Sonoma Valley Bank officials convicted of fraud
Sonoma Valley Bank
Jurors returned guilty verdicts Monday against two former Sonoma Valley Bank executives and a Santa Rosa attorney for their roles in a $35 million real estate loan scandal that caused the institution’s collapse in 2010 and cost many elderly investors their retirement savings.
The decision came after five days of deliberation by the jury and a seven-week trial in U.S. District Court in San Francisco that included testimony from other former bank officials and government witnesses.
Convicted of at least 25 different counts, including conspiracy to commit bank fraud and money laundering, were the bank’s former president and chief executive officer, Sean Cutting, 48, formerly of Sonoma; ex-vice president and chief loan officer Brian Melland, 48, of Santa Rosa; and attorney David Lonich, 63, of Santa Rosa.
Lonich was an attorney for Marin County developer Bijan Madjlessi, who prosecutors said was allowed to use straw borrowers to gain unlimited access to loans, which he used to pay old debts, finance new projects and lead a lavish lifestyle. He died in a 2014 car crash.
Cutting, Melland and Lonich face possible prison time when they are sentenced April 27 by Judge Susan Illston. They remain out of custody.
“These guys were out-and-out crooks who hurt an awful lot of older people,” said James Rebollini, 82, of Sonoma, a former investor who lost about $40,000 when the bank collapsed. “I’m glad somebody is going to pay for it. But it’s not going to make up for all the people who lost their life savings.”
It was the only Sonoma County bank to fail in the Great Recession. The defendants suggested hard financial times were a factor in the collapse and that they acted with the blessing of the bank’s governing board.
Jurors acquitted Cutting on two counts alleging he made false bank entries or reports. All three were cleared of one count of wire fraud.
But they were convicted of the balance, including an attempted obstruction charge against Lonich. Evidence showed he asked one of the straw borrowers, Madjlessi associate James House, to lie about his role in obtaining loans. The conversation was captured on video and played to the jury.
The defendants showed no emotion as the verdicts were read. At least one woman seated in the audience began to cry.
Ralph Hutchinson, a former federal banking regulator and consultant who is familiar with the case, said jurors made the right decision. But he questioned why prosecutors didn’t charge members of the board’s loan committee, who he said must have been aware of what was happening.
“They all knew it benefited Bijan Madjlessi,” Hutchinson said.
Madjlessi was named in the original 2014 indictment, which came three years after The Press Democrat published a series of stories outlining the bank’s loans to the Marin County developer and the federal investigation into its collapse.
Last year, Cutting, Melland and former bank CEO and director Mel Switzer agreed to a $5.4 million civil settlement with the Federal Deposit Insurance Corporation. Switzer was not charged with any crimes.
Federal prosecutors accused Cutting, Melland and Lonich of three separate fraud schemes involving funneling money to Madjlessi for the Petaluma Greenbriar apartments in excess of legal lending limits, lying to the FDIC about it and helping Madjlessi gain control of the 228-unit Park Lane Villas apartments in Santa Rosa through misrepresentation.
Madjlessi had already borrowed $6.1 million from Sonoma Valley Bank when he first sought additional funding in 2006. At the time, the real estate market had begun to deteriorate, making it less likely that Madjlessi would pay back the money.
However, Cutting and Melland allowed Madjlessi to take out new loans to build out his projects in an attempt to ensure the bank would get money back, prosecutors said. The loans were made through other people and a consulting company.
The pattern continued, with Cutting and Melland overseeing $23 million in loans to the developer — or three times the amount a bank its size could cover — by 2008. At the same time, Cutting and Melland hid Madjlessi’s identity from the bank’s loan committee, prosecutors said. At one point, Melland, who had a side interest in his own energy drink business named Magnus, accepted a $175,000 investment from Madjlessi, who was later elected to the beverage company’s board, according to prosecutors.
In 2009, Madjlessi turned to Sonoma Valley Bank again when he was defaulting on a $30 million loan to IndyMac bank for the Park Lane Villas apartments. This time, House posed as a straw borrower, getting a loan to help Madjlessi pay off his debt and avoid bankruptcy.
Lonich, Madjlessi’s lawyer, prepared the paperwork, forming a company known as 101 Houseco. Through that entity, Madjlessi and Lonich were later able to gain control of the apartment complex and get refinancing from government lender Freddie Mac.
House testified under a cooperation agreement with prosecutors. He faces separate criminal charges.
Article From:- http://www.pressdemocrat.com