DOVER, Del. (AP) — A federal judge on Wednesday rejected a request by two former bank executives who were convicted on criminal charges to dismiss a civil suit filed against them by federal securities regulators.
The Securities and Exchange Commission complaint alleges that former Wilmington Trust president Robert Harra and former chief credit officer William North were involved in making false statements regarding the bank’s past due loans. Wilmington Trust is the only financial institution criminally charged in connection with the federal bank bailout program that was offered after the 2008 financial crisis.
Harra and North argued that there is no federal law or regulation defining “past due,” and that the complaint should be dismissed because it does not claim that the defendants violated generally accepted accounting principles or any other authority in reporting past due loans. They also said the SEC had failed to demonstrate intent or knowledge of wrongdoing on their part.
The SEC countered that Harra and North were prevented from challenging its securities fraud claims against them because of their criminal convictions in a related case.
U.S. District Judge Richard Andrews ruled that the SEC had met the standards to plead fraud claims, including alleging that Harra and North knew of, or recklessly disregarded, false or misleading statements in the bank’s SEC filings.
The SEC complaint was filed in 2015 but put on hold pending completion of a federal criminal trial against Harra, North and two other former Wilmington Trust executives.
Harra and North, along with former Wilmington Trust chief financial officer David Gibson and former controller Kevyn Rakowski, were convicted in 2018 on fraud and conspiracy charges. Harra and Gibson were sentenced to six years, while North was sentenced to 4 1/2 years and Rakowski got three years. All four have remained free on bail while they appealed their convictions. An appeals court panel heard arguments in the case last month.
Meanwhile, Gibson and Rakowski finalized settlements with the SEC in September, agreeing to pay more than $70,000 and $44,000, respectively, to the SEC. After settlement discussions with Harra and North reached an impasse, Andrews allowed the SEC case to proceed, rejecting requests by Harra and North to keep it on hold until their criminal appeals were resolved.
The four executives were accused of hiding Wilmington Trust’s massive amount of past-due commercial real estate loans before the bank, teetering on collapse, was hastily sold in 2011. In the fourth quarter of 2009, for example, Wilmington Trust officials reported only $10.8 million in commercial loans as 90 days or more past due, concealing more than $316 million in past-due loans subject to an internal “waiver” practice.
The century-old bank, founded by members of the du Pont family, imploded despite receiving $330 million from the federal Troubled Asset Relief Program.
Before its 2011 fire sale to M&T Bank, Wilmington Trust also raised $287 million in a 2010 stock offering, intended in part to help repay the TARP funds, while concealing the truth about its shaky financial condition from investors, prosecutors said.
Wilmington Trust Corp., which was also criminally charged in the case, reached a $60 million settlement with prosecutors in 2017 on the eve of a scheduled trial.
In a separate civil action, Wilmington Trust agreed to pay $200 million to settle a shareholder lawsuit alleging that the bank fraudulently concealed billions of dollars in bad loans. Auditing firm KPMG agreed to pay an additional $10 million as part of the settlement.
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