A federal grand jury has indicted two former top executives of the Bank of Oswego charging them with orchestrating a sweeping, five-year conspiracy to conceal the bank’s shaky financial condition from bank regulators.
The 27-count indictments allege Dan Heine, former bank president and chief executive officer, and Diana Yates, the bank’s former chief financial officer, authorized a series of complex, secret deals in an effort to bamboozle their own board of directors and the Federal Deposit Insurance Corp. into believing the bad loans lurking in its portfolio didn’t exist.
Both were charged with one count of conspiracy to commit bank fraud and 26 counts of making false bank entries. It’s a federal crime for bank officers to mislead federal bank regulators.
Federal authorities took the unusual step of arresting the 68-year-old Heine and the 53-year-old Yates Friday and holding them in custody until their afternoon arraignments. Both pleaded not guilty and released Friday afternoon.
Heine was arraigned in Florida, where he now lives.
Heine will be tried in Oregon. He is required to appear in U.S. District Court in Oregon next week.
The indictments come six weeks after The Oregonian/OregonLive published an in-depth article about questionable operations at the bank and its dubious claims that its loan portfolio was virtually without blemish even as the economy crashed and Oregon slid into a deep recession.
While even healthy banks reported significant increases in problem loans during the recession, Bank of Oswego continued to report a delinquent loan rate of a fraction of one percent.
Heine has vehemently denied any wrongdoing. Heine had insisted that any wrongdoing was committed by former Bank of Oswego loan officer Geoff Walsh, who he labeled a rogue employee.
Heine fired Walsh in 2013 and later the bank sued him. Walsh too was indicted on fraud charges in connection with financial deals outside the bank.
There are some people “who would like to characterize the bank or the board as being the villains,” Heine told The Oregonian/OregonLive this spring. “We’re the victims.”
Heine penned an op-ed in the Lake Oswego Review in the days after The Oregonian/OregonLive story defending his honesty and integrity.
Yates declined comment Friday as did her Janet Hoffman, refused to talk about the case.
Heine came to Lake Oswego to head up the brand new Bank of Oswego in 2004. He and the board envisioned a bank that catered to the affluent of Lake Oswego.
The bank started small and stayed that way for years until the hiring of Walsh, who brought with him a cadre of high-level connections. Walsh brought Portland developer Marty Kehoe, Chris Dudley, former NBA player and Oregon gubernatorial candidate, and many other new customers into the fold.
But the government has been scrutinizing the bank since 2013, the year it indicted Walsh. The indictment unsealed Friday alleges bank management had for years been going to extraordinary lengths to make bad loans appear to be solid.
Lead prosecutors Clair Fay and Michelle Kerin allege the conspiracy took many forms:
- The bank made loans to a middleman, who then steered proceeds of his loan to other struggling bank borrowers to use for payments to keep their loans current.
- A bank employee served as a straw man in a phony real estate transaction.
- The bank made loans and withdrawals to and from customers’ accounts without their knowledge or approval.
In 2010, for example, the bank loaned $1.7 million to Portland real estate developer Marty Kehoe. The indictment identifies Kehoe by his initials MK.
Heine and Yates brought the loan to the bank’s internal loan committee and failed to disclose that the bank had already loaned Kehoe $675,000, according to the indictment.
More than $33,000 of the Kehoe loan proceeds were diverted to make loan payments on behalf of other bank customers who otherwise couldn’t pay, prosecutors claim.
Kehoe, who’s not been charged with any wrongdoing, told The Oregonian/OregonLive that he handed over much of the $1.7 million to Walsh to manage. He and Walsh were close friends, Kehoe said.
The surreptitious payments kept the loans current and saved the bank from having to report $1.3 million in delinquent loans, prosecutors allege.
Also in 2010, there was the curious case of Lisa Brock, a Lake Oswego entrepreneur struggling to stay afloat in the recession. Brock had purchased a home on Lake Oswego’s busy A Street near the height of the market. She then took out a second mortgage from the Bank of Oswego for $325,000.
Brock couldn’t make the payments as the recession battered her own business. In September, she signed a deed in lieu of foreclosure, essentially handing the house back to CitiMortgage Inc.
It was a sad, scary time for Brock. She told The Oregonian/OregonLive that Heine bullied and threatened her in meetings. And then after giving up her house, Brock said she heard rumors that the bank had put together some kind of insider deal to take her house.
The rumors happened to be true, according to the indictment.
The CitiMortgage repossession presented the Bank of Oswego with a big problem — their second mortgage loan for $325,000 was barely worth the paper it was printed on. But rather than write off the loan as uncollectible, the bank allegedly had one of its own employees buy the house out of foreclosure with $267,000 — funds that were provided by the bank, prosecutors claim.
Yates allegedly wrote in transactional documents that the buyer — the straw man the bank had pushed into the deal — had come up with the $267,000 himself. After closing the purchase, the employee signed over the property to the bank.
Finally in 2011, the indictment alleges, the bank loaned $355,000 to a third party to buy the home from the bank.
Prosecutors allege the bank made multiple misrepresentations along the way, including misleading its own board of directors about the deal.
Brock was shocked at the news of Heine’s indictment. He’d taken an active role in her predicament, she said, by turns cajoling her and threatening her to find the money to repay her loan.
“It got very ugly,” Brock said. “He really came off as a thug. He was the nice man with silver hair, who didn’t have a real silver lining.”
