Lending Servicing

Former TierOne Bank CEO gets 11 years in federal prison

Charged with fraudulently concealing loan and real estate losses

government

Former TierOne Bank chief executive officer Gilbert Lundstrom was sentenced Wednesday to 132 days in federal prison for orchestrating a scheme to defraud TierOne’s shareholders and to mislead regulators by concealing more than $100 million in losses on loans and declining real estate values, according to the U.S. Department of Justice.

U.S. District Judge John Gerrard of the District of Nebraska, ordered 74-year-old Lundstrom to also pay a $1.2 million fine. In Nov. 6, 2015, Lundstrom was convicted of 12 of 13 counts including conspiracy, securities fraud and wire fraud.

“Lundstrom is now another bank CEO investigated by SIGTARP to be sentenced to prison,” said Special Inspector General Romero. 

“He was the architect of the bank’s aggressive and risky growth plan that backfired when the housing bubble burst. Instead of honestly communicating TierOne’s losses, this bank CEO took intricate steps to conceal the bank’s true financial picture and dig the bank into an even deeper financial hole,” added Romero.

“Lundstrom applied for $86 million in TARP funds on behalf of the bank. This was a critically important conviction and we commend the commitment by the DOJ Criminal Division and the FBI in holding bankers who commit crimes accountable,” concluded Romero.

According to the evidence presented at trial, Lundstrom designed an aggressive strategy to expand TierOne’s portfolio beyond traditional lending in Nebraska to riskier areas, including commercial real estate in Las Vegas, which decimated the bank once the financial crisis hit.

Trial evidence showed that Lundstrom and his co-conspirators then intentionally concealed more than $100 million in losses in TierOne’s loan and real estate portfolio from investors and regulators and provided inflated figures in its required reports to the U.S. Securities and Exchange Commission (SEC) and the Office of Thrift Supervision. 

“Today’s sentence shows the Justice Department’s commitment to prosecuting individuals who abuse their corporate positions to commit fraud,” said Assistant Attorney General Caldwell. 

“Gilbert Lundstrom and his co-defendants’ crimes not only contributed to the collapse of a major regional bank during the financial crisis, but also destroyed the jobs of hundreds of bank employees and led to massive losses for the bank’s shareholders.  The defendants recklessly gambled with bank assets and lied to shareholders and government regulators, and through their actions drove a respected regional bank into the ground.  They have now been held accountable for their crimes,” added Caldwell.

In April 2009, Lundstrom and his co-conspirators learned that TierOne needed to increase its reserves and “loan loss allowance” by between $34 million and $114 million, but concealed this information from shareholders and regulators in TierOne’s financial statements, the evidence showed.  In addition, trial evidence demonstrated that during TierOne’s annual shareholder meeting held on May 21, 2009, Lundstrom misrepresented the state of TierOne’s capital ratios and reserves and whether TierOne had applied for TARP funding.

In 2010 the Federal Deposit Insurance Corp. shut down the bank after it disclosed $120 million in loan losses and its subsequent delisting from the NASDAQ exchange. At the time of the closure, TierOne had more than 750 employees working at its headquarters in Lincoln and its 69 branch offices located in Nebraska, Iowa and Kansas.

Great Western Bank took control of its assets and the FDIC estimated the cost to the insurance fund to reach nearly $300 million.

The Department of Justice also states that in 2014, co-conspirators James Laphen, 67, of Omaha, TierOne’s former president and chief operating officer, and Don Langford, 65, of College Station, Texas, TierOne’s former chief credit officer, pleaded guilty to multiple felonies in connection with their participation in the scheme.  Laphen and Langford are scheduled to be sentenced Thursday by Judge Gerrard.

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