Del. man pleads guilty to bank fraud conspiracy

Delaware businessman pleads guilty to bank fraud conspiracy charge in Wilmington Trust probe

Associated Press

WILMINGTON, Del. (AP) -- A Delaware businessman pleaded guilty Monday to a felony conspiracy charge in a federal investigation of the lending practices of the failed Wilmington Trust bank.

Salvatore J. Leone, 50, of Dover entered the plea at a court hearing. He faces up to 30 years in prison and a $1 million fine when he is sentenced Feb. 13.

Leone's attorney, James Liguori, declined to comment as he and Leone left the courtroom.

As part of the plea agreement, Leone agreed to testify truthfully at any grand jury hearing or trial when called as a witness.

Leone was a business partner of Michael Zimmerman, a Dover developer indicted earlier this year on federal charges of conspiracy, money laundering and making false statements to a financial institution.

Prosecutors allege that Leone conspired with Zimmerman to submit fraudulent requests to Wilmington Trust to draw on construction loans, and that he and Zimmerman then used the money for unrelated purposes. Prosecutors also claim that Leone and Zimmerman kept project-related funds for personal use.

Leone was a project manager for three developments undertaken by Zimmerman and his partners: the Salt Pond golf and community development in Ocean View; the Shoppes at Fieldstone shopping center north of Dover; and Compass Pointe, an office and commercial complex on the shores of Dover's Silver Lake. He also owned a 50 percent interest in the Fieldstone project. According to prosecutors, Zimmerman and his associates obtained loans from Wilmington Trust totaling more than $36 million for the three projects.

Authorities have said Wilmington Trust, which sold the debt related to the Zimmerman projects in 2011, incurred a loss of more than $26 million on the three projects.

A felony information filed against Leone accuses him of conspiring with others from September 2007 through February 2009 to defraud Wilmington Trust by submitting fraudulent construction draw requests totaling more than $480,000. Rather than being spent on the construction projects, much of the money was pocketed by Zimmerman and Leone, according to prosecutors.

Prosecutors also say Leone agreed in 2007 to create a bill for Zimmerman for $231,000, ostensibly for work on the Compass Pointe project, with the intent to submit it to Wilmington Trust for payment. Prosecutors say the payment was not for work on Compass Pointe, but used by Leone to fund a capital call on an unrelated project. Authorities also say Leone and Zimmerman misappropriated about $260,000 in escalated lease payments from a lessee at Shoppes of Fieldstone. The loan agreement called for escalated lease payments to be reinvested in the Fieldstone project, but that Leone and Zimmerman instead split the money.

Dover city councilman James Hutchison, a former mayor and police chief for the town, accompanied Leone to court to show his support.

Hutchison declined to comment after the hearing.

In addition to the criminal investigation involving Zimmerman and his associates, Wilmington Trust is the subject of a securities class action lawsuit in federal court in Delaware. The lawsuit alleges that senior officers and executives portrayed the bank as a conservative lender focused on mitigating credit risk but in fact played fast and loose with the company's real estate loan portfolio, perpetrating a fraud that led to the demise of the 107-year-old bank. The lawsuit alleges among other things that Wilmington Trust executives directed loan officers to ignore the bank's underwriting policies, directed employees not to obtain updated appraisals to avoid charging off loans whose collateral had deteriorated in value, and vetoed an asset review group's decisions to downgrade internal loan risk ratings.

M&T Bank Corp. acquired Wilmington Trust at a fire sale price in 2011, resulting in more than 700 layoffs in Delaware. The sale came after Wilmington Trust posted a quarterly loss of about $370 million because of bad real estate construction loans in Delaware and said future losses also were likely.

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