The former chief executive officer of Virginia’s Bank of the Commonwealth was among six people indicted for an alleged fraud conspiracy to cover up the bank’s financial condition from 2008 to 2011.
Edward Woodard, 69, who ran the bank for more than three decades, was charged in a 25-count indictment unsealed today in federal court in Norfolk, Virginia. Three other former bank executives and two borrowers were also charged in the scheme that prosecutors said led to the collapse of the Norfolk-based bank, which had almost $1 billion in assets.
“Bank insiders were unwilling to fully acknowledge the deterioration in the bank’s loan portfolio,” according to the indictment. “They were concerned that the bank’s declining health would negatively impact investor and customer confidence, and that capital erosion would affect the bank’s ability to accept and renew brokered deposits.”
The executives concealed shortfalls by overdrawing demand deposit accounts to make loan payments and extending new loans or additional principal on existing loans to cover payment deficiencies, the U.S. said in the 51-page indictment.
Prosecutors are seeking $71 million in criminal forfeiture.
“For more than 30 years, this community put their trust -- and their money -- in the Bank of the Commonwealth,” U.S. Attorney Neil MacBride said in an e-mailed statement. “These charges portray a bank leadership that betrayed that trust for their own profit at the detriment to their own bank, its shareholders and the community it served.”
Woodard is charged with conspiracy to commit bank fraud, bank fraud, false entry in a bank record, unlawful participation in a loan, false statements to a financial institution and misapplication of bank funds. Each charge carries a maximum penalty of 30 years in prison.
From 2008 until it closed in September 2011, the Norfolk-based bank lost almost $115 million, according to the indictment.
The 21-branch bank had $902 million in deposits acquired by Southern Bank & Trust Co. of Mount Olive, North Carolina. The bank was one of 92 to fail last year, and it was estimated to cost the Federal Deposit Insurance Corp’s fund $268 million.
Andrew Sacks, a lawyer for Woodard, said his client will plead not guilty to the charges, which he called “absolutely unfounded.” He said Woodard turned himself in to law enforcement this morning and he expects that he’ll be released on bond later today.
“Ed Woodard devoted a lifetime to being a professional banker,” Sacks said in a telephone interview. “He has an outstanding reputation. It’s incredible to believe he would commit any type of fraud.”
From December 2005 through 2009, the bank’s assets more than doubled, reaching about $1.3 billion, according to the indictment. This growth was funded primarily through brokered deposits, prosecutors allege.
Many of the bank’s loans were funded and administered without current financial statements from borrowers, accurate appraisals for collateral or global cash flow analysis, according to prosecutors. In 2008 “the volume of the bank’s troubled loans and foreclosed real estate soared,” the indictment alleges.
Bank executives also gave preferential financing to borrowers to buy properties owned by the bank while knowing that these borrowers were having trouble making payments on existing loans. Bank officials allowed this arrangement in order to convert a non-earning asset into an earning asset, prosecutors allege.
These borrowers also bought or attempted to buy property owned by the executives themselves using loans that were “fraudulently funded” by the bank, according to prosecutors.
In November 2008, the bank sent an application to the Federal Reserve Bank of Richmond seeking about $28 million from the Troubled Asset Relief Program, or TARP. The bank later withdrew the application at the request of the Federal Reserve, according to the indictment.
The case is U.S. v. Woodard, 12-cr-00105, U.S. District Court, Eastern District of Virginia (Norfolk).