A lot of banks got in trouble during the housing crisis by making loans with questionable terms to low- and middle-income earners who shouldn’t have qualified. But some banks took a different route to insolvency.
La Jolla Bank made a billion dollars worth of loans to businesses, who also shouldn’t have received them. Last week, the U.S. Attorney’s Office explained why the bankers did it when former small business loan executive Amalia Martinez of San Diego pleaded guilty before U.S. Magistrate Judge Bernard G. Skomal to accepting cash bribes and kickbacks.
Martinez and other senior bank officers began issuing the loans to their favorite borrowers, known as “Friends of the Bank,” or FOBs, in 2004. They used fraudulent application loans and ignored the borrowers’ credit unworthiness to get the ball rolling. And when the FOBs couldn’t make their payments, they received follow-up loans to delay the inevitable.
When the inevitable hit, the housing market crashed and took the fragile global economy with it. Taxpayers eventually picked up the $1-billion tab when the federal government bailed out the financial industry through arranged marriages with more solvent institutions and other support mechanisms.
Martinez confessed to personally arranging $55 million in loans guaranteed by the Small Business Administration (SBA), of which $20 million ended up in default.
One of the FOBs, an unnamed construction borrower, gave $100,000 to a bank official who shared it with Martinez to secure his loan in 2007, according the feds. That same bank official accepted $250,000 from a party in exchange for $75 million in loans in 2008. That deal, conducted in Las Vegas, did not stay in Las Vegas.
Officials shifted into cover-up mode in 2009 when the bank’s impending failure started to become obvious. The officials began destroying fake financial statements and other dubious documents, including those with “FOB” clearly marked on them. The Federal Deposit Insurance Corporation (FDIC) took over the bank in February 2010. The bank’s 10 branches and loan portfolio were absorbed into OneWest Bank, which had risen from the ashes of bankrupt IndyMac.
As a result of her plea bargain, Martinez could receive five years in prison and a $250,000 fine for misapplying bank funds. She is scheduled to be sentenced on November 18.
So far, borrower Annand Sliuman and the borrower’s assistant, Laura Ortuondo, have also pleaded guilty. Sliuman could get 30 years and a $1-million fine for bank bribery. Ortuondo, who admitted destroying files and getting her husband to lie for her, faces five years in prison and a $250,000 fine for making a false statement to a federal agent.
Jocelyn J. Brown, a La Jolla Bank loan broker named in the case, is apparently headed for trial. She faces a cumulative 40 years and $1.5 million in fines for bank bribery, conspiracy to bribe and lying to a federal agent. Brown was arrested August 15 and accused of paying bribes to Martinez to secure the loans.
–Ken Broder
To Learn More:
Banker Admits Role in $1 Billion Crash (Courthouse News Service)
Guilty Plea in La Jolla Bank Bribery Scheme (by Susan Shroder, San Diego Union-Tribune)
La Jolla Bank Manager Conspired with Senior Bank Officials to Issue Hundreds of Millions of Dollars in Bad Loans (U.S. Attorney’s Office)