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Bank pays $18 million for lying to investors; feds still investigating

SEC probe of Wilmington Trust goes on

M&T Bank, the Buffalo-based bank that bought Wilmington Trust Corp. as Delaware's largest bank was on the edge of financial collapse three years ago, has agreed to pay $18.5 million to the Securities and Exchange Commission to settle "accounting disclosure and fraud charges" because Wilmington Trust understated its loan losses by $300 million in late 2009 (corrected), the SEC said. "It's important to resolve issues from the past as we continue to build on Wilmington Trust's legacy," M&T spokesman C. Michael Zabel told me.

The settlement with M&T's Wilmington Trust unit comes amid a continuing SEC investigation, which the SEC said has been aided by the FBI and other federal agencies, into bankers' mismanagement of failed loans to developers. At least three Wilmington Trust lenders or middle managers and two developers have separately been accused in federal court of bank loan fraud during the late 2000s. More on those cases here and here and here.

Despite concerns voiced at the time by lower-level bank employees, the SEC said unnamed senior Wilmington Trust officials signed off on quarterly investor reports that were "failing to report the true volume of its loans at least 90 days past due as they substantially increased in number during the financial crisis."

SEC investigators "found that as the real estate market declined in 2009 and 2010 and its construction loans began to mature without repayment or completion of the underlying project," the bank failed to "take appropriate action" to resolve or report "a material amount" of loans on which borrowers fell behind  in their payments. "Instead of fully and accurately disclosing the amount of these accruing loans as required by accounting guidance, Wilmington Trust improperly excluded the matured loans from its public financial reporting," the SEC said in its statement.

Also: "The SEC's investigation, which is continuing," owes thanks to "the assistance of the U. S. Attorney's Office for the District of Delaware, Federal Bureau of Investigation, Federal Reserve, and Office of the Special Inspector General for the Troubled Asset Relief Program," the SEC added. Read the SEC charges and settlement here.