Bank of Oswego fraud case is now in the jury's hands
Prosecutors and defense attorneys delivered their closing arguments this week in a federal trial that accuses former Bank of Oswego CEO Dan Heine and former CFO Diana Yates of conspiring to hide bad loans from the financial institution's board of directors, shareholders and regulators.
U.S. District Judge Michael Simon turned the case over to the jury last Tuesday afternoon, but the panel hadn't reached a decision by Monday morning.
Because of the Thanksgiving holiday, the U.S. District Court building will be closed on Thursday and Friday. If the jury has not reached a verdict by the end of the day on Wednesday, Simon said, deliberations will resume on the following Monday.
The case stems from a federal investigation into a series of delinquent bank loans that occurred between 2009 and 2014. The loans were either omitted or inaccurately listed in the Bank of Oswego's financial reports to both its own board of directors and federal regulators in what prosecutors contend was a complex scheme to portray the bank's financial condition as much better than it was.
The indictment accuses Heine and Yates of using bank or third-party proceeds to make payments on customers' delinquent loans, mischaracterizing assets in reports to the bank's board of directors and the FDIC, and concealing information about loans made to bank insiders. The indictment says Heine and Yates made at least 19 false entries in the bank's official reports about the status of those loans and transactions.
If convicted, the former bank executives face a maximum of 30 years in prison for each count, as well as the forfeiture of any money or property obtained as the result of the violations.
Heine founded The Bank of Oswego, and both he and Yates worked at the community-based financial institution from its inception in 2004 until Yates resigned in 2012 and Heine retired in 2014. Both were arrested and arraigned on June 26, 2015.
Much of the case revolves around the actions of a third former Bank of Oswego employee, Geoff Walsh, who was the senior vice president of lending. Walsh pleaded guilty in 2015 to one count of conspiracy to commit wire fraud, one count of wire fraud and one count of conspiracy to make false entries in bank records. He is scheduled to be sentenced on those charges on Jan. 9, 2018.
As part of a plea deal, the government agreed to drop several charges and not bring additional charges against Walsh, and he testified as a government witness in the case against Heine and Yates.
The outcome of the trial likely hinges on whether jurors believe that Heine and Yates directed Walsh to undertake illegal actions and helped to cover them up — which would constitute a conspiracy to commit bank fraud and falsifying reports — or whether Walsh acted alone and concealed his activities from Heine, Yates, federal regulators and the bank's board of directors.
In her closing arguments Monday, U.S. Attorney Michelle Kerin argued that Heine and Yates felt pressured by the national financial crisis at the time and didn't want the Bank of Oswego to look like it was struggling.
"Yates and Heine agreed to mislead the board of directors and FDIC to give the false appearance that the Bank of Oswego was performing better than it was," Kerin said.
One of the reasons they did so, Kerin said, was because both defendants were dependent on their bank salaries at the end of 2009 to keep their personal finances afloat. Kerin described Heine as "desperate for cash" and Yates as "overextended on credit cards," and said the bank's financial performance had the potential to affect their salaries.
She described Walsh as the one who would do the bank's "dirty work," but said that it was his superiors who helped to conceal the results. Over the course of three years, almost $4 million in loans went unreported to the FDIC, Kerin said.
"I submit to you that Geoff Walsh did exactly what the defendants wanted him to do," she told the jury. "The defendants called him a rock star, but they knew there were problems with Walsh."
Kerin emphasized the power that Heine and Yates had as CEO and CFO, arguing that they had control over the information that was presented to the board and regulators, and that false information could not have been presented without them being either aware of it or deliberately keeping themselves unaware of it — all of which goes to show that Walsh could not have acted alone, she said.
Attorney Jeffrey Alberts, who represents Heine, delivered a four-and-a-half hour closing argument Monday that focused heavily on Walsh's actions and his prior testimony as a government witness, highlighting numerous instances in which he said Walsh had been caught lying.
He portrayed Walsh as a con man, a skilled salesman who proved highly successful at bringing in new loans but who failed in his duties to collect on several existing loans. He said Walsh sought to cover up those failings by making the payments himself using money from other loans.
