Execs at failed Sonoma bank convicted of fraud
A Santa Rosa attorney and two former executives of the failed Sonoma Valley Bank were convicted Tuesday of conspiracy, money laundering, fraud and a string of other crimes that cost taxpayers millions of dollars, federal prosecutors announced.
Those convicted after an eight-week trial in U.S. District Court in San Francisco were Sean Clark Cutting, 48, of Sonoma, the Sonoma bank’s chief executive officer before it failed in 2010; Brian Scott Melland, its chief loan officer; and attorney David John Lonich, who had represented the late Sonoma County real estate developer Bijan Madjlessi, who was convicted of similar crimes before his death in 2014.
“The defendants resorted to bank fraud, lies to bank regulators, and other crimes in a multiyear scheme to conceal millions of dollars in failed and failing loans,” U.S. Attorney Brian Stretch said in a statement.
The crimes, some of which carry penalties of 30 years in prison and $1 million in fines, were a “massive fraud scheme designed to conceal bad loan after bad loan,” said Christy Goldsmith Romero, a special inspector general for the Troubled Asset Relief Program.
Romero said parts of the scheme were enacted soon after the bank received an $8.65 million bailout through TARP — “all of which was lost.”
Taxpayers lost more than $20 million, and the Federal Deposit Insurance Corp. lost $11.5 million, prosecutors said.
The verdict “sends a strong message that bank executives and attorneys who devise and orchestrate multimillion-dollar bank fraud schemes will be held accountable for their crimes,” said FDIC Inspector General Jay Lerner.
Among the crimes, the evidence showed that Sonoma Valley Bank loaned Madjlessi and others more than $35 million between 2004 and 2010, beyond the legal lending limit of $24.7 million set by regulators.
To conceal the excess, Cutting and Melland recommended that the bank approve hefty loans to straw borrowers — though they knew the loans were actually going to Madjlessi and his companies, prosecutors said.
Lonich, Madjlessi’s lawyer, “conspired with Cutting and Melland to mislead Sonoma Valley Bank into lending millions more to Madjlessi, again in the name of a nominee or ‘straw’ borrower,” prosecutors said.