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Former Wilmington Trust Chairman Reaches Settlement With SEC

By RANDALL CHASE, Associated Press

DOVER, Del. (AP) – The former chairman of the only financial institution to face criminal charges under the federal bank bailout program following the 2008 financial crisis has reached a settlement with federal securities regulators securities in a related civil action.

In a court filing on Tuesday, a lawyer for the Securities and Exchange Commission asked a federal judge to Delaware to approve a consent judgment against former Wilmington Trust President Robert Harra Jr.

Under the proposed consent judgment, Harra would pay a $100,000 civil penalty, be prohibited from acting as an officer or director of a public company and violate federal securities laws that were the basis of the SEC’s civil lawsuit.

Harra, along with former Wilmington Trust chief financial officer David Gibson, former credit manager William North and former comptroller Kevyn Rakowski, were convicted in 2018 of fraud, conspiracy and misrepresentation regarding the commercial loan portfolio in bank difficulty.

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The bank itself was also criminally charged, 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 it had previously paid to the SEC.

The leaders were sentenced to prison terms ranging from three to six years, but a federal appeals court panel last year overturned their misrepresentation convictions and ordered acquittals to be entered. The panel also ordered a new trial for conspiracy and securities fraud, but prosecutors later opted to drop the case altogether.

Meanwhile, Gibson and Rakowski finalized civil action settlements from the SEC in 2019, agreeing to pay more than $70,000 and $44,000, respectively, to the agency. Harra’s settlement approval would leave North the sole defendant in the lawsuit, in which the SEC claimed executives knowingly or recklessly made false disclosures about the bank’s loan portfolio. A lawyer for North did not immediately respond to an email seeking comment on Tuesday.

In a separate civil suit, Wilmington Trust has agreed to pay $200 million in cash to settle a shareholder lawsuit alleging fraudulent concealment of billions of dollars in bad debts. Auditing firm KPMG agreed to pay an additional $10 million as part of the settlement.

In the criminal case, prosecutors alleged that in the wake of the financial crisis, executives misled regulators and investors about Wilmington Trust’s massive amount of overdue 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 Troubled Asset Relief program.

Prosecutors said bank officials waived millions of dollars in maturing loans from reporting requirements if they were designated as “current for interest” and in the process of being extended. To ensure that loans well past their repayment dates were allegedly exempt from reporting requirements, the bank lent even more money to struggling developers just to make interest payments.

In the fourth quarter of 2009, bank officials said only $10.8 million in commercial loans were overdue for 90 days or more, hiding more than $316 million in delinquent loans subject to waiver practice. , according to prosecutors.

After a meeting to discuss maturing loans and “how to make them disappear” by the end of the year, bank officials moved beyond the waiver practice and decided on a massive extension involving the temporary extension of more than 800 commercial loans worth $1.3 billion, prosecutors said. In an email to Harra, North called some of the loans “credit crap.”

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

Defense attorneys argued that the waiver practice had been in place for decades and was not a secret. They also argued that the instructions for filing reports with the Federal Reserve and for disclosing financial information in documents filed with the SEC were ambiguous and that the term “overdue” was not clearly defined.

The Court of Appeal agreed that the reporting requirements were ambiguous.

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