Alert September 03, 2013

Former CEO of Failed Bank Enters Plea Agreement Admitting that He Caused Bank to File False Call Reports with FDIC to Conceal Losses from Problem Loans

The former Chief Executive Officer and Chairman (the “CEO”) of the failed Summit Bank (the “Bank”), a Washington state-chartered bank with $142.7 million of total assets, entered into a plea agreement (the “Plea Agreement”)  under which the CEO admitted that he was guilty of knowingly making or causing to be made a false entry concerning a material matter in Call Reports filed by the Bank with the FDIC and that the false entry was made with intent to defraud the FDIC.  The foregoing constituted a violation of Title 18, United States Code, Section 1005.

As described in the Plea Agreement and admitted to by the CEO, between March 2009 and April 2011 the CEO and his son, the Bank’s President, took actions and directed others to take actions to remove millions of dollars of loans from the Bank’s Past Due Reports at the end of each quarter and thereby reduce the volume of problem loans reported in the Bank’s quarterly Call Reports to the FDIC during that period.  Among the steps taken by the CEO to conceal the volume of problem loans from the FDIC were:

  • Overdrawing borrowers’ checking accounts to  make past due loan payments so that the past due loans did not appear on Call Reports;
  • Giving borrowers with troubled loans a larger loan balance, with proceeds of the increased loan balance used to make payments on the past due loans, so that the past due loans did not appear on the Call Reports; and
  • Using loan proceeds “to make payments on wholly separate past due loans in order to cause the past due loan not to appear on the Call Report.”

As part of the Plea Agreement, the CEO agreed to a lifetime prohibition from participating in the conduct of the affairs of an FDIC-insured institution.  The CEO also agreed to pay a $300,000 fine to the United States.  Furthermore, under the Plea Agreement the CEO will serve a jail term of from 12 months to 41 months after he is sentenced on November 15, 2013.