On Tuesday, a judge in Philadelphia sentenced the firm's former chief operating officer, Joseph M. Braas, to 15 years in prison for orchestrating a scheme that prosecutors said was a near-daily exercise in financial fraud from 2001 to 2007.
In a bid to keep their paychecks and bonuses coming, Braas and his coworkers at the Lititz-based firm hid hundreds of dubious loans and routinely made up others to balance the books. By the time the scheme was exposed in 2007, the company's losses topped at least $53 million.
"For 61/2 years, [Braas] committed fraud after fraud that ultimately destroyed a business," U.S. District Judge Paul S. Diamond said.
The business was the Bank of Lancaster County, whose 1863 charter made it one of the nation's oldest banks. The bank funded most of Equipment Finance Inc.'s loans.
The bank's parent, the publicly traded Sterling Financial Corp., was once so impressed with the little lender's balance sheets that it agreed to buy Equipment Finance Inc. in 2002 for $30 million.
Over the next few years, EFI's artificially inflated loan portfolio appeared to swell from $80 million to $330 million. The rosy profits it reported represented a third of the gains for its parent company, once leading Sterling's president, J. Roger Moyer Jr., to boast that buying EFI was "the best single business decision of my life."
Moyer rued that decision. After auditors discovered the irregularities in April 2007, the company shelled out nearly $20 million unraveling the scheme. Meanwhile the FBI and U.S. Postal Service launched criminal probes.
The impact was more than financial. Sterling was a major employer in Lancaster County, with roughly two thirds of its 1,000 employees in the region.
In the aftermath of the fraud, the company took a $200 million write-off in 2008. Its share price plunged, and lawsuits poured in from stockholders - including pension funds representing police in San Antonio, teachers in New Mexico, and municipal workers in St. Louis.
To survive, Sterling closed the Bank of Lancaster County and merged what remained of its operations with PNC Financial Corp. in 2008. More than 300 Sterling employees lost their jobs at the same time that the national economy was tanking. The company also agreed to a $10 million class-action settlement with stockholders.
In a letter to Braas' sentencing judge, Moyer, now retired, called the impact "staggering" for the company, its employees, and the community.
"In a nutshell, the dreams and aspirations for the company were destroyed by the actions of a few," he wrote.
Braas, 46, became the first of seven coworkers or coconspirators to plead guilty in 2010, and the first to be sentenced.
Both he and his lawyer, Cory J. Miller, portrayed the fraud as one of good intentions gone horribly awry.
Miller called Braas "a good man with a good nature who made a terrible set of decisions" and had already paid a price. After the crime, Miller said, Braas lost his job, his wife, his home, and his life savings.
Braas joined Equipment Finance right out of college in 1987 and spent nearly 15 years climbing its ranks. Reading a prepared statement, he told the judge he thought he was helping his struggling customers by deferring payments, and keeping the company afloat by hiding its deficits.
"I also believed that I eventually could have fixed the problem," Braas said.
Prosecutors and the judge were dubious. Assistant U.S. Attorney Judy G. Smith called the case an example of "narcissism run amok."
Diamond said he saw more excuses than remorse from the defendant. Citing Braas' argument that he was just looking out for customers, the judge noted that the executive collected $1.4 million in salary and bonuses during the scheme - including six-figure performance bonuses two years and $165,000 more in unreported "commissions" from a client.
"I think the defendant is sorry he was caught - I'm not sure the defendant is sorry for what he did," the judge said.
Diamond did give Braas a break. Citing his willingness to cooperate with agents and prosecutors, he shaved what could have been another decade off the prison term that was recommended under federal sentencing guidelines.
But Diamond rejected a request that Braas, a father to three teenage children, be allowed to self-report to prison.
He ordered him to begin serving his term immediately, and Braas was led from the courtroom in handcuffs.
U.S. Attorney Zane David Memeger, whose Philadelphia office led the prosecution, said the case was an example of a national effort to crack down on financial fraud of all sizes in recent years.
"The financial fraud and mismanagement which led to the financial crisis did not only occur at megabanks and corporations," Memeger said.
Contact John P. Martin at 215-854-4774, at email@example.com or follow @JPMartinInky on Twitter.