Fraud case emerges from bank’s demise
- May 29, 2012
Hampton Roads developer Eric H. Menden is scheduled to be sentenced in July for his role in a $41 million fraud that contributed to the failure of Norfolk-based Bank of the Commonwealth.
In April, Menden, 53, pleaded guilty to charges stemming from the bank fraud and a separate scheme involving historic tax credits. As part of his plea deal, Menden agreed to testify against his business partner, George Hranowskyj, 48, who has been charged in a 14-count indictment in the tax credit scheme.
“Mr. Menden used his relationship with bank insiders to use the bank as his own personal ATM,” Neil H. MacBride, United States attorney for the Eastern District of Virginia, said in a statement. “He raked in millions telling big fat lies to get loans, secure funding from investors and defraud state and federal tax authorities.”
In addition to charges against the two developers, Jeremy C. Churchill of Norfolk, the bank’s former chief commercial loan officer, and Recardo S. Lewis of Norfolk, a former vice president at Tivest Development & Construction in Chesapeake, have pleaded guilty to federal bank fraud charges.
Those charges stem from bank loans of more than $5 million made to Tivest for construction of an office building in Norfolk and an eight-unit condominium project in Virginia Beach.
Bank of the Commonwealth ranked as the 20th largest bank in Virginia with more than $1 billion in deposits in 2010 before it was shut down by bank regulators last September. The Federal Deposit Insurance Corp. estimated its losses at $270 million. The bank was taken over by North Carolina-based Southern Bank and Trust Co.
The bank was one of only two Virginia commercial banks to close last year. The other was Richmond-based Virginia Business Bank.
At the time Bank of the Commonwealth closed, Menden and Hranowskyj, both residents of Chesapeake, owed it about $41 million, federal officials say.
Menden pleaded guilty to conspiracy to commit wire fraud, making false statements and conspiracy to commit bank fraud. He faces a maximum penalty of five years in prison for each count when he is sentenced in federal court on July 23.
Hranowskyj was charged with one count of conspiracy to commit wire fraud, which carries a maximum penalty of 20 years in prison; seven counts of wire fraud, which each carry a maximum penalty of 20 years in prison; and six counts of unlawful monetary transactions, which each carry a maximum penalty of 10 years in prison, if convicted.
In the bank fraud case, a statement of facts filed with Menden’s plea agreement says he and his business partner performed favors for unnamed Bank of the Commonwealth insiders in exchange for preferential treatment in getting loans. The favors included Menden paying more than $6,000 to help upgrade a bank official’s kitchen.
Court documents also say the partners helped insiders cover up the extent of the bank’s nonperforming assets by buying up property owned by the financial institution.
In the historic tax credits fraud, court records say, investors paid Menden and Hranowskyj $8.7 million for illegitimate tax credits. The scheme cost the U.S. Treasