Former Wilmington Trust President Robert Harra Jr. and Chief Financial Officer David Gibson have been sentenced in a case involving federal fraud.
In the first two of several sentencing hearings this week, U.S. District Judge Richard G. Andrews sentenced both Harra and Gibson to six years in prison and a $300,000 fine each. The former bank executives were convicted alongside two others 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, the 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. It was eventually sold off to M&T Bank in 2011.
During the sentencing hearings Monday, both Harra and Gibson declined to speak for themselves, deferring to their attorneys.
Harra's attorney, Michael Kelly, asked Judge Andrews for no jail time. “Justice would be served if your Honor would sentence [Harra] to probation, so he can continue his legendary community service.” Kelly cited charitable work and donations to organizations including West End Neighborhood House, Salvation Army, Boy Scouts of America and Christiana Care.
Kelly also based his plea on Harra’s health. “This verdict really is killing him,” he said.
Kelly says 69-year-old Harra has prostate cancer, PsA and needs two shoulder replacements. “The prosecution wants eight years,” said Kelly. “That’s effectively a life sentence. If he has to wait … for cancer treatment, he’s in trouble.”
Kelly argued Harra's was not a crime of greed or a “bad heart.”
“This was a crime of a man during the Great Recession trying to do all he could to help the bank,” said Kelly.
Judge Andrews said he had read the more than 100 letters of character reference submitted on Harra’s behalf. He called Harra’s charitable activities “outstanding,” but noted that due to the “seriousness” of the crime, he could not deviate from the sentencing guidelines as substantially as the defense requested.
Kelly says Harra will appeal the verdict and the sentence.
Federal prosecutors had sought a sentence of 96 months imprisonment, which Assistant U.S. Attorney Robert Kravetz said took into account Harra’s character and charitable deeds.
Kravetz argued that the false reporting Harra and his co-defendants were responsible for had 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 the hearings, US 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.
Weiss blamed Harra for establishing an agressive sales culture that ignored risk in commerical real estate lending. "As the economy turned, those practices came home to roost. But rather than acknowledge the inability of these borrowers to repay their loans, Harra embraced the waiver practice as a means of conceling the trouble faced by the bank."
Weiss called Gibson, as CFO, the “ultimate decision maker” on financial reporting. Weiss says Gibson knew about past due loans not included in 2009 filings. “Nonetheless, he certified the bank’s financials as accurate and overstated the health of the loan portfolio, while marketing the stock to the investment public,” he said.
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."
Wilmington Trust reached a multi-million dollar settlement with federal prosecutors in fall 2017.
This story has been updated.