Fraud Friday – Criminalizing Bad Loan Decisions Update

April 19, 2013

By Bob Coleman
Editor, Coleman Report

The trial of five former community bankers continues in Virginia, where the federal prosecutors’ main witnesses are two borrowers who were lent $40 million from the Bank of Commonwealth.

This week’s highlights:

Co-defendant, real estate developer, Dwight Etheridge, had a groundbreaking ceremony for a five-story office building in a depressed neighborhood of Norfolk. The land had been purchased from the city for $10. The problem was he did not have the financing lined up.

However, later the bank CEO approved a $250,000 loan for preconstruction costs, the loan increased to $750,000 in the Spring of 2011. The problem say prosecutors is some of the loan proceeds were used to pay off other past-due loans at the bank.

Building a case for a quid pro quo, prosecutors say Etheridge was urged by the bank to take over a failed $4 million condominium development loan. He did and hundreds of thousands of dollars in draw requests were submitted for construction work.

The problem is a construction manager of Etheridge testified the draw requests were bogus.

Additionally, a former bank vice president, who has already pled guilty to fraud, testified he was told by the bank CEO to tell Etheredge to move the $250,000 loan proceeds to another bank before paying off overdue loans.

Check out the latest three stories from the Virginian-Pilot here.

Witness: Existing loans used to repay past-due loans
Ex-bank exec says he repeatedly lied, shuffled loans
Witness: Developer pitched project, then sought a loan