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News: 08/15/2018

Sonoma Valley Bank executives sentenced to prison

Two Sonoma Valley Bank officers and an attorney were sentenced to federal prison terms for their roles in the failure of Sonoma Valley Bank in 2010. The bank was closed after bank regulators forced it to account for major losses from a suspect loan portfolio that provided millions of dollars to a dubious Marin real estate developer.

Sean Cutting, former chief executive officer, and Brian Melland, former chief loan officer, along with David Lonich, the attorney for Marin-based developer Bijan Madjlessi, were sentenced in San Francisco by U.S. District Court Judge Susan Ilston on Aug. 3. Madjlessi died in a 2014 car wreck after being indicted on several counts of fraud and other charges. Lonich was found guilty of helping to secure millions in fraudulent loans to Madjlessi. The loans quickly soured, ultimately leaving stockholders holding the bag after stock prices collapsed from a high of $30 a share to less than a dime shortly before the bank was closed by state banking authorities.

Judge Ilston sentenced Cutting and Melland to 100 months in prison. Lonich received a lesser sentence of 80 months. All three could appeal both their convictions and sentences.

The criminal charges followed an investigation by a special unit examining federal bank bailouts, seeking to recover over $8 million in federal bank bailout money provided under the Troubled Asset Relief Program (TARP) program. Bank investors lost over $20 million, but deposits under $250,000 were covered by the Federal Deposit Insurance Corporation. The FDIC recovered $4.5 million two years ago following a civil suit that triggered insurance payments.

“Today a federal jury brought justice to the top two officers of Sonoma Valley Bank for a massive fraud scheme designed to conceal bad loan after bad loan to a single customer, which ultimately cost the bank millions,” said Special Inspector General Christy Goldsmith Romero. “An aspect of the scheme started weeks after the bank received an $8.65 million bailout from TARP, all of which was lost. An important source of lending to the Sonoma community was extinguished when this bank failed a little more than a year later. I thank the U.S. Attorney’s Office for the Northern District of California for its excellent work and commitment to fighting TARP-related crime.”

Madjlessi’s real estate projects at the Park Lane Villas in Santa Rosa and Petaluma Greenbriar Apartments in Petaluma were highlighted during the trial. Between 2004 and 2010, Sonoma Valley Bank loaned Madjlessi in excess of $35 million, approximately $24.7 million more than the legal lending limit set by the bank’s regulators. To conceal this high concentration of lending, Melland and Cutting recommended that the bank approve multi-million dollar loans to “straw” borrowers. The evidence showed that Melland and Cutting knew that millions in proceeds from loans to these other borrowers would go to Madjlessi and the companies he controlled.

Melland was also convicted of receiving a bribe from Madjlessi of approximately $50,000 in April 2008. One day after he received the money, Melland recommended $3.65 million to a “straw” borrower controlled by Madjlessi.

Lonich, Madjlessi’s lawyer, conspired with Cutting and Melland to mislead Sonoma Valley Bank into lending millions more to Madjlessi’s “straw” borrower, so Madjlessi could illegally buy back a debt he owed to IndyMac Bank.

In late 2009 and early 2010, Cutting helped Lonich gain control of additional units at the Park Lane Villas by issuing letters on Sonoma Valley Bank letterhead. The letters falsely stated that potential nominee buyers had sufficient funds at Sonoma Valley Bank to purchase the units. The evidence at trial also demonstrated that Lonich attempted to obstruct justice by, among other things, instructing the nominee to make false statements to federal agents.

Sonoma Valley Bank was founded in 1988 by Napa Valley Bancorp, but eventually became an independent bank owned by a single holding company, Sonoma Valley Bankcorp, in 2000. Shares were publicly traded on NASDAQ until the bank was delisted after it was closed.


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