WILMINGTON, Del. (AP) — Two former executives for the only financial institution criminally charged in connection with the federal bank bailout program are asking a judge to dismiss a civil enforcement action filed against them by federal securities regulators.
The Securities and Exchange Commission 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. Defense attorneys argue that there's no federal law or regulation defining "past due."
"The complaint here contains no shortage of factual assertions, but it fails to cite a single statute, regulation, guidance, generally accepted accounting principle or other authority supporting its basis of liability," David Wilks, an attorney for North, wrote in a recent court filing.
Attorneys for the SEC, which contends that matured loans are past due as long as principal remains owing, have until Nov. 25 to respond.
The case had been put on hold pending completion of a 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 last year on fraud and conspiracy charges. They 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. The century-old bank, founded by members of the du Pont family, imploded despite receiving $330 million from the federal Troubled Asset Relief Program.
Harra and Gibson were sentenced to six years, while North was sentenced to 4½ years and Rakowski got three years. All four remain free on bail while they appeal their convictions.
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, the judge in September granted a request by SEC attorneys to proceed with the litigation, rejecting requests by Harra and North to keep the case on hold until their appeals were resolved.
Prosecutors in the criminal trial alleged that in the wake of the 2008 financial crisis, the defendants misled regulators and investors about Wilmington Trust's massive amount of past-due commercial real estate loans. 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.
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. The agreement included a civil forfeiture of $44 million and $16 million previously paid by Wilmington Trust to the Securities and Exchange Commission in a related lawsuit.
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.