Sonoma Valley Bank officers, attorney to be sentenced
Two bank officers and an attorney will be sentenced for their role in the 2010 collapse of the Sonoma Valley Bank (SVB) that wiped out nearly $12 million in federally insured savings and checking accounts, millions in shareholder investment, and wasted millions in bank bailout funds offered under a federal bank relief program during the immense financial collapse of 2008.
Sean Clark Cutting, 48, the former chief executive officer, and Brian Scott Melland, 48, the former chief loan officer of SVB, were convicted on Dec. 19 of conspiracy, bank fraud, wire fraud, money laundering, falsifying bank records, lying to bank regulators, and other crimes.
Co-defendant David John Lonich was also convicted of conspiracy, bank fraud, wire fraud, attempted obstruction of justice, and other offenses. Lonich was an attorney for Marin and Sonoma County real estate developer Bijan Madjlessi (who had been indicted on these charges before his death on May 16, 2014).
The verdicts followed an eight-week federal trial in San Francisco. SVB’s failure caused in excess of $20 million in losses to taxpayers, approximately $11.47 million to the Federal Deposit Insurance Corporation (FDIC), and $8.65 million to the Troubled Asset Relief Program (TARP), formed to prevent national economic catastrophe through subsidizing banks faced with collapse after the real estate bubble of the early 2000s burst.
In addition, the bank’s shareholders were wiped out. Mostly Sonoma Valley residents, they saw the value of their stock fall from $31 a share in late 2007 to less than a penny after the bank’s seizure in 2010. The three-year slide wiped out $71 million of wealth. Some investors lost their homes, business properties, retirement savings and other funds.
Melvin Switzer, former CEO, who later served on the board of directors, was one of several parties named in an investor lawsuit aimed at recovering some of those lost investments. In spite of efforts by the FDIC to call off the suit, Sonoma Superior Court Judge Eliot Daum found in favor of the litigants in 2013 in the amount of $2 million. The final payout amounts and dates are not clear.
Another federal suit was brought to recover approximately $11.47 million to the FDIC, and $8.65 million to the TARP. In 2013, the FDIC settled for $4.8 million, paid by two insurance policies the bank carried against misconduct of officers and directors.
An additional $650,000 in insurance money will be recovered by the FDIC now that the criminal charges have been proved.
“The defendants resorted to bank fraud, lies to bank regulators, and other crimes in a multi-year scheme to conceal millions of dollars in failed and failing loans,” outgoing United States Attorney Brian J. Stretch said. “By doing so, they put a respected community bank at ever greater risk of loss and jeopardy.”
According to Stretch, much of the evidence at trial related to Madjlessi’s real estate projects at the Park Lane Villas in Santa Rosa and the Greenbriar Apartments in Petaluma. Sonoma Valley Bank loaned Madjlessi in excess of $35 million, approximately $25 million more than the legal lending allowed between 2004 and 2010.
According to the federal attorneys, Cutting and Melland, the loan officer who worked most closely with Madjlessi, recommended that the bank approve multi-million dollar loans to nominee or “straw” borrowers to conceal the bank’s high concentration of lending to one person.
Melland was also convicted of receiving a bribe from Madjlessi of approximately $50,000 in April 2008. According to the trial evidence, one day after he received the bribe, Melland recommended a set of loans for approximately $3.65 million to a nominee or “straw” borrower controlled by Madjlessi.
The evidence at trial established that Melland and Cutting knew that millions in proceeds from loans to these other borrowers would go to Madjlessi and the companies he controlled and that they schemed to give Madjlessi and his companies in excess of $8.6 million in proceeds from loans nominally made in the name of other borrowers.
Trial Judge Susan Illston scheduled the defendants’ sentencing hearing for April 27, 2018. A report on sentencing recommendations is expected to be submitted a week before that date.