MCALLEN, TX—The former president and vice president of a McAllen-area bank and an area homebuilder have been convicted of bank fraud after pleading guilty yesterday, United States Attorney José Angel Moreno announced today.

Arsenio Alfaro, 45, and Elizabeth Aguirre 41, the former president and vice-president of Texas National Bank (TNB), and John Guzman, 33, a McAllen area homebuilder, each pleaded guilty to conspiracy to commit bank fraud as alleged in a superseding indictment returned by a federal grand jury on Dec. 28, 2010. Chief U.S. District Judge Ricardo Hinojosa, who accepted the guilty pleas and convicted each defendant, has set sentencing for July 1, 2011. All three face a maximum of 30 years in federal prison without parole and a $1 million fine. A fourth defendant charged in this case is set for trial in 2011, and is presumed innocent unless and until convicted through due process of law.

According to information presented in court, Guzman and one of his business associates—an alleged co-conspirator—owned several bank accounts at TNB beginning in December 2005. By the fall of 2006, the accounts had become overdrafted by thousands of dollars. Accordingly, then-TNB president Alfaro met with the alleged co-conspirator—with whom he had maintained a personal relationship—about resolving the overdrafted accounts and explained that an overdraft report, which listed all of the bank’s overdrafted accounts, was computer generated and circulated to TNB’s board of directors at the end of every month.

To conceal the overdrafts from the board, Alfaro agreed to allow checks from a closed account, previously held by Guzman’s alleged co-conspirator at another bank, to be deposited into the overdrafted accounts at the end of every month. The checks were to be made out in an amount greater than the negative balances in each account. While Alfaro knew these checks would be returned by the other bank for insufficient funds, the check deposits would make the accounts appear to be positive at the end of the month and, therefore, not reflected on the overdraft reports.

From September 2006 through May 2007, numerous checks were deposited into the overdrafted accounts to avoid the accounts being listed on the overdraft reports. Moreover, the accounts’ negative balances increased every month as a result of numerous debit transactions that were initiated, in part, by Guzman and approved by both Alfaro and Aguirre, who served as vice president at TNB. By May 2007, each account was overdrawn in excess of $100,000 which ultimately caused a loss of nearly $350,000 to TNB.

The investigation leading to the charges was conducted by FBI. Assistant United States Attorneys Greg Saikin and Jason Honeycutt are prosecuting the case.

WASHINGTON—Paul Allen, the former chief executive officer (CEO) at Taylor, Bean & Whitaker (TBW), pleaded guilty today to making false statements and conspiring to commit bank and wire fraud for his role in a $1.5 billion fraud scheme that contributed to the failure of TBW.

The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Victor F.O. Song, Chief of the Internal Revenue Service (IRS) Criminal Investigation.

Allen, 55, of Oakton, Va., pleaded guilty to a two-count criminal information before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia. Allen faces a maximum penalty of five years in prison for each count when he is sentenced on June 21, 2011.

According to a statement of facts submitted with his plea agreement, Allen joined TBW in 2003 as its CEO and reported directly to its chairman. He admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly owned lending facility called Ocala Funding. Ocala Funding raised money by selling asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas, and used the money to purchase TBW mortgages. The facility was managed by TBW and had no employees of its own.

According to court records, shortly after Ocala Funding was established, Allen learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a “hole” in Ocala Funding. Allen admitted that in an effort to cover up the hole and to mislead investors, he told a co-conspirator to produce reports that concealed the hole. He also admitted that he knew that these misleading reports were sent to Ocala Funding investors and other third parties.

Allen also admitted in court that he kept the chairman of TBW informed of the collateral shortfall, and that in the fall of 2008, Allen was told that the hole had been moved from Ocala Funding to Colonial Bank. At the time that TBW ceased operations, the hole was approximately $1.5 billion. According to court documents, as a result of the Ocala Funding fraud scheme, Freddie Mac, Colonial Bank, and Ocala Funding investors believed they had an undivided ownership interest in thousands of the same mortgage loans.

Court records state that in March 2009, Allen was directed to approach a private equity investor to secure capital to meet a $300 million private capital requirement the U.S. Department of Treasury set for Colonial Bank to receive $553 million from the Troubled Assets Relief Program (TARP). Although Allen failed to secure the funding from the investor, he admitted in court that the TBW chairman represented to others that the investor was a $50 million participant and that the chairman diverted $5 million from Ocala Funding to an escrow account in the investor’s name. This deception caused Colonial Bank to falsely announce publicly it had met its $300 million capital raise contingency and to send a letter to the FDIC that all investors had met a 10 percent escrow deposit requirement. Colonial Bank never received any TARP funds.

In court today, Allen also admitted to making false statements in a letter he sent to the U.S. Department of Housing and Urban Development, through Ginnie Mae, regarding TBW’s audited financial statements for the fiscal year ending on March 31, 2009. In this letter, Allen omitted that the delay in submitting the financial data was attributed to concerns its independent auditor had raised about the financing relationship between TBW and Colonial Bank. Instead, Allen falsely attributed the delay to a new acquisition and TBW’s switch to a compressed 11-month fiscal year.

To date, five other individuals have pleaded guilty for their roles in this and related fraud schemes.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia. This case was investigated by SIGTARP, the FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG, and the IRS Criminal Investigation. The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury also provided support in the investigation.

