Fraud Friday – Bank of America Too Big to Jail, More Indictments for Community Bankers

August 8, 2013

Fraud or irresponsible conduct are the terms thrown about describing Bank of America’s employees in a civil action filed by the Department of Justice against the Wall Street bank this week.

The DOJ accuses the bank of vastly understating risks to investors in $850 million in mortgage backed securities. Five investors lost about $100 million.

No criminal charges were filed against Bank of America employees.

Contrast this action by the government to Wednesday’s indictment of three community bankers in Panama City on a dozen fraud charges in a $3 million loss. An additional $4 million was paid by the FDIC to cover losses from the failure of Coastal Community Bank.

Writes the News Herald, “The three are accused of ripping off millions of dollars from a Federal Deposit Insurance Corp. (FDIC) program designed to ensure banks could find loans from other banks.

“Under the Temporary Liquidity Guarantee Program, which was created during the onset of the Great Recession to help stabilize the economy, the FDIC would pay a lender who could not recoup a loan made to another bank, similar to how the FDIC repays depositors if their bank fails.

“In October 2007, Dubose and West, as Coastal’s chief executive officer and chief financial officer, respectively, sought a loan from another bank for $3 million with the common stock of both banks used as collateral. They got the loan, but when it came time to repay they were unable. By October 2008, the loan went into default and the lenders stood to take control of the stock in the banks used as collateral, which would have rendered their shares worthless.

“Under pressure from the lender, Dubose, West and Baker sought to borrow money from a third bank, CenterState Bank of Florida, under the FDIC program. But to qualify for the program, Coastal’s outstanding debt had to be unsecured, and it wasn’t.”

Our continued takeaway.

If you do the crime, be prepared to do the time. Unless you are employed by a Too Big to Jail Bank.