Fraud Friday: Two Community Bankers and Two Borrowers Indicted for Bank Fraud

April 11, 2014

By Bob Coleman
Editor, Coleman Report

SVBIn 2009, A Northern California real estate developer defaulted on $30 million of loans, one of the causes for the failure of Charter Oak Bank.

When the FDIC sold the loan, the developer found a straw buyer for the purchase of his property.

Sonoma Valley Bank lent the straw buyer the money to purchase the loan and retake control of the property.

Then, Sonoma Valley Bank was seized by the regulators, after receiving TARP funding.

Enter SIGTARP, the special inspector general.

From the press release:

“On Wednesday morning, SIGTARP and its law enforcement partners arrested both the former president and CEO and the former chief lending officer of TARP recipient Sonoma Valley Bank and two coconspirators for their roles in an alleged $9.5 million fraud scheme they began orchestrating weeks after the bank received nearly $9 million in taxpayer TARP funds, all of which was lost when the bank failed,” said Christy Romero, Special Inspector General for TARP (SIGTARP).”

“The two TARP bank executives, Cutting and Melland, are alleged to have skirted the bank’s internal controls and defrauded Sonoma Valley Bank by authorizing the bank to lend $9.5 million to a straw purchaser so that the funds could be used by real estate developer Madjlessi to repurchase part of the same condominium project for which Madjlessi had already defaulted on a construction loan. In order to help Madjlessi regain control of residential units in the project that had already been sold and to obtain financing from Freddie Mac, TARP bank CEO Cutting is alleged to have produced letters, on Sonoma Valley Bank letterhead, falsely stating that straw buyers had sufficient funds at the bank to purchase the units. SIGTARP and our law enforcement partners stand together to investigate fraud by TARP bank executives and their coconspirators and to ensure that perpetrators of fraud against TARP are held accountable for their actions and are brought to justice.”

The defendants face hundreds of years in jail and millions of dollars in fines.

Read the indictment here

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