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2 former TierOne executives charged with fraud


omaha.com | December 14, 2014

By Russell Hubbard

The former chief executive of failed TierOne Bank pleaded not guilty to white-collar criminal counts Wednesday. Earlier this week, the company’s ex-president pleaded guilty in the biggest Nebraska bank failure during the 2008-era financial crisis.

Gilbert Lundstrom, CEO of Lincoln-based TierOne from 1999 to 2010, was indicted this week by a federal grand jury in U.S. District Court in Lincoln.

He is charged with 15 counts, including mail, securities and wire fraud. Court records show that Lundstrom pleaded not guilty to the charges in court Wednesday.

“Gil is innocent and he looks forward to being vindicated at trial,” said Dan Collins, Lundstrom’s Chicago attorney.

Monday, former TierOne President James Laphen filed documents in U.S. District Court in Lincoln in which he pleaded guilty to mail and wire fraud, court records show, in exchange for a jail sentence of not more than five years. He is scheduled to be sentenced Feb. 27. TierOne, publicly traded and based in Lincoln before being shuttered by regulators in 2010, was Nebraska’s largest bank failure in the national financial crisis spawned by subprime real estate loans. TierOne executives were accused of overvaluing collateral and minimizing losses from 2008 into 2010.

Bank executives “made misrepresentations, and caused others to make misrepresentations, to TierOne’s shareholders, regulators, external auditor and the investing public about TierOne’s financial condition,” according to court documents filed by prosecutors.

Central to the case was deception surrounding the loan losses TierOne was absorbing as the housing markets cratered in Nevada, Florida, Arizona and North Carolina — locations outside the bank’s traditional lending areas that were tempting targets as the real estate bubble swelled.

When real estate secured by TierOne loans was appraised at levels that would have required the bank to write down its collateral, the appraisals were rejected, prosecutors allege.

“Lundstrom and his co-conspirators also restructured loan terms to disguise a borrower’s inability to make timely interest and principal payments,” according to the indictment.

Prosecutors say in the Lundstrom indictment that he and the other executives knew an additional $30 million was needed to cover bad loans in 2009. They chose to not increase the amount in the reserve fund for bad loans, making the company’s lending portfolio and financial results look better than they were.

“Throughout 2008 and 2009, Lundstrom and his co-conspirators concealed losses in TierOne’s loan and real estate portfolio,” federal prosecutors wrote in Lundstrom’s indictment.

At the end, in March 2010, 22 percent of loans were not being paid as agreed at TierOne, versus a Nebraska average at the time of 3.2 percent. The company had a loss of $200 million in 2009, its last full year of operation.

The criminal actions follow extensive civil proceedings. Laphen, Lundstrom and chief credit officer Don Langford were sued by the Securities and Exchange Commission in a civil case in 2012.

In 2012, Lundstrom and Laphen settled the SEC civil complaint, without admitting or denying wrongdoing, for $1.2 million. The SEC said at the time that the civil case against Langford was ongoing; Langford pleaded guilty to two criminal counts in September.

Also settled last year was a civil action initiated by the Federal Deposit Insurance Corp.

The FDIC seized TierOne in June 2010, alleging that executives approved risky loans. Great Western Bank, based in Sioux Falls, South Dakota, acquired the assets and deposits of TierOne from the FDIC.

The stock became worthless at the end. From a high of about $30 a share in 2007, the price fell as investors forecast that the company’s massive mortgage bets in Nevada, Arizona and Florida were imploding. Shares traded hands for pennies apiece before the bank was seized and shuttered.

TierOne, established in 1907, had 59 branches in Nebraska, nine in Iowa and one in Kansas. Before 2002, it was known as First Federal Lincoln Bank.

The other two Nebraska banks to fail after the 2008 financial debacle were Sherman County Bank in Loup City in 2009 and Mid City Bank in Omaha in 2011.


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