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Heine asks court to order Bank of Oswego to pay his legal fees

Bank's board rejected the request from its former CEO, who says he can't afford the cost of mounting a defense

HEINEFormer Bank of Oswego President and CEO Dan Heine filed a federal complaint this week against the financial institution he founded, asking a U.S. District Court judge to order the bank to pay the legal fees he’ll incur as he fights bank fraud charges.

Heine and Diana Yates, the bank’s former chief operating officer, are scheduled to stand trial Sept. 18 on one count of conspiracy to commit bank fraud and 26 counts of making false bank entries. Heine contends in the complaint filed Wednesday in Portland that the Bank of Oswego’s articles of incorporation require it to pay all legal expenses for any person involved in a criminal action as a result of their role as a director or officer of the bank.

Heine says he asked the bank in writing on July 7 to pay $400,000 so that he can retain the services of the New York law firm Pryor Cashman LLP, and that it advance him “reasonable legal fees and expenses” within 30 days of each future invoice when the initial retainer fee is depleted.

That retainer is reasonable, the complaint says, in light of the complexity of a criminal case that involves more than 177,000 pages of documents. Heine already has been invoiced more than $90,000.

On July 21, the complaint says, the bank’s board of directors issued a resolution rejecting Heine’s request.

In part, the board’s resolution states that “after due investigation and consideration of the Heine criminal case, the indictment and the records underlying the transactions specified therein, the board cannot conclude that Mr. Heine acted in good faith and in a manner he believed to be in the best interest of the bank.”

Under the Oregon Banking Act, the resolution says, “the bank is not permitted to indemnify an officer nor advance expenses unless the board has determined that the officer acted in good faith. Accordingly, the board has voted unanimously to deny Mr. Heine’s demand for indemnification and advancement of legal expenses.”

YATESHeine, who is living in Florida, told The Review on Thursday that he had been advised by his attorneys not to comment. Stephen Andrews, the bank's current president and CEO, said “the bank as a matter of policy does not comment on pending or existing litigation.”

In the complaint, Heine’s lawyers accuse the bank of stalling.

“This tactic has a certain strategic appeal,” the complaint says. “If successful, it reduces the advanced legal costs by postponing the retention of private counsel, or may avoid them altogether if the bank can stall until Mr. Heine’s trial occurs.”

Heine does not have the funds necessary to pay for his defense, his lawyers say, which prevents him from retaining the counsel of his choice and compromises his ability to mount an effective defense. Because of that, the complaint says, “the importance of the advancement of legal fees to Mr. Heine cannot be overstated.”

“He is facing trial in less than one month. He needs the advanced funds to retain his criminal counsel of choice. If he is convicted of any one of the 27 charges against him, he could be imprisoned for up to 30 years,” the complaint says. “He is 68 years old, which would make such a term of imprisonment a life sentence.

“The stakes could not be higher,” the complaint says.

The complaint asks the court to issue a preliminary injunction requiring the bank to immediately advance defense costs. It also asks the court to advance the trial on its merits and consolidate it with an expedited hearing on the preliminary injunction request.

In the criminal case, Heine and Yates are accused of participating in a complex scheme to hide bad loans from the bank's board of directors, shareholders and regulators from September 2009 through 2014 in an effort to portray the bank’s financial condition as much better than it was.

WALSHThe federal indictment, which was unsealed on June 24, accuses the former Bank of Oswego officers 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 Federal Deposit Insurance Corporation, and concealing information about loans made to bank insiders.

The indictment also alleges that Heine and Yates made false entries in the bank’s reports to the FDIC and to the board of directors about the status of various loans and transactions. Both have pleaded not guilty.

In June, former Bank of Oswego executive Geoff Walsh agreed to a plea deal that could implicate the bank itself in criminal activity.

Walsh, who served as the bank’s senior vice president of lending until he was fired in May 2012, admitted to conspiring with other bank officers in 2011 to falsify quarterly reports in an effort to conceal mortgage losses from the FDIC and avoid risking the regulatory impact of a downgrade in the bank’s credit status.

Walsh is scheduled to be sentenced in his case on Nov. 9.

Contact Gary M. Stein at 503-636-1281 ext. 102 or gstein@lakeoswegoreview.com.