This prosecution was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Failed Stockbridge Bank Allegedly Fleeced Before Being Seized By Feds

ATLANTA—An indictment unsealed today charges two former top officers of FirstCity Bank of Stockbridge, Georgia—MARK A. CONNER, 44, formerly of Canton, Georgia, and CLAYTON A. COE, 44, of McDonough, Georgia—with a variety of offenses, including conspiracy to commit bank fraud and bank fraud in connection with misconduct at FirstCity Bank in the years before the bank’s seizure by state and federal authorities on March 20, 2009. In addition to the conspiracy and bank fraud charges, the indictment charges CONNER with conducting a continuing financial crimes enterprise at the bank between February 2006 and February 2008, during which CONNER’s and his co-conspirators’ crimes allegedly generated over $5 million in unlawful gross proceeds.

A federal grand jury in Atlanta returned the sealed indictment against CONNER and COE on March 16, 2011. CONNER was arrested on the charges and taken into custody by federal agents at Miami International Airport yesterday morning, the two-year anniversary of FirstCity Bank’s failure, upon his arrival in Miami from the Turks and Caicos Islands in the West Indies. CONNER made his initial appearance today before a federal magistrate judge in Miami, who preliminarily ordered CONNER to be detained as a flight risk pending his transfer by Deputy U.S. Marshals from Miami to Atlanta for trial. A formal detention hearing will take place in Miami on Thursday, March 24, 2011, at 1:30 p.m. COE’s initial appearance on the indictment in the Northern District of Georgia has not yet been scheduled.

United States Attorney Sally Quillian Yates said, “The entire country has felt the deep economic impact of failed banks. At the heart of this indictment is an abuse of power by key insiders, who are charged with tricking their own colleagues into approving millions of dollars in commercial loans to fund the defendants’ own personal business activities, and to enrich themselves at the bank’s expense. Along the way, these defendants also allegedly defrauded state and federal bank regulators and examiners, and at least 10 other federally insured banks in Florida and Georgia that invested in the fraudulent multi-million-dollar loans.”

FDIC Inspector General Jon Rymer said, “The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG) is pleased to join the United States Attorney’s Office for the Northern District of Georgia and our law enforcement colleagues in announcing this indictment. We are particularly concerned when former senior bank officials, who have held positions of trust within their institutions, are alleged to have been involved in criminal activity. We will continue to aggressively pursue bank officials and others who victimize financial institutions.”

Neil Barofsky, SIGTARP Special Inspector General for the Troubled Asset Relief Program said, “Today’s indictment marks yet another occasion where bank executives are alleged to have turned to criminal fraud in the midst of the financial crisis, including an attempt to obtain millions of dollars from the American taxpayer through the Troubled Asset Relief Program. SIGTARP will continue to work with our law enforcement partners to bring those who engage in such crimes to justice.”

IRS-Criminal Investigation Special Agent in Charge Reginael McDaniel said of the case, “Honest and law abiding citizens are fed up with the likes of those who use deceit and fraud to line their pockets with other people’s money. Those individuals who engage in this type of financial fraud should know they will not go undetected and will be held accountable.”

According to United States Attorney Yates, the charges, and other information presented in court: CONNER served in a variety of top positions at FirstCity Bank between 2004 and 2009, including as vice-chairman of the board of directors, as a member of the banks’ loan committee, as president, and later as acting chairman and chief executive officer. COE served as a vice-president and as FirstCity Bank’s senior commercial loan officer. While serving in these positions, CONNER, COE, and their co-conspirators allegedly conspired to defraud FirstCity Bank’s loan committee and board of directors into approving multiple multi-million-dollar commercial loans to borrowers who, unbeknownst to FirstCity Bank, were actually purchasing property owned by CONNER or COE personally.

The indictment charges that CONNER, COE, and their co-conspirators misrepresented the essential nature, terms, and underlying purpose of the loans and falsified documents and information presented to the loan committee and the Board of Directors. CONNER, COE, and their co-conspirators then allegedly caused at least 10 other federally insured banks to invest in, or “participate in” the fraudulent loans based on these and other fraudulent misrepresentations, shifting all or part of the risk of default to the other banks. COE’s bonus compensation was tied to the origination of FirstCity Bank loans, including the fraudulent loans with which he and CONNER allegedly assisted each other.

In the process of defrauding FirstCity Bank and the “participating” banks, CONNER, COE, and their co-conspirators allegedly routinely misled federal and state bank regulators and examiners to conceal their unlawful scheme. They also unsuccessfully sought federal government assistance through the U.S. Treasury Department’s Troubled Asset Relief Program (“TARP”) and engaged in other misconduct in an attempt to avoid seizure by regulators and prevent the discovery of their fraud.

The charge against CONNER for conducting a continuing financial crimes enterprise carries a mandatory minimum sentence of 10 years in federal prison, a maximum sentence of life in prison, and a potential fine of up to $10 million. The conspiracy and bank fraud charges against CONNER and COE, and a remaining charge against COE for fraudulently influencing the actions of a federally insured bank, carry a maximum sentence of 30 years in prison and a potential fine of up to $1 million on each count. In determining the actual sentences for each defendant, the court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being investigated by special agents of the FDIC, Office of Inspector General; the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), the Federal Bureau of Investigation, and Internal Revenue Service-Criminal Investigation.

Assistant United States Attorneys Douglas W. Gilfillan and David M. Chaiken are prosecuting the case.

For further information please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney’s Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.

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