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Thursday, August 8, 2013

Florida Bank Executives and Attorney Charged with Conspiracy, Wire Fraud, False Statements, and Making a False Claim Against the United States

Donald Terry Dubose, a/k/a Terry Dubose, 65, of Panama City Beach, Florida; Elwood Ladon West, a/k/a Woody West, 39 of Monroeville, Alabama; and Frank Alfred Baker, 61, of Marianna, Florida, have been charged for their roles in a fraud scheme involving the Federal Deposit Insurance Corporation’s (FDIC) Temporary Liquidity Guarantee Program (TLGP), announced U.S. Attorney Pamela C. Marsh for the Northern District of Florida. The TLGP was created at the height of the 2008 financial crisis in order to encourage lending but, according to the allegations, was misused by the defendants to shield themselves and their institution from financial losses.

The defendants were indicted by a federal grand jury with one count of conspiracy to commit wire fraud against the FDIC, seven counts of wire fraud, three counts of making false statements to the FDIC, and one count of aiding and abetting a false claim against the United States. A sealed indictment was returned by a federal grand jury on July 9, 2013, and unsealed today.

The indictment alleges that Coastal Community Investments (Coastal) was a bank-holding company that owned Coastal Community Bank, based in Panama City Beach, Florida, and Bayside Savings Bank, based in Port St. Joe, Florida. Coastal Community Bank and Bayside Savings Bank both failed on July 30, 2010. Dubose was the Chairman and Chief Executive Officer of Coastal and the second largest Coastal shareholder. West was the Chief Financial Officer of Coastal and a Coastal shareholder. Baker was an attorney for Coastal and Coastal’s largest shareholder.

The fraud alleged in the indictment involved the TLGP, which was created at the height of the financial crisis in October 2008. The purpose of the TLGP was to encourage banks to begin lending to one another again and, thereby, help stabilize the economy. To do this, the TLGP provided that the FDIC would guarantee a loan made by one financial institution (the “lender”) to another financial institution (the “borrower”) in an amount up to 125 percent of the borrower’s existing senior unsecured debt (outstanding-unsecured debt), thus assuring repayment to the lender by the borrower or, in the event of default, by the FDIC.

The indictment further alleges that, in October 2008, Coastal had a $3 million loan with RBC Bank (USA), which was secured by 100 percent of the stock of Coastal Community Bank and Bayside Savings Bank (the RBC Loan). At that time, the RBC Loan was in default, thus giving RBC the ability to exercise its right to take the pledged stock and potentially rendering defendants’ shares in Coastal worthless. Under pressure from RBC to repay this debt, the indictment alleges that the defendants falsely certified to the FDIC that the RBC Loan was unsecured, knowing that it was secured, so that Coastal could get an FDIC guaranteed loan under the TLGP.

The indictment further alleges that Coastal obtained a $3,750,000 (125 percent of the RBC Loan) loan from central Florida-based CenterState Bank, which—based on the defendants’ misrepresentations—was guaranteed by the FDIC under the TLGP (the TLGP Loan). Coastal used the proceeds of the TLGP Loan to repay the RBC Loan. In June 2010, Coastal defaulted on the TLGP Loan, and, on August 7, 2010, CenterState Bank filed a claim with the FDIC for payment of the full amount due on the TLGP Loan, plus interest. The FDIC paid CenterState’s claim on August 13, 2010 by wiring $3,805,833.34 in principal and interest from the FDIC to CenterState.

Finally, the indictment alleges that Dubose, desiring to avoid losses to himself and his family as Coastal’s financial condition deteriorated, fraudulently sold and converted Coastal stock owned by him and his family members to unwitting investors by misrepresenting the nature of the stock, by misrepresenting Coastal’s financial condition, and by providing loans from Coastal Community Bank to finance the purchases of Coastal stock.

Defendants are scheduled for to appear in federal court for their initial appearance and arraignment on August 8, 2013 at 1:30 p.m. at the U.S. District Courthouse in Panama City, Fla.

The defendants face a maximum of 30 years in prison for each count of conspiracy to commit wire fraud and wire fraud and a maximum of five years in prison for making false statements to the FDIC and aiding and abetting CenterState Bank in making a false claim against the United States.

This indictment results from an extensive investigation by agents of the Federal Reserve Board-Office of the Inspector General, FBI, FDIC, and Office of the Special Inspector General for the Troubled Asset Relief Program. The case is being prosecuted by Assistant U.S. Attorney Gayle Littleton.

An indictment is merely an allegation by a grand jury that a defendant has committed a violation of federal criminal law and is not evidence of guilt. All defendants are presumed innocent and entitled to a fair trial, during which it will be the government’s burden to prove guilt beyond a reasonable doubt.

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