In an investigation leveraging the full power and resources of the federal government, two former bank executives have been accused of bank fraud, conspiracy, and operating a continuing financial crimes enterprise while working for the now-defunct FirstCity Bank of Stockbridge. One of the men is also accused of fraudulently influencing the actions of a federally insured bank.
The investigation involved the FBI, the IRS’s criminal investigations division, the FDIC’s Office of Inspector General, and the Special Inspector General for SIGTARP, the federal Troubled Asset Relief Program.
The two men served in high-ranking positions at FirstCity Bank between 2004 and 2009, operating in positions of great trust in a highly regulated industry. One served as vice chairman of the board of directors, a member of the bank’s loan committee, as president of the bank, and later as acting chairman and CEO. The other was a bank vice president and FirstCity’s senior commercial loan officer. According to the numerous federal agencies, they allegedly worked with co-conspirators to convince FirstCity and other banks to make business loans to borrowers who, unbeknownst to the bank, were buying properties owned personally by the two men.
Bank leaders accused of submitting misleading commercial loan applications and improperly allocating risk between banks
In cases involving alleged white collar crimes such as bank fraud, it is often quite difficult to determine whether a fraud even occurred. In a press release by the FBI, the federal agency and the U.S. Attorney’s Office do not specify exactly what the leaders of FirstCity did that constituted illegal acts, but merely state the conclusions of the investigation.
The gist of the allegations seems to be that the two bank officers had personal business activities for which attempted to obtain large commercial loans through FirstCity and other banks. However, the information they presented to FirstCity’s loan committee and board of directors either did not fully disclose all the pertinent information or presented false information.
At least 10 other banks invested in the loans, and some or all of the risk of default was spread to those other banks. Some shift of risk would presumably be normal whenever one bank invests in another bank’s loan holdings, so the federal agencies are likely alleging that there was an improper allocation of risk between FirstCity and the other banks.
Apparently FirstCity had set up incentives that might have encouraged at least one of the men to “push the envelope” when making commercial loans. The bonus plan for the more senior of the men apparently depended on his success at originating business loans.
The agencies also allege that the men “routinely misled” federal and state bank regulators and examiners. Finally, when they made a successful application on FirstCity’s behalf for federal assistance through the TARP program, they engaged in unspecified misconduct in an effort to hide their misdeeds, prosecutors say.
The men are accused of generating around $5 million in “unlawful gross proceeds” through their actions before FirstCity failed and was seized by bank regulators in March 2009. Should they be convicted on all charges, they could face between 10 years and life in federal prison, along with fines amounting to millions of dollars.
The picture these multiple federal law enforcement agencies paint is certainly dark, but the evidence of any financial misdeeds the two men might have committed is not specific enough to gauge. The public will need to see what that evidence may be before any decision about their guilt may be made.
Source: FBI Atlanta Division press release, “Former Bank President and Senior Loan Officer Indicted in Multi-Million-Dollar Fraud Conspiracy,” March 21, 2011