Three executives from the now-defunct Bank of the Commonwealth and a borrower were convicted by a federal jury in Norfolk, Va., for fraud that cost the Federal Deposit Insurance Corp. an estimated $268 million, said the office of the Special Inspector General for the Troubled Asset Relief Program.
Following a multi-week trial, it was determined that the defendants masked nonperforming assets at the Bank of the Commonwealth for their own personal benefit, leading to the ultimate collapse of the financial institution in 2011.
According to trial evidence, in 2006, Bank of the Commonwealth leaders wanted to expand the bank beyond Norfolk and Virginia Beach, Va., to include branches in northeastern North Carolina. By December 2009, the bank’s assets reached nearly $1.3 billion built largely through brokered deposits, which allows investors to pool their money and receive higher rates of return.
Furthermore, evidence showed that many of the bank’s loans were funded without regard to industry standards. During 2008, the volume of the bank’s troubled loans and foreclosed real estate soared, prompting Edward Woodard, the CEO and chairman of the board for
To fraudulently hide the bank’s troubled assets, the bank insiders overdrew demand deposit accounts to make loan payments and used funds from related entities—sometimes without authorization from the borrower—to make loans appear current.
Additionally, court documents showed that bank insiders also provided preferential financing to troubled borrowers to purchase bank-owned properties. This financing allowed the bank to convert a nonearning asset into an earning asset, and the troubled borrowers obtained cash at closing to make payments on other loans at the financial institution or for their own personal use.
In November 2008, the Bank of the Commonwealth submitted an application to the Federal Reserve requesting approximately $28 million from TARP. Based on its regulator’s concerns about the health of the bank, the Fed requested that the bank withdraw its application, which the bank ultimately did.
From 2008 up to its closing in 2011, Bank of the Commonwealth lost $115 million, costing the federal government about $268 million through the deposit insurance fund.
Both Woodward and Fields were convicted of conspiracy to commit bank fraud, false entry in a bank record, and false statement to a financial institution. They are facing at least 30 years in prison.
Others convicted in this case who could also be sentenced to 30 years in jail were Troy Woodward—son of Edward—who was employed by a wholly owned subsidiary of the bank as a vice president and mortgage loan specialist, and Dwight Etheridge, a bank customer.
“This verdict shows that the same rules apply to bank executives as to any other citizen, and the verdict should stand as a warning to anyone engaged in fraud related to TARP; you will be held accountable and brought to justice for your crimes,” said Christy Romero, special inspector general for TARP.
