Eric Menden, of Chesapeake, Va., pleaded guilty to engaging in a $41 million bank fraud scheme to buy bank-owned property that ultimately contributed to the failure of the Bank of the Commonwealth.
The 53-year-old Menden conspired to commit wire fraud, bank fraud and made false statements, according to the Office of the Special Inspector General for the Troubled Asset Relief Program.
The bank, shortly before its failure, applied for $28 million in TARP funds, said Christy Romero, special inspector general at SIGTARP. That application was later withdrawn, at the request of the Federal Reserve.
Menden also pleaded guilty to a separate fraud involving a tax credit scheme that cost state and federal governments more than $12 million and investors more than $8 million.
From January 2008 through August 2011, Menden, described as a Virginia developer, admitted that he and business partner George Hranowskyj performed favors for insiders at the Norfolk, Va.-based Bank of the Commonwealth in exchange for preferential lending treatment, according to the statement of facts filed with his plea agreement.
They assisted bank insiders in concealing the extent of the bank's nonperforming assets by purchasing the bank's real estate owned property in a bid-rigging scheme at foreclosure auctions. Bank insiders advanced loan proceeds to the two men to facilitate the real estate owned purchases — loans the bank later wrote off at significant losses.
In one instance, the bank funded more than $900,000 to purchase a property at auction that the bank later determined had no useful life, and the bank charged off more than $500,000 of the loan as a loss.
"Mr. Menden used his relationship with bank insiders to use the bank as his own personal ATM. He raked in millions telling big fat lies to get loans, secure funding from investors, and defraud state and federal tax authorities,” said U.S. Attorney Neil MacBride.
In the tax credit scheme, corporate investors paid the two men about $8.7 million for illegitimate tax credits.
The 47-year-old Hranowskyj, also of Chesapeake, Va., was charged a couple days earlier in a 14-count indictment involving the alleged tax credit fraud scheme.
At the time the bank failed on Sept. 23, Menden and Hranowskyj owed the bank $41 million.
Menden faces a maximum penalty of five years in prison for each count. He is scheduled to be sentenced on July 23.