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From Securities Regulation Daily, May 7, 2015

Four former Wilmington Trust officers charged with disclosure fraud

By R. Jason Howard, J.D.

The SEC has charged four former officers of Wilmington Trust—Chief Financial Officer David R. Gibson (Gibson), former Chief Operating Officer and President Robert V.A. Harra (Harra), former Controller Kevyn N. Rakowski (Rakowski), and former Chief Credit Officer William B. North (North)—with disclosure fraud for intentionally understating bank loans that were past due during the financial crisis.

Background. The complaint alleges that all four took part in a scheme to disguise the true impact on the bank’s portfolio of commercial real estate loans during the real estate market crisis by omitting over $350 million of matured loans which were 90 days or more past due from the third quarter 2009 Wilmington Trust disclosures. The four also allegedly omitted over $330 million of those loans in the fourth quarter of 2009 as well.

The complaint also alleges that Gibson, Rakowski, and North took part in materially misreporting that category of past due loans in the first half of 2010. Gibson also is alleged to have materially understated the amount of non-accruing loans in Wilmington Trust’s portfolio in the third quarter of 2009 and the bank’s loan loss provision and allowance for loan losses in the fourth quarter of 2009.

Andrew M. Calamari, Director of the SEC’s New York Regional Office, said “Corporate officials bear important responsibility for ensuring that corporate filings provide the investing public with accurate information about the company’s financial condition. 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.”

Charges and penalties. According to the SEC press release, Gibson, Harra, Rakowski, and North are each charged with violating or aiding and abetting violations of the antifraud provisions of the federal securities laws. They are also charged with aiding and abetting violations of the reporting, recordkeeping, and internal controls provision of the federal securities laws. The SEC is seeking to have all four return allegedly ill-gotten gains with interest and pay civil monetary penalties as well as having Gibson and Harra barred from serving as corporate officers or directors.

In a related action, the U.S. Attorney’s Office for the District of Delaware today announced criminal charges against Rakowski and North.

Attorneys: Andrew M. Calamari for the SEC.

MainStory: TopStory FraudManipulation AccountingAuditing DirectorsOfficers Enforcement PublicCompanyReportingDisclosure

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