Ex-Wilmington Trust CFO Accused of Disclosure Fraud

The Securities and Exchange Commission charges ex-executives with failing to accurately disclose past-due loans during the financial crisis.
Matthew HellerMay 7, 2015
Ex-Wilmington Trust CFO Accused of Disclosure Fraud

The U.S. Securities and Exchange Commission has charged former Wilmington Trust Co. CFO David Gibson, ex-president Robert Harra,, and two other former top executives of the bank with failing to accurately disclose past-due loans during the financial crisis.

sec logoThe civil complaint filed Wednesday is the sequel to an earlier case in which the Delaware-based bank holding company, which was acquired by M&T Bank in May 2011, paid $18.5 million in September 2014 to settle SEC charges of improper accounting and disclosure fraud.

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Harra, 66, Gibson, 58, former controller Kevyn Rakowski, 61, and former chief credit officer William North, 55, are accused of multiple Securities Exchange Act violations related to financial reports filed by Wilmington Trust in 2009 and 2010.

According to the complaint, they intentionally understated past due commercial real estate loans to mask the impact of real estate market declines on the bank’s portfolio.

Gibson, Rakowski, and North allegedly omitted about $351 million of matured loans 90 days or more past due from the bank’s disclosures in the third quarter of 2009. As a result, the bank disclosed only $38.7 million of those loans.  The four former executives allegedly also failed to disclose about $330.2 million of the loans in the fourth quarter of 2009, resulting in a disclosure in the bank’s 10-K of just $30.6 million in matured loans that were 90 days or more past due.

The SEC wants to have the four officials pay back allegedly ill-gotten gains with interest as well civil monetary penalties, and to bar Gibson and Harra from serving as corporate officers or directors.

“Corporate officials bear important responsibility for ensuring that corporate filings provide the investing public with accurate information about the company’s financial condition,” Andrew M. Calamari, director of the SEC’s New York Regional Office, said in a news release. “We allege these defendants doctored a key financial metric to make it appear to investors that the bank was financially sound, when the reality was quite the contrary.”

Both Harra and Gibson joined Wilmington Trust in 1996 and left the bank in 2011. The SEC alleges they made misleading public statements, participated in deceptive conduct involving the loans, and knew or recklessly disregarded the false and misleading effect of those practices on Wilmington Trust’s financial statements and disclosures.

Gibson also allegedly caused the bank to fail to disclose a significant increase in its non-accruing loans for the third quarter of 2009 and a material increase in its allowance for loan losses.

Separately, the U.S. Attorney’s Office for the District of Delaware on Wednesday announced criminal charges against Rakowski and North.