(Reuters) - Former top executives of a failed U.S. bank in Norfolk, Virginia, have been indicted by a federal grand jury on bank fraud and other charges for hiding loan losses in a scheme that allegedly led to the bank’s demise, officials said Thursday.
Edward J. Woodard, former Chief Executive of Bank of the Commonwealth, was among those charged. He led the bank for more than three decades before being forced to retire in December 2010, prosecutors said.
The indictment is the latest fallout from the financial crisis that has damaged large and small banks. Bank of the Commonwealth, which once had $1.3 billion in assets, failed in 2011, costing the Federal Deposit Insurance Corp an estimated $268 million, prosecutors said.
“For more than 30 years, this community put their trust — and their money — in the Bank of the Commonwealth,” Neil MacBride, U.S. Attorney for the Eastern District of Virginia, said in a 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.”
The indictment alleges many of the bank’s loans were made without regard to industry standards, and by 2008 its losses and foreclosed properties were ballooning. Insiders then hid the bank’s troubles out of fear its declining health would hurt investor and customer confidence, according to the indictment.
The indictment also alleges that bank insiders provided preferential financing to troubled borrowers to buy bank-owned properties. This allowed the bank to turn non-earning assets into earning assets and gave the borrowers cash at closing to make payments on other loans at the bank or for personal purposes, the indictment alleges. Some of the favored borrowers were also indicted.
Prosecutors said they have taken six defendants into custody, including Woodard, 69. His attorney did not immediately return a call seeking comment. Six others, including former employees and customers, have pleaded guilty in the case.
Reporting by Rick Rothacker in Charlotte, North Carolina; Editing by Eric Walsh and Paul Tait