives at the bank who reported to him.
Two of those executives, former bank President James Laphen and former Chief Credit Officer Don Langford both pleaded guilty to similar charges and testified for the government in its case against Lundstrom. Their sentencing is scheduled for next week.
“Today’s sentence shows the Justice Department’s commitment to prosecuting individuals who abuse their corporate positions to commit fraud,” says Assistant Attorney General Caldwell. “Gilbert Lundstrom and his co-defendants’ crimes not only contributed to the collapse of a major regional bank during the financial crisis, but also destroyed the jobs of hundreds of bank employees and led to massive losses for the bank’s shareholders. The defendants recklessly gambled with bank assets and lied to shareholders and government regulators, and through their actions drove a respected regional bank into the ground. They have now been held accountable for their crimes.”
“The entire financial system is dependent upon full and truthful disclosure by the executives of financial institutions and the sentence imposed today sends a message to high level executives who abuse their position of trust,” says Special Agent in Charge Thysse. “The FBI will continue to investigate and bring to justice those who exploit their influence or position for personal gain at the expense of the investing public.”
“Lundstrom is now another bank CEO investigated by SIGTARP to be sentenced to prison,” says Special Inspector General Romero. “He was the architect of the bank’s aggressive and risky growth plan that backfired when the housing bubble burst. Instead of honestly communicating TierOne’s losses, this bank CEO took intricate steps to conceal the bank’s true financial picture and dig the bank into an even deeper financial hole. Lundstrom applied for $86 million in TARP funds on behalf of the bank. This was a critically important conviction and we commend the commitment by the DOJ Criminal Division and the FBI in holding bankers who commit crimes accountable.”