Friday, November 2, 2018

Big By Nebraska Standards

The Nebraska Supreme Court accepted a convicted attorney's consent to disbarment in State ex rel. Counsel for Discipline v. Lundstrom.

The Omaha World-Herald reported on the crimes

TierOne Bank’s former chief executive, Gilbert Lundstrom, on Wednesday was sentenced to 11 years of prison, in what probably is the only successful federal prosecution of a U.S. bank leader tied to the financial crisis.

Lundstrom, 74, also was ordered to pay a $1.2 million fine.

Last year a jury found him guilty on 12 of 13 counts related to the fraud that sank Lincoln’s TierOne Bank, then the second-largest financial institution in the state with about $3 billion in assets and 800 employees.

 Lundstrom, who had been free on bail, was immediately taken into custody by federal marshals Wednesday. He handed over possessions, including his tie and belt, to his lawyers and family in the courtroom, hugged his wife, and was handcuffed and escorted away.

“TierOne was not a mom-and-pop organization you could operate at your whim,” said U.S. District Judge John Gerrard, just before sentencing the Nebraska native who rose from a job as the bank’s outside lawyer to become CEO. “TierOne had a responsibility to report accurate profit and revenue figures.”

While big by Nebraska standards, TierOne was small by national ones: By comparison, the biggest U.S. bank during TierOne’s heyday in the mid-2000s was North Carolina-based Bank of America, with $2.3 trillion of assets.

Big financial institutions of that period that saw mortgage borrowers start to default en masse included Lehman Brothers, Citigroup, Countrywide Financial and Merrill Lynch. They and others were found to have engaged in behavior eerily similar to TierOne’s: They were in far worse financial condition than originally reported to regulators and investors.

In all, 465 U.S. banks failed from 2008 to 2012 — the worst period for such insolvencies since the Great Depression.

But only TierOne attracted U.S. Justice Department prosecutors, who secured indictments and a guilty verdict.

Neither prosecutors nor lawyers for Lundstrom had any comment on the verdict Wednesday.

The bank’s failure is the largest in Nebraska history and probably the largest white-collar crime in state history if more than just investor losses are considered.

More than a half-billion dollars of stock market value was lost since TierOne’s peak in 2006, when shares traded for $35 each. In the end, 70 branches and remaining assets were absorbed by Great Western Bank after TierOne went insolvent in 2010.

At Lundstrom’s three-week trial, which concluded in November, former subordinates testified that he faked accounts to hide uncollectible loans, made at the end of the housing boom to real-estate developers who themselves were broke.

With no money coming in to pay off the loans, the bank’s capital deteriorated, regulators closed in and investors fled from the collapsing shares.

Lundstrom was sentenced in the same courtroom where he once practiced law, having been TierOne’s outside lawyer before joining the company. Dressed in a dark business suit, he looked the judge directly in the eye as the sentence was read. Earlier, he had a chance to make a case for leniency in a short presentation to the judge.

“My career and reputation built over 50 years is destroyed,” he said, speaking in a calm, authoritative voice. He said the thinks about the wiped-out shareholders and employees who lost their jobs “almost every day.”

Some of them were present. About two dozen former TierOne employees attended the hearing. One said she wanted to see Lundstrom in cuffs. Another wore a royal blue First Federal Lincoln T-shirt — a memory of the small local savings and loan association that preceded TierOne.

 Connie Benson of Chapman, Nebraska, said she had worked in the Grand Island and St. Paul offices of TierOne. She worked for the bank for 15 years, she said — the best job she’d ever had.

Sitting through the daylong proceedings brought up a lot of old feelings, she said — mixed feelings.

“There are no winners,” Benson said, echoing the judge’s comments.

Scheduled to be sentenced Thursday are the bank’s former president and its chief credit officer.

Both testified against Lundstrom during his trial, after having pleaded guilty to federal criminal charges in exchange for a chance of more lenient sentences.

World-Herald staff writer Brad Davis contributed to this report.

Contact the writer: 402-444-3197, russell.hubbard@owh.com

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2018/11/the-nebraska-supreme-court-accepted-a-convicted-attorneys-consent-to-disbarment-in-state-ex-rel-disciplinary-counsel-v-lund.html

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