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Federal prosecutors won’t retry former Wilmington Trust executives

DOVER, Del. – After suffering a startling setback by an appeals court, federal prosecutors in Delaware refused to retry four former executives of the only financial institution to face criminal charges in federal bank bailout program following the year 2008 financial crisis.

U.S. Attorney David Weiss said in a statement Tuesday that his office chose not to retry former Wilmington Trust executives for fraud and conspiracy.

Weiss attributed the decision to the difficulty of securing new convictions, competing public safety priorities such as violent crime and the opioid epidemic, and limited resources.

The decision came nearly six months after a Philadelphia Court of Appeals panel overturned convictions of former bank executives for making false statements to federal regulators and ordering acquittals to be entered. The court also ordered a new trial for conspiracy and securities fraud.

The January ruling dealt a blow to the government’s case against former Wilmington Trust chairman Robert Harra Jr., former CFO David Gibson, former credit director William North and former controller Kevyn Rakowski .

“The government’s prosecution of Mr. North was misguided from the start and we made it clear to the government ten years ago that this case was an excruciating waste of time and resources,” said North’s lawyer David Wilks, in an email Tuesday. “On top of that, four innocent lives were destroyed. “

The four officials were convicted in 2018 of fraud, conspiracy and misrepresentation. The bank itself was also charged with criminal charges, but reached a $ 60 million settlement with prosecutors just as a trial was due to begin. Wilmington Trust’s settlement included a civil forfeiture of $ 44 million and $ 16 million that it had previously paid to the Securities and Exchange Commission in a related lawsuit.

Harra and Gibson were sentenced to six years in prison. North was given four and a half years and Rakowski was sentenced to three years. All four remained on bail pending appeal.

Prosecutors alleged that following the 2008 financial crisis, executives misled regulators and investors about Wilmington Trust’s massive amount of delinquent commercial real estate loans before the bank was hastily sold in 2011 when it was on the verge of collapse.

Founded by members of the DuPont family in 1903, the bank imploded despite receiving $ 330 million from the federal distressed asset relief program.

Prosecutors said bank officials had waived millions of dollars in overdue loans from reporting requirements if they were designated as “current for interest” and under extension. To ensure that loans well beyond their repayment dates were supposedly exempt from reporting requirements, the bank loaned distressed developers even more money just to make the interest payments.

In the fourth quarter of 2009, bank officials reported only $ 10.8 million in commercial loans 90 days or more past due, concealing more than $ 316 million in delinquent loans subject to the practice of forgiveness, they said. prosecutors said.

After a meeting to discuss maturing loans and “how to make them go away” by the end of the year, bank officials went beyond the practice of forgiveness and decided on a massive expansion that involved temporarily extending more than 800 commercial loans worth $ 1.3 billion, prosecutors said. In an email to Harra, North called some loans “credit turds.”

Prior to its 2011 incendiary sale to M&T Bank, Wilmington Trust raised $ 287 million in a stock offering in 2010, intended in part to help repay TARP funds, while hiding the truth about its precarious financial situation from the public. investors, prosecutors said.

Defense lawyers argued that the practice of waiver had been in place for decades and was no secret. They also argued that the instructions for filing reports with the Federal Reserve and for disclosing financial information in Securities Exchange Commission files were ambiguous and that the term “overdue” was not clearly defined.

The appeals court agreed in ruling for the defendants that the reporting requirements were ambiguous.

In a separate civil action, Wilmington Trust agreed to pay $ 200 million in cash to settle a shareholder lawsuit alleging the fraudulent cover-up of billions of dollars in bad debt. Audit firm KPMG agreed to pay an additional $ 10 million as part of the settlement.

Separately, a federal judge last year dismissed a request by Harra and North to dismiss a civil action filed by securities regulators. Gibson and Rakowski finalized settlements with the SEC in 2019, agreeing to pay more than $ 70,000 and $ 44,000, respectively, to the SEC.

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