FORMER BANK VICE PRESIDENT SENTENCED TO PRISON FOR HIDING FACTS IN BANK AUDIT
Bank of Clark County Closed in January 2009 After FDIC Examination
DAVID S. KENNELLY, 49, of Vancouver, Washington, was sentenced today in U.S. District Court in Tacoma to four months in prison, three years of supervised release and a $5,000 fine for a Scheme to Conceal Material Facts in connection with an audit of the former Bank of Clark County in the fall of 2008. The bank was shut down by the Federal Deposit Insurance Corporation in January 2009. At sentencing U.S. District Judge Robert J. Bryan told KENNELLY, “This is a serious matter... our banking system is dependant on bankers being honest and straightforward.... Lying to the FDIC puts stockholders at risk, directors at risk and the bank as a whole at risk.”
“Bank executives have special positions of trust. Flagrant violations of that trust have caused great damage to our community and our country,” said U.S. Attorney Jenny A. Durkan. “In this case the lies, and the efforts to mislead bank examiners, were just attempts to cover up an egregious breach of trust. Prosecuting fraud in the banking system is a top priority of the Department of Justice.”
According to the plea agreement, KENNELLY attempted to hide property appraisal records that called into question the solvency of the Bank of Clark County. In 2004, KENNELLY was hired as the Vice President and Chief Lending Officer for the bank. During the course of 2008, KENNELLY and bank leaders became concerned that the bank had made loans to various development projects that now had a much lower appraised value. As a federal examination to check the soundness and safety of the bank approached, KENNELLY identified various appraisals that he did not want bank examiners to see. KENNELLY instructed staff to exclude the appraisals from both the bank’s loan files and its computerized record system. After receiving these instructions, one of the bank employees hid recently received appraisals under his desk. The appraisals revealed that the collateral the bank had taken for the loans had depreciated in value by millions of dollars.
During the examination in November 2008, KENNELLY falsely represented that all available appraisals were in the computerized system. Based on the appraisals the examiners were able to review, the bank was instructed to increase its loan loss reserves by more than $3 million. Just prior to the termination of the examination, investigators learned of the hidden appraisals on some 15 different projects. In response, KENNELLY first tried to advance the false claim that the appraisals had been overlooked because of a heavy work load. He unsuccessfully attempted to get a bank employee to promote this story. After the examiners saw the additional appraisals, they determined the bank needed an additional $16.7 million of capital for loan reserves. On January 16, 2009, the Washington State Department of Financial Institutions declared the Bank of Clark County insolvent and appointed the FDIC as Receiver.
Under the terms of his plea agreement, signed in February 2010, KENNELLY is prohibited from working for a financial institution regulated by the FDIC or the Federal Credit Union Act, without written approval of the agency.
At the sentencing hearing Judge Bryan noted that, “It is appropriate that there be a sentence that allows others to look and say ‘This is serious’... and encourages other bankers to be honest with the FDIC.”
The case was investigated by the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) and the FBI.
The case was prosecuted by Assistant United States Attorneys Tessa Gorman and Arlen Storm.
For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.