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Two more ex-Wilmington Trust officials sentenced to prison

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Sophia Schmidt, Delaware Public Media
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Two more former Wilmington Trust executives have been sentenced to prison time in a case involving federal fraud.

Former Chief Credit Officer William North was sentenced to 4.5 years in prison and a $100,000 fine Wednesday. The bank’s former Controller Kevyn Rakowski received three years and no fine.

Former bank President Robert Harra and former CFO David Gibson were sentenced Monday to six years in prison each and fines of $300,000.

The four former bank executives were convicted in May on counts including conspiracy to defraud the United States and making false banking record entries. Gibson was convicted on additional counts involving false financial report certifications.

According to the jury’s verdict, bank officials hid hundreds of millions of dollars of past-due commercial real estate loans in reports to the Securities and Exchange Commission and the Federal Reserve in 2009 and 2010. Those toxic loans led to Wilmington Trust’s demise. The bank was eventually sold to M&T Bank in 2011. 

Both North and Rakowski plan to appeal their cases. 

Rakowski’s lawyer, Henry Klingeman, also wants to see the final version of a criminal justice bill expected to pass Congress— and may ask the judge to recommend his client for one of its programs.

 

“The bill is requiring the Bureau of Prisons to make available to inmates programs that should they complete them successfully, might entitle them to early release," he said.

 

Klingeman asked District Court Judge Richard Andrews for a sentence of no prison time for Rakowski, citing the sixty-five-year-old's health issues, her character and the loss she suffered when her husband died several months ago. Andrews agreed to sentence her no fine, on account of what Klingeman described as her "negative cash flow."

 
But federal prosecutors pressed for prison time, citing the need to establish a "general deterrant" for this type of white-collar crime. 
 
Assistant U.S. Attorney Jamie McCall said that as controller, Rakowski's "core responsibility was to ensure that bank was properly following all accounting regulations it was required to." Judge Andrews said her professional training and the senior position she occupied at the bank meant "she had a responsibility not to go along with the plan. And yet she did."
 
During North's sentencing hearing Wednesday, he thanked family and friends for their support. District Court Judge Richard Andrews said 129 letters of character reference had been submitted on North's behalf. 

North described what he called his “modest” lifestyle: a single house, a car with high mileage and no lavish vacations.

“Anyone who knows me even a little would find a huge disconnect between my personal precedent and the charges [I was] convicted on,” he said.

When arguing for a light sentence, North’s attorney emphasized the fact that North had talked with investigators three times.

Assistant U.S. Attorney Lesley Wolf, speaking for the prosecution, noted that North was “not a cooperator,” and that the prosecution sensed he “wasn’t telling … the whole story” when he talked with investigators.

Wolf mentioned evidence that North had expressed discomfort with the bank's practice of mass-extending past-due loans—but noted he never “drew a line in the sand.” She said the prosecution considered North less culpable than Harra and Gibson.

Federal prosecutors requested a sentence of 60 months in prison and a fine of $100,000 for North.

Judge Andrews mentioned North’s community service, other personal factors and the fact that North had not signed the bank's false filings to regulators when explaining his sentence, which was lower than the relevant sentencing guidelines.

“The evidence of concealment was fairly modest, even if [North’s] efforts to generate the loans… were extensive,” said Andrews.

Four friends and former colleagues testified on North’s behalf during the sentencing, calling him hard-working and honest. A longtime friend noted North’s dedication to his church as well as his service at foster care organization A Better Chance.

Dan Rhoads, a former borrower at Wilmington Trust and North's current employer, characterized North's lending practices as strict. He mentioned a time when North declined to approve a loan for his business while working at First Niagara Bank.

North's attorney, Thomas Foley, says North intends to appeal. 

During Harra's sentencing hearing Monday, Assistant U.S. Attorney Robert Kravetz argued that the false reporting the four co-defendants were responsible for contributed to the bank’s downfall. He said the Federal Reserve has “powers and corrective measures” it could have employed if it were aware of the bank’s risky lending practices at the time.  

After Monday's hearings, U.S. Attorney David Weiss called the downfall of Wilmington Trust "a tragedy."

“A publicly traded company is required to make certain disclosures to the investing public,” said Weiss. “Regulators and the public look to these filings to make informed decisions. In so doing they have an absolute right to expect that the financial information disclosed is accurate."

“To function effectively, both our regulatory system and our free market system demand it. And the law requires it,” he added.

Special Inspector General for the federal Troubled Asset Relief Program (TARP) Christy Goldsmith Romero said that when risky loans sold by banks across the country leading up to the 2008 financial crisis came due, many bankers were faced with the same choice as Wilmington Trust officials.

“The defendants who were sentenced today chose to commit the crime after federal taxpayers bailed them out with $330 million, bailed the bank out, and while Treasury was a shareholder in the bank on behalf of those federal taxpayers," she said. 

Wilmington Trust received $330 million dollars from TARP during the financial crisis.

Romero said her office has seen a "pattern of crime in this financial crisis."

"One hundred bankers have been charged with crimes related to TARP, and many more civil cases," she said. "So far, 65 bankers have been sentenced to prison."

According to SIGTARP, Wilmington Trust is the only financial institution that has been criminally charged in connection with the federal bank bailout program.

The bank reached a $60 million dollar settlement with federal prosecutors in fall 2017.

SIGTARP officials say 417 individuals investigated by SIGTARP have been criminally charged. Sixty-six bankers, including North, have been sentenced to prison.

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