Jury finds former Bank of Oswego executives guilty of conspiracy
Former Bank of Oswego CEO Dan Heine and former CFO Diana Yates were found guilty Tuesday of one count of conspiracy to commit bank fraud and 12 counts of falsifying bank entries, reports and transactions.
After more than two days of deliberation, the jury returned its verdict just before noon, bringing the six-week trial in U.S. District Court in Portland to an end. A sentencing hearing for Heine is scheduled for 2 p.m. on March 5, 2018, with a sentencing hearing for Yates directly afterward at 3 p.m.
Each charge carries a maximum sentence of 30 years in federal prison.
"As the jury found today, Dan Heine and Diana Yates violated the law by deceiving the Bank of Oswego's board of directors, customers and federal regulators in an attempt to conceal the organization's true financial condition," said Billy J. Williams, United States Attorney for the District of Oregon. "Together with our partners at the FBI and the Federal Deposit Insurance Corporation, we remain steadfast in our commitment to protecting the integrity of our financial system from fraudulent and corrupt banking practices."
Both Heine and Yates were found not guilty on six other counts of falsifying bank entries, but Heine's attorney told The Review on Tuesday that was of little consolation.
"Dan is very disappointed with the jury's verdict, which is not supported by the evidence presented to the jury at trial," Jeffrey Alberts said. "He intends to move for the judge to set aside the jury's verdict and enter a judgment of acquittal as to all counts."
In court, attorneys for both defendants told Judge Michael Simon that they also intend to file motions for a new trial. Simon, who described the trial as one of the longest in the court's recent history, scheduled those motions to be debated at 1 p.m. on March 5. The scheduled sentencing hearings will only take place if the new trial motions are denied, Simon said.
Heine founded The Bank of Oswego, and both he and Yates worked at the community-based financial institution from its inception in 2004 until Yates resigned in 2012 and Heine retired in 2014. Both were arrested and arraigned on June 26, 2015, and each was charged with one count of conspiracy and 18 counts of falsifying bank records.
The charges stemmed from a federal investigation into a series of delinquent bank loans that occurred between 2009 and 2014. The loans were either omitted or inaccurately listed in the Bank of Oswego's financial reports to both its own board of directors and federal regulators in what prosecutors contended was a complex scheme to portray the bank's financial condition as much better than it was.
Heine and Yates were accused of using bank or third-party proceeds to make payments on customers' delinquent loans, mischaracterizing assets in reports to the bank's board of directors and the FDIC, and concealing information about loans made to bank insiders.
Much of the case revolved around the actions of a third former Bank of Oswego employee, Geoff Walsh, who pleaded guilty in 2015 to one count of conspiracy to commit wire fraud, one count of wire fraud and one count of conspiracy to make false entries in bank records. He is scheduled to be sentenced on those charges on Jan. 9, 2018.
As part of a plea deal, the government agreed to drop several charges and not bring additional charges against Walsh, and he testified for six days as a government witness in the case against Heine and Yates.
The outcome of the trial may have hinged on whether jurors believed that Heine and Yates directed Walsh to undertake illegal actions, or whether Walsh acted alone and concealed his activities from them. In closing arguments last week, U.S. Attorney Michelle Kerin described Walsh as the one who would do the bank's "dirty work," but said that it was his superiors who helped to conceal the results.
"I submit to you that Geoff Walsh did exactly what the defendants wanted him to do," she told the jury. "The defendants called him a rock star, but they knew there were problems with Walsh."
In his own closing statement, Alberts portrayed Walsh as a con man and a skilled salesman who proved highly successful at bringing in new loans but failed in his duties to collect on several existing loans. He said Walsh sought to cover up those failings by making the payments himself using money from other loans, unbeknownst to Heine.
"When you're a CEO, you rely on your employees to just be doing their jobs," he said. "Geoff Walsh was just too busy committing crimes and doing side deals to do his job."
Yates' attorney, Janet Hoffman, emphasized that her client had been serving in three upper-level roles at the bank simultaneously — chief financial officer, chief operating officer and chief credit officer — and contended that she became stretched beyond her capacity.
Walsh's problematic loans were just a few out of the hundreds of loans the bank initiated during a three-year period, she said, and Yates didn't have the time to closely scrutinize each of them.
Hoffman argued that Walsh had sought to mislead Yates to cover up his own bad deals, and that the alleged falsified information in the bank's reports could not be blamed on Yates because she simply compiled the reports based on data provided to her by Walsh.
"Yates (and other employees) are not insurers that Geoff Walsh is not lying to them," she said. "They acted in good faith. As long as they are entering the data as they know it, nothing is incorrect about the call report."
Hoffman recounted each of the bad loans in question, in most cases arguing that Walsh acted alone and covered his tracks to prevent Yates from realizing anything was amiss. The one exception was an incident in 2010 in which the bank collected $900,000 from the campaign account of Chris Dudley, who was running for governor at the time, to cover a payment on a personal loan.
The error was quickly discovered and corrected, Hoffman said — Dudley sent in $900,000 of his own money, and the bank returned the campaign dollars.
"Diana Yates fully acknowledges this was a mistake," said Hoffman, who did not respond to The Review's requests for comment after the trial. "It's not until it got into this courtroom that a simple mistake that could happen to anyone becomes a federal crime."
Government prosecutor Quinn Harrington delivered a brief rebuttal, emphasizing several pieces of evidence that he said bolstered the credibility of the government's witnesses. He also focused on Heine's career history and Yates' many roles at the bank, arguing that both of them had to have known something was wrong with Walsh.
"They knew about the problems, but Geoff Walsh was too big to fire," Harrington said.
During their closing arguments, Alberts and Hoffman both questioned why the government had not called a Certified Professional Accountant (CPA) to serve as a witness, given that the case involves accounting records.
"We called a senior employee at the FDIC instead," Harrington responded during his rebuttal, adding that "you don't need to be a CPA to see that Heine and Yates were not honest in how they reported transactions."
All of the closing arguments made reference to the motives of some of the trial's witnesses; Kerin and Harrington both pointed out that some of the defense witnesses had been paid for their testimony, and Alberts and Hoffman both emphasized that Walsh had agreed to testify for the prosecution in exchange for avoiding additional criminal charges.
After the verdict was announced Tuesday, Alberts requested a 60-day extension to file the motion for a new trial, which Simon granted; both Heine and Yates must file their motions by Jan. 29, 2018, he said, and the government must then file a response by Feb. 12.