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Friday, May 7, 2010

Two Former Bank Executives and Hotel Developer Charged with Frauds Relating to the Collapse of $1 Billion Atlanta Bank

A federal judge in Atlanta unsealed an indictment today charging two former Atlanta-based Integrity Bank executives, Douglas Ballard, 40, and Joseph Todd Foster, 42, both of Atlanta, and hotel developer Guy Mitchell, 50, of Coral Gables, Fla., with various acts of conspiracy, bribery, bank fraud and/or securities fraud relating to over $80 million in loans that Mitchell obtained from Integrity Bank. Mitchell, Ballard and Foster were indicted by a federal grand jury on April 14, 2010, and Mitchell is expected to make his initial appearance before U.S. Magistrate Judge Gerrilyn Brill today. Arraignments are expected to be scheduled shortly in federal court in Atlanta for the three defendants. 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. These officers of Integrity Bank sure weren't living up to the bank's name. After passing out $80 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, but now they are being held accountable."
Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation, said, "The Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) is pleased to join the U.S. Attorney's Office for the Northern District of Georgia and our law enforcement colleagues in defending the integrity of the financial services industry. 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. Prosecutions of individuals and entities involved in criminal misconduct help maintain the safety and soundness of the Nation's financial institutions."
IRS-Criminal Investigation Special Agent in Charge Reginael McDaniel said, "This indictment is an important victory for America's taxpayers who play by the rules and have no tolerance for those who make up their own rules. This investigation serves to remind us that there is no such thing as free money and there are no awards or incentives for creativity when it comes to crime."
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 $80 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 $20 million of these business loans in a personal checking 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 $1.5 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 $20 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 $7 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 $230,000 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 $1 million.
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 Barack 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 the FBI, the FDIC's Inspector General's Office, and the IRS, as part of President Barack Obama's Financial Fraud Enforcement Task Force.
Assistant U.S. Attorneys Justin S. Anand and Christopher C. Bly are prosecuting the case.
“Among the roots of our nation’s financial crisis were criminal acts by bank insiders and major borrowers that contributed to the failures or bailouts of financial institutions previously believed to be secure,” said U.S. Attorney Sally Quillian Yates. “Today we announce that two of these corrupt insiders here in Atlanta will be trading in their corporate offices for federal prison.”




“Those who line their pockets with profits of bank fraud schemes should know they will not go undetected and they will be held accountable,” said Internal Revenue Service (IRS)-Criminal Investigation Special Agent in Charge Reginael McDaniel. “IRS-Criminal Investigation is proud to be part of the law enforcement dragnet bringing these individuals to justice.”



According to U.S. Attorney Yates, the charges and other information presented in court: Ballard, Integrity Bank’s former executive vice president in charge of lending, admitted that he conspired with the bank’s major customer, co-defendant Guy Mitchell, to receive bribes from Mitchell and to assist Mitchell in receiving millions in loan draws under false pretenses. Ballard admitted in court to receiving over $200,000 in cash and other corrupt payments from Mitchell in exchange for Ballard’s assistance in distributing millions of loan draws. During this same time, Ballard caused Integrity Bank to distribute nearly $20 million in loan proceeds to Mitchell’s personal account, much of which was allegedly used for Mitchell’s personal consumption (including the purchase of a private island in the Bahamas). Mitchell requested and Ballard paid nearly $7 million of these draws 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.



Foster, Integrity’s former vice president in charge of risk management, pleaded guilty to charges that he committed securities fraud by way of what is commonly referred to as “insider trading.” Specifically, he admitted to having sold nearly all his shares of Integrity’s stock on the basis of material adverse information about the company of which Foster was aware by virtue of his inside position, but of which the public was generally unaware. Specifically, Foster dumped his shares of Integrity stock based on his knowledge that the bank was facing an increasingly substantial but undisclosed risk that its major customer, Mitchell, would default on over $80 million in outstanding loans.
Ballard was indicted in April 2010 on more than 20 counts of bank fraud, receipt of bribes, securities fraud, evasion of currency reporting requirements, and conspiracy. He pleaded guilty to conspiracy and one additional new count of tax evasion. He could receive a maximum sentence of up to 10 years in prison and a fine of up to $500,000. Foster, also indicted in April 2010, was indicted on two counts of securities fraud and today pleaded guilty to one count. He could receive up to 20 years in prison and a fine of up to $5 million. A date for sentencing has not yet been set before U.S. District Judge Julie E. Carnes.
This case is being investigated by Special Agents of the FBI, FDIC-Office of the Inspector General, and the IRS as part of President Barack Obama’s Financial Fraud Enforcement Task Force. The investigation remains ongoing as to other potential misconduct relating to the failure of this major Atlanta bank. Both defendants have agreed to cooperate in that ongoing investigation.
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.

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