Alberts argued that Walsh did in fact act alone. He said Heine was not involved in the bank's day-to-day loan operations and only directed Walsh to collect on the bank's loans, not to repay them using money from outside the bank.
Alberts also contended that there was no direct correlation between the falsified loan reports and Heine's salary. The only person who benefited from the bad loans, he argued, was Walsh.
"When you're a CEO, you rely on your employees to just be doing their jobs," he said. "Geoff Walsh was just too busy committing crimes and doing side deals to do his job."
Alberts said Heine only became aware of the problems with Walsh's loans after Yates left the bank in 2012, which forced Heine to temporarily take on some of her duties. He responded by firing Walsh, hiring an investigator to comb through bank records and subsequently calling the FBI, Alberts said.
Alberts also raised a rhetorical question about Heine's motives: If Heine was indeed involved in a conspiracy to commit bank fraud, Alberts asked the jury, then why was Heine the one who initially called the FBI and asked for an investigation?
Heine and Yates are being charged as part of the same conspiracy case, but they have defended themselves separately. A pretrial brief filed by Heine's attorneys states that after Yates left the bank and Heine fired Walsh, the former CEO "became increasingly concerned about dishonest conduct by Mr. Walsh and suspicious that Ms. Yates may have known and permitted such conduct."
At one point, Alberts requested that the case be split into two, one for each defendant. That request was denied.
Alberts rarely mentioned Yates in his closing argument on Monday, but he did reference a few emails and witnesses' testimony claiming that Yates instructed other bank employees to not communicate information about Walsh's activities to Heine, which he said provided further proof that Heine was unaware of the bad loans.
Yates' attorney, Janet Hoffman, delivered her own three-hour closing argument Tuesday morning and took a similar approach to Alberts — she focused on Walsh's actions and contended that Yates had been deliberately misled. Her statement largely ignored Heine.
Hoffman emphasized the fact that Yates served in three upper-level roles at the bank simultaneously — chief financial officer, chief operating officer and chief credit officer — and contended that she had become stretched beyond her capacity. Walsh's problematic loans were just a few out of the hundreds of loans the bank initiated during a three-year period, she said, and Yates didn't have the time to closely scrutinize each of them.
She argued that Walsh had sought to mislead Yates to cover up his own bad deals, and that the alleged falsified information in the bank's reports could not be blamed on Yates because she simply compiled the reports based on data provided to her by Walsh.
"Yates (and other employees) are not insurers that Geoff Walsh is not lying to them," she said. "They acted in good faith. As long as they are entering the data as they know it, nothing is incorrect about the call report."
Hoffman recounted each of the bad loans in question, in most cases arguing that Walsh acted alone and covered his tracks to prevent Yates from realizing anything was amiss. The one exception was an incident in 2010 in which the bank collected $900,000 from the campaign account of Chris Dudley, who was running for governor at the time, to cover a payment on a personal loan.
The error was quickly discovered and corrected, Hoffman said — Dudley sent in $900,000 of his own money, and the bank returned the campaign dollars.
"Diana Yates fully acknowledges this was a mistake," Hoffman said. "It's not until it got into this courtroom that a simple mistake that could happen to anyone becomes a federal crime."
Government prosecutor Quinn Harrington delivered a brief rebuttal Tuesday afternoon, emphasizing several pieces of evidence that he said bolstered the credibility of the government's witnesses. He also focused on Heine's career history and Yates' many roles at the bank, arguing that both of them had to have known something was wrong with Walsh.
"They knew about the problems, but Geoff Walsh was too big to fire," Harrington said.
During their closing arguments, Alberts and Hoffman both questioned why the government had not called a Certified Professional Accountant (CPA) to serve as a witness, given that the case involves accounting records.
"We called a senior employee at the FDIC instead," Harrington responded during his rebuttal, adding that "you don't need to be a CPA to see that Heine and Yates were not honest in how they reported transactions."
All of the closing arguments made reference to the motives of some of the trial's witnesses; Kerin and Harrington both pointed out that some of the defense witnesses had been paid for their testimony, and Alberts and Hoffman both emphasized that Walsh had agreed to testify for the prosecution in exchange for avoiding additional criminal charges.