PhillyDeals: Wilmington Trust exec: Concealing bad loans was common practice

One of the bank bosses accused of lying to investors and regulators says it was a long-standing practice at the former

Wilmington Trust Corp.

to claim that millions of dollars in "turd loans" to developers were being paid - even when they were not.

It wasn't the only bank that collapsed amid the late 2000s financial crisis. Lehman Bros., Wachovia, National City and others were also overwhelmed by bad loans.

But Wilmington Trust, the biggest bank still based in the Philadelphia area when regulators forced its discount sale to M&T Bank Corp. in 2010, is one of the few where top executives have been accused of federal crimes, for their role in hiding losses until it was too late for their company to recover.

A federal grand jury in Wilmington on Tuesday indicted William North, the bank's former chief credit officer, and Kevyn Rakowski, a former controller, on three counts each of making false statements to the Securities and Exchange Commission and one count of doing the same to the Federal Reserve.

North and Rakowski cooperated with others "in concealing from the market and the Federal Reserve the total quantity of past due loans on the bank's books" in 2009, according to the indictment.

U.S. Attorney Charles M. Oberly III said the two "knew that the false information being provided to the bank's regulator masked the true condition of its loan portfolio." He called this "criminal conduct [which] contributed to the decline of Wilmington Trust."

But North "was one of the few people at the bank who objected to this practice, which had been followed for decades, that regulators never objected to," countered North's lawyer, David Wilks. He said North was not in charge of the reports that included phony numbers.

Likewise, Rakowski was among the bankers who "tried to help the bank through difficulties precipitated by the 2008 financial crisis, among other challenges," said her lawyer, Henry E. Klingeman. She and North plan to fight the charges in court.

Two of the bank's three former top bosses - executive vice president Robert V.A. Harra Jr. and chief financial officer David Gibson, along with North and Rakowski - also face SEC civil fraud charges based on accusations that they hid more than $350 million in bad loans while preparing 2009 financial reports and a 2010 stock sale to raise badly needed capital.

The hidden loans included what North called "credit turds" in a note to colleagues, according to the SEC complaint, filed Tuesday.

Harra "is surprised and deeply disappointed that the SEC has decided to file this civil action against him, and he intends to vigorously fight the allegations in court," his New York lawyer, Andrew Lawler, said. Gibson's lawyer did not call back.

Oberly and prosecutors in Philadelphia have indicted other Wilmington Trust loan officers and managers on charges that they approved illegal transactions, sometimes in exchange for kickbacks. At least four have been convicted or pleaded guilty.

No charges have been brought against former chief executive Ted T. Cecala. "The investigation is ongoing," Oberly spokeswoman Kimberly Reeves said.

A lawsuit by investors blaming the bank's collapse on Cecala, other executives, and the bank board, which included such Delaware cognoscenti as former MBNA Corp. executive and FBI chief Louis Freeh, retired University of Delaware president David Roselle, and ex-DuPont Co. spokesman Stacey Mobley, has been grinding through federal court in Wilmington.