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Bank fraudster pleads guilty

By Marcie Geffner · Bankrate.com
Friday, April 27, 2012
Posted: 10 am ET

Eric H. Menden, a 53-year-old real estate developer in Chesapeake, Va., has pleaded guilty to a $41 million bank fraud that law enforcement officials said contributed to the failure of Bank of the Commonwealth in Norfolk, Va.

Menden pleaded guilty April 20 to conspiracy to commit wire fraud, making false statements and conspiracy to commit bank fraud. Scheduled to be sentenced July 23, he faces a maximum penalty of five years in prison for each count, according to a law enforcement statement.

The ongoing investigation is being conducted by The Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, the Federal Bureau of Investigation, the Internal Revenue Service and other agencies.

SIGTARP Special Inspector General Christy Romero said in the statement Menden's scheme helped bank insiders fraudulently conceal the extent of the bank's nonperforming assets.

How the scheme allegedly operated: A bank insider asked Menden and his business partner to bid on bank-owned properties being sold at a foreclosure auction up to a specific price so the bank could pay off the underlying loans for the properties. The insiders then advanced loan proceeds to the two men to facilitate the purchases. Later, the bank wrote off those loans at significant losses.

In one instance, the bank funded more than $900,000 so Menden and his partner could purchase property at auction. Later, an appraiser found the building had no useful life. More than $500,000 of the loan was charged off.

Menden also said he and his partner purchased properties owned by a bank insider through loans facilitated by other insiders. In those instances, the owner was either no longer liable for large loans or made a profit on the sale. The bank had to charge off those loans as well.

The bank, which had 21 branches, failed in September 2011. Its deposits of $902 million were assumed by Southern Bank and Trust Co. in Mount Olive, N.C.

At the time, Menden and his business partner owed the bank approximately $41 million.

Neil H. MacBride, U.S. attorney for the eastern district of Virginia, said in the statement that Menden had used 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," MacBride said. "Over the last few years, many people have begun to question our financial institutions. This case indicates those concerns are sometimes well-founded."

Follow me on Twitter: @marciegeff.

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