Former Bank V.P. Pleads Guilty to Hiding Appraisal in Bank Audit

admin —  February 24, 2010 — Leave a comment

David S. Kennelly, 49, Vancouver, Washington, pleaded guilty to a Scheme to Conceal Material Facts in connection with an audit of the former Bank of Clark County in the fall of 2008. The bank was shut down by the Federal Deposit Insurance Corporation in January 2009. Under the terms of his plea agreement, Kennelly is prohibited from working for a financial institution regulated by the FDIC or the Federal Credit Union Act, without written approval of the agency.

According to the plea agreement and court informationKennelly attempted to hide property appraisal records that called into question the solvency of the Bank of Clark County. In 2004, Kennelly was hired as the Vice President and Chief Lending Officer for the bank. During the course of 2008, Kennelly and bank leaders became concerned that the bank had made loans to various development projects that now had a much lower appraised value. As a federal examination to check the soundness and safety of the bank approached, Kennelly identified various appraisals that he did not want bank examiners to see. Kennelly instructed staff to exclude the appraisals from both the bank’s loan files and its computerized record system. After receiving these instructions, one of the bank employees hid recently received appraisals under his desk. The appraisals revealed that the collateral the bank had taken for the loans had depreciated in value by millions of dollars.

During the examination in November 2008, Kennelly falsely represented that all available appraisals were in the computerized system. Based on the appraisals the examiners were able to review, the bank was instructed to increase it’s loan loss reserved by more than $3 million. Just prior to the termination of the examination, investigators learned of the hidden appraisals on some 15 different projects. In response, Kennelly first tried to advance the false claim that the appraisals had been overlooked because of a heavy work load. He unsuccessfully attempted to get a bank employee to promote this story. After the examiners saw the additional appraisals, they determined the bank needed an additional $16.7 million of capital for loan reserves. On January 16, 2009, the Washington State Department of Financial Institutions declared the Bank of Clark County insolvent and appointed the FDIC as Receiver.

When sentenced on May 14, 2010, by U.S. District Judge Robert J. Bryan Kennelly faces up to five years in prison, three years of supervised release, and a $250,000 fine.

The case was investigated by the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) and the FBI.

The case is being prosecuted by Assistant United States Attorneys Tessa Gorman and Arlen Storm.

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