Mug Shot Monday – Criminalizing Bad Loan Decisions


April 8, 2013

By Bob Coleman
Editor, Coleman Report

legalStung by criticism no one individual on Wall Street is being held accountable for the mortgage meltdown mess, federal prosecutors are looking for others to fry.

While civil penalties of billions and billions of dollars have been imposed on banks, “Too Big to Jail” has been extended to many executives of the Wall Street banks.

At the other end of the spectrum, the feds are aggressively going after a number of community bankers and criminalizing bad loan decisions. The FDIC Inspector General has 223 open criminal investigations involving 144 bank executives.

Now, to be clear, if a perp has broken the law, throw the book at him or her. I simply note it is curious the feds willingness to bring fraud charges against bankers is limited to community bankers.

Attorney General Eric Holder said last month his department is shying away from prosecuting those at larger institutions, citing the detrimental effect those prosecutions would have on the economy. His “Too Big for Trial” attitude has been severely criticized.

On Friday we introduced the Bank of Commonwealth case where two borrowers, who received $40 million in loans from the bank, are testifying against four of their former bankers in hopes of a lighter sentence.

The former bank CEO’s attorney says his client was in the grasp of a “perfect economic storm” that saw hundreds of community banks closed and he didn’t want that to happen to his bank.

“Ed Woodward used all his diligence and skill to create ways to keep his borrowers afloat and keep them out of bankruptcy,” Sacks said.

Writes The Virginian Pilot, “That included using new loan proceeds to pay off other overdue loans, allowing big loan customers to overdraw accounts to pay down loans, and changing the terms of loan agreements to allow for lower payments, he and the other lawyers said.

“While maybe policy violations, they are not criminal.”

They used “creative” efforts, not fraud, to try to save the bank from failure, say the lawyers.

However, the bankers are being held accountable.

“Bank of Commonwealth is a case that clearly has local impact and certainly has broader implications. The FDIC is going to have to pick up the tab of whatever the estimate is — $270 million,” said the prosecutor.

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