Banking: former bankers indicted with, inter alia, insider dealing

Mitchell, Ballard and Foster were indicted by a federal grand jury on14 April, 2010 and Mitchell was due to make his initial appearance before U.S. Magistrate Judge Gerrilyn Brill on 7 May . Arraignments are expected to be scheduled shortly in federal court in Atlanta for the three defendants.

Market Abuse: The Financial Crime Forum: Singapore: July 2010

U.S. Attorney Sally Quillian Yates said, "We have charged two of Integrity Bank's former officers and its largest borrower with various acts of fraud, bribery, and insider trading. After passing out USD80 million to the developer like it was Monopoly money, both officers dumped their Integrity stock before the failed loans came to light. While the developer was living the good life, even buying a private island with Integrity's money and the bank's senior loan officer was making huge commissions and taking payoffs from the developer, the bank was dying a slow death. The defendants were going to leave the bank's shareholders and the FDIC holding the bag."

Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation, said, "We are particularly concerned when senior bank officials, who are in positions of trust within their institutions, are alleged to be involved in unlawful activity."

According to U.S. Attorney Yates, the charges and other information presented in court: From 2004 to 2007, Mitchell and companies he controlled obtained more than USD80 million in various supposed business loans from Integrity Bank, based in Atlanta. He allegedly obtained much of these funds under false pretenses, and deposited nearly USD20 million of these business loans in a personal current account, in which he made millions of dollars worth of personal luxury expenses and withdrew substantial amounts of cash. Among his personal expenses was over USD1.5 million spent on a private island in the Bahamas.

While Mitchell was spending much of the loan proceeds on himself, the indictment alleges that he paid little, if any, of his money back to Integrity to satisfy interest payments. Rather, the indictment alleges that with the assistance of individuals within the bank, Mitchell paid interest on existing loans by taking draws or disbursements from other loans, and continually borrowed more and more money to keep paying the ever-increasing interest payments.

The indictment specifically focuses on three loans totaling approximately USD20 million in 2006, which the indictment alleges were dispersed under false pretenses at the alleged approval and direction of Ballard, Integrity's former Executive Vice President. In one example charged in the indictment, Mitchell requested and Ballard helped disperse nearly USD7 million out of a construction loan relating specifically to supposed construction and renovation at the "Casa Madrona," a luxury hotel owned by Mitchell in Sausalito, Calif. The indictment alleges that none of this money was used for construction, and in fact no renovations had occurred. Rather, most of the funds were wired directly to Mitchell's personal checking account, and used by him for personal purchases or cash, and the remainder was used to pay interest due on older Mitchell loans.

The indictment also alleges several acts of bribery. The indictment charges that Mitchell corruptly paid and Ballard corruptly received over USD230,000 in a 9-month period - half in cash and half in a cashier's check - as a reward for Ballard's assistance in Mitchell's fraud. The indictment alleges that both men corruptly discussed other personal business opportunities That Ballard would receive for assisting Mitchell.

The indictment also alleges that Ballard evaded bank reporting requirements to avoid scrutiny of his cash deposits. And the indictment alleges That Ballard and his colleague, fellow bank Vice President Joseph Todd Foster, committed securities fraud by engaging in what is commonly referred to as "insider trading." Specifically, they allegedly sold nearly all of their shares of Integrity stock based on materially adverse secret information about the company - specifically relating to substantial problems with the loans to Mitchell - which they knew was not generally known to the public. The indictment charges that in essence they allegedly took advantage of secret inside information to sell stock that they knew to be overvalued, to others who did not share the same information.

The bank fraud and bribery charges against Mitchell and Ballard each carry a maximum sentence of 30 years in prison, the evasion of reporting requirements charges against Ballard carry a maximum of 10 years in prison, the securities fraud charges against Ballard and Foster carry a maximum of 20 years in prison and the conspiracy charge against Mitchell and Ballard carries a maximum of five years in prison. Each of the charges also carries a potential fine of up to USD1 million.

The defendants have not yet entered a plead.