Wilmington Trust indicted in fraud and conspiracy case

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    A federal grand jury criminally charged Wilmington Trust Corp. as a defendant in a bank fraud and conspiracy case against four former top executives.

    The indictment, returned Wednesday night, charged that the bank, through its senior bank executives, hid the truth about its weak loan portfolio (i.e. the number of past due loans on its books) from bank regulators, investors and the Securities and Exchange Commission that left it on the verge of collapse.

    This latest action added the bank’s name to an August indictment where bank executives David Gibson, Robert Harra, William North and Kevyn Rakowski were charged with fraud, conspiracy and making false statements to federal regulators.

    “I did not make the decision lightly to seek charges against the Wilmington Trust Corporation,” said U.S. Attorney Charles Oberly, III, District of Delaware, in a statement. “Bringing the second superceding indictment is necessary to achieve justice and attempt to make whole those members of our community who suffered significant financial harm of the alleged criminal conduct.”

    University of Delaware business professor Charles Elson said Oberly must have had his reasons, but described the situation as “very odd.”

    “Corporations don’t commit crime, individuals do,” Elson said. “I’ve always believed that these penalties should go against the individuals. It’s like suing the getaway car, you know. You need a driver. It’s the driver who’s the problem.”

    Typically, Elson said, companies would agree to change their practices to ensure this type of thing never happens again, in lieu of a penalty. 

    “Ultimately the people who will have to pay are the shareholders — who were the folks who were damaged to begin with,” he said. “The harm really is not only to the shareholders to begin with, when the institution acts fraudulently, and then if the institution has to pay a fine, the shareholders pay twice. Basically, it’s a double whammy.”

    M&T Bank Corp. acquired the 107-year-old bank in 2011 for the bargain price of $3.84 per share, which was half of what the bank’s share price was the prior trading day. Pending the outcome of the case, the Buffalo-based bank will be on the hook since it assumed both Wilmington Trust’s assets and liabilities. 

    Spokesman Philip Hosmer said M&T does not have a comment at this time as this is an ongoing legal matter. 

    Wilmington Trust received $330 million in federal bailout money in 2008, in response to the nation’s subprime mortgage crisis. Wilmington Trust is the first TARP (Troubled Asset Relief Program) recipient to be indicted.

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