NORFOLK, Va. (WAVY) - A grand jury has indicted four former Bank of the Commonwealth executives and two others on 25 counts for their roles in an alleged scheme to commit bank fraud.
All six men are out on bond.
"The charges today lay out how friends of the bank got sweetheart deals in exchange for helping mask the bank's true financial condition," US Attorney Neil MacBride told WAVY.com.
George Hranowskyj, who was previously indicted in connection to the alleged scheme , pled guilty to bank fraud and wire fraud Wednesday. He will be sentenced Oct. 15 and faces a combined maximum sentence of 25 years in prison.
According to a 51-page indictment obtained by WAVY.com, former Chief Executive Officer Edward Woodard, former Executive Vice President Simon Hounslow, former Executive Vice President Stephen Fields, former Vice President and Mortgage Specialist Troy Woodard, Thomas Arney and Dwight Etheridge are all facing the following charges:
- One count of conspiracy to commit bank fraud
- Seven counts of false entry in a bank record
- Seven counts of false statement to a financial institution
- Four counts of unlawful participation in a loan
- Two counts of bank fraud
- Four counts of misapplication of bank funds
The indictment says the Bank of the Commonwealth opened its doors for business in April of 1971 and focused its business in Norfolk and Virginia Beach for 30 years. In 2006, the bank expanded into northeastern North Carolina and the Outer Banks. From 2006 to 2009, the banks assets more than doubled and reached about $1.3 billion.
According to the indictment, the bank funded this with brokered deposits.
"Many of the bank's loans were funded and administered without regard to industry standards, or the bank's own internal controls," the indictment read. "For example, the bank funded loans without current financial statements from borrowers, without current or accurate appraisals for collateral securing loans, without completing global cash flow analyses and without adequate collateral."
Officers received bonuses based on their loan portfolios.
"In 2008, the volume of the bank's troubled loans and foreclosed real estate soared," the indictment continued.
The indictment went on to say bank officials were more concerned with the image of the bank in regards to investors and customers. "Capital erosion would affect the bank's ability to accept and renew brokered deposits."
According to the grand jury, bank officials hid the bank's true financial condition by overdrawing demand deposit accounts to make loan payments, using funds from related entities without authorization of the borrower to make loan payments, using change in terms agreements to make loans appear current and extending new loans or additional principal on existing loans.
The bank then allegedly provided preferential financing to troubled borrowers in order to buy property owned by the bank. The indictment said those borrowers already had trouble making loan payments.
In September of 2008, red flags were raised about the way the bank managed risk and underwrote loans by the Federal Reserve Bank of Richmond and the Virginia State Corporation Commission. By November, the bank submitted an application to the Federal Reserve looking for about $28 million from the Trouble Asset Relief Program. The Federal Reserve later asked the bank to withdraw its application, which it did, the indictment said.
Over the course of three years, the bank fell further into loss and was eventually closed in September of 2011 . Because of the bank's failure, the indictment said the federal government will lose more than $260 million.
Edward Woodard, former CEO, was forced to retire in 2010, the indictment said. From 2008 to 2010, Woodard allegedly received more than $2.6 million in compensation and other payments from the bank. He also reportedly received employment benefits including use of a Lincoln Town Car and a country club membership.
Simon Hounslow, former Executive VP, remained employed by the bank until its closing. The indictment said Hounslow received more than $915,000 from the bank, the use of a BMW 325L and a country club membership between 2008 and 2011.
Stephen Fields, former Executive VP, was terminated from the bank in December of 2010. Between 2008 and 2010, Fields allegedly received more than $555,000 in payments from the bank and was given use of a Ford Expedition.
Troy Woodward, son of Edward Woodard and former VP, was terminated in 2011. Woodard was said to have received more than $370,000 from the bank, as well as commissions for loan referrals he did not create, credit for loan and deposit amounts from other bank employee's portfolios and his own expense account.
The indictment alleges Thomas Arney owned and operated several restaurants, rental properties and a car restoration business and leased commercial office space from the bank. Dwight Etheridge owned and operated a residential and commercial development company and an employment
"From in or about January 2008 through on or about September 23, 2011, the exact dates being unknown, in the Eastern District of Virginia and elsewhere, [the defendants] knowingly and intentionally combined, conspired, and agreed with others known and unknown to commit an offense against the United States," the indictment said.
The indictment further details exactly how the six defendants conspired to commit bank fraud and can be found by clicking here .
If convicted, each defendant will be forced to forfeit property and assets, all of which is also listed in the indictment.
Stay with WAVY.com for more on this developing story.
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