PhillyDeals: Watchful eyes on Wilmington Trust veterans

Wilmington Trust Co.'s headquarters on Rodney Square.
Wilmington Trust Co.'s headquarters on Rodney Square.
Posted: February 21, 2013

Who killed the banks? And why aren't they in prison?

It's past three years since Wachovia, National City, and other giant lenders that made too many dumb loans to borrowers who couldn't pay were forced into oblivion in government-aided discount sales to new owners, destroying share values and hometown jobs.

Last time banks failed on a big scale - back when George H.W. Bush   was president - scores of bad-bank operators and lying business borrowers went to prison. That hasn't happened much under President Obama, whose administration prefers fines and wrist-slapping.

But the mess at Wilmington Trust Co. is unfolding a little differently.

The bank was the biggest still based in the Philadelphia area when it went belly-up in 2010 and was forcibly acquired by Buffalo's M&T Bank Corp. after giving out $1 billion that developers and other borrowers failed to pay back.

Since then, Wilmington Trust fraud cases have piled up:

On Feb. 13, former Wilmington Trust lender Kevin McAllister was sentenced to 20 months in prison for his role in bad loans that cost the bank $2.5 million. McAllister pleaded guilty to bank fraud and bribery for taking $379,000 in kickbacks in exchange for approving Delaware County loans based on phony borrower assets.

On Jan. 23, Delaware developer Michael A. Zimmerman was indicted by a grand jury on charges of conspiracy to commit bank fraud, money laundering, and lying to Wilmington Trust so he could collect $37 million in loan money for three shopping centers he claimed he was going to build in southern Delaware. He didn't build them. Investigators say that he made $26 million of the bank's money disappear, and that he moved at least some of it to the Bahamas. Zimmerman's lawyers have denied wrongdoing.

On Dec. 11, Gladwyne developer Michael Pouls pleaded guilty to fraud for fooling Wilmington Trust into lending him $10 million by faxing his loan officer phony investment-collateral reports, which nobody apparently checked until he'd spent the loan money. Pouls faces up to 120 years in prison, $4 million in fines, and payback.

Is it possible that McAllister wasn't the only Wilmington Trust lender who took kickbacks to make bad loans? Brother bankers don't seem worried about that: Senior Wilmington Trust loan and credit officials, including men closely involved with the credits paid to Zimmerman and other payback-challenged developers, were quickly hired by WSFS, First Niagara, MidCoast, TD, and other regional banks after Wilmington Trust blew up.

The Zimmerman indictment and the Pouls guilty plea fit claims in a two-year-old lawsuit by union pension funds and other Wilmington Trust investors against the bank's former bosses, including chief executive Ted Cecala and executive vice president Robert Harra, who used to exhort his lenders, "Go forth and sell!" The pension funds say bank bosses pushed loan officers to pump money to developers, ignoring common-sense credit limits.

Lawyers and bankers tell me that   the Securities and Exchange Commission,FBI and Justice Department officers have been calling on Wilmington Trust veterans during the last year, asking questions.

Where's this going? It's not a crime to be wrong about markets, even if investors lose their retirement nest eggs and workers lose their livelihoods.

But it could be a crime to tell public investors your company is in great financial shape - while you secretly know you've wrecked the company.

Delaware federal prosecutor Charles Oberly wouldn't talk about his plans - other than to note, in his brief statement on the Zimmerman case, that "the investigation continues."


Contact Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, @PhillyJoeD.

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