Former CEO of TierOne Bank Charged in Scheme to Defraud Bank’s Shareholders and Mislead Regulators
The former Chief Executive Officer of TierOne Bank, a publicly traded commercial bank formerly headquartered in Lincoln, Nebraska, was charged today for his role in a scheme to defraud TierOne’s shareholders and mislead regulators by concealing the declining value of its loan and real estate portfolio. Earlier this week, the former President and Chief Operating Officer pleaded guilty for his role in the scheme.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Special Agent in Charge Thomas R. Metz of the FBI’s Omaha Division and Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Christy Romero made the announcement.
“Today’s charges against the CEO of TierOne Bank represent our continuing drive to prosecute fraudulent conduct that jeopardizes our nation’s financial institutions,” said Assistant Attorney General Caldwell. “We will continue to investigate and prosecute bank executives who engage in deceptive and fraudulent behavior, fueled by greed.”
“What Gilbert G. Lundstrom’s indictment demonstrates is that cheating and breaking the law will not be tolerated,” said FBI Special Agent in Charge Metz. “This joint investigation, in conjunction with SIGTARP reflects the FBI’s nonstop commitment to protect our communities by aggressively investigating and bringing to justice individuals exploiting their influence or position for personal gain.”
“SIGTARP’s investigation with the FBI, DOJ, and the U.S. Attorney’s Office has resulted in criminal charges against Gilbert Lundstrom, former CEO of TARP applicant TierOne Bank, for hiding bank losses and past due loans arising from the bank’s aggressive expansion out of its traditional lending areas,” said Special Inspector General Romero. “Lundstrom is essentially charged with having two set of books, with the books shown to regulators concealing tens of millions of dollars in delinquent loans. Rather than tell the truth that this aggressive expansion resulted in a loan portfolio declining in value that threatened the bank’s capital position, this bank CEO is alleged to have engaged in a conspiracy to conceal the bank’s true financial condition from regulators who were examining the bank and reviewing the bank’s TARP application. Taxpayers shouldered the burden of TARP to make our system safer, not to fill holes on bank’s books caused by fraud.”
Gilbert G. Lundstrom, 72, of Lincoln, Nebraska was the CEO of TierOne Bank from 1999 to January 2010. According to allegations in the indictment, during that time, he and others concealed the true value of TierOne’s loan and real estate portfolio and provided falsely inflated figures in its required reports to the U.S. Securities and Exchange Commission (SEC) and the Office of Thrift Supervision (OTS). Specifically, Lundstrom and others allegedly used outdated property appraisals and rejected new appraisals that would have required TierOne to mark down the value of its real estate holdings. In addition, Lundstrom and others allegedly delayed seeking new appraisals to conceal the depreciating value of its loan collateral, and restructured loan terms to disguise the borrowers’ inability to make timely interest and principal payments. As a result, Lundstrom and others were allegedly able to hide millions of dollars in losses from regulators and investors.
In 2008, TierOne submitted an application to the OTS seeking Troubled Asset Relief Program (TARP) funding. Ultimately, TierOne withdrew its application and did not receive TARP funds. TierOne filed for bankruptcy shortly after the bank was shut down by OTS in June 2010.
The charges and allegations contained in the indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.
James A. Laphen, 65, of Omaha, Nebraska, the former President and Chief Operating Officer of TierOne, pleaded guilty earlier this week to conspiracy to commit securities fraud, wire fraud, making false entries in a bank’s books and records, and making false statements before U.S. Magistrate Judge Cheryl R. Zwart of the District of Nebraska. His sentencing hearing is scheduled for February 27, 2015. On Sept. 9, 2014, TierOne’s former Chief Credit Officer, Don A. Langford, also pleaded guilty for his role in the fraud. His sentencing hearing will be scheduled at a later date.
The case was investigated by the FBI’s Omaha Division and SIGTARP. The SEC also provided substantial assistance in the investigation. The case is being prosecuted by Trial Attorneys Henry P. Van Dyck and L. Rush Atkinson of the Criminal Division’s Fraud Section.