Fraud Friday — Three Florida Community Bankers Convicted of Bank Fraud

May 23, 2014

By Bob Coleman
Editor, Coleman Report

gavelThree executives or directors of defunct Coastal Community Bank are facing jail in connection with a failed $3 million loan the bank obtained from another bank during the financial crisis of 2008.

Says the DOJ:

The case involved a fraud committed against the Government relating to the FDIC’s Temporary Liquidity Guarantee Program (TLGP), which was created at the height of the nation’s financial crisis in October 2008. The purpose of the TLGP was to encourage banks to begin lending to one another again, and thereby, help to stabilize the economy. To accomplish this, the TLGP provided that the FDIC would guarantee a loan made by one financial institution (the “lender”) to another financial institution (the “borrower”) in an amount up to 125% of the borrower’s existing unsecured debt, thus assuring repayment to the lender by the borrower or, in the event of default, by the FDIC.

The evidence at trial showed that in October 2008, Coastal had a $3,000,000 secured loan with RBC Bank (USA), which was secured by 100% of the stock of Coastal Community Bank and Bayside Savings Bank (the “RBC Loan”). At that time, the RBC Loan was in default, thus giving RBC the ability to exercise its right to take the pledged stock that secured the loan and take over Coastal Community Bank and Bayside Savings Bank. Under pressure from RBC to repay this debt, the defendants falsely certified to the FDIC that the RBC Loan was unsecured, knowing for a fact that it was instead a secured loan, so that Coastal could get an FDIC-guaranteed loan under the TLGP.

The evidence at trial established that Coastal obtained a $3,750,000 loan from central Florida-based CenterState Bank. Based on the defendants’ misrepresentations, the CenterState Bank loan was guaranteed by the FDIC under the TLGP (the “TLGP Loan”), and as provided by the program, represented 125% of the RBC Loan. Coastal used the proceeds of the TLGP Loan to repay the RBC Loan.

In June 2010, Coastal defaulted on the TLGP Loan, and on August 6, 2010, CenterState Bank filed a claim with the FDIC for payment of the full amount due on the TLGP Loan, plus interest. The FDIC paid CenterState’s claim on August 13, 2010, by wiring $3,805,833.34 in principal and interest from the FDIC to CenterState.

United States Attorney Marsh said, “These defendants – bank officers and a bank attorney – took advantage of the Temporary Liquidity Guarantee Program, which was designed to help the country avoid financial collapse, and instead used the program to enrich themselves. Such fraud committed by bank insiders against programs designed to help our citizens will not be tolerated. Not only is such conduct a breach of trust, it is harmful to our communities and our nation. My office will continue to investigate and prosecute any individual who would harm our banking system, our financial institutions, and our national economy.”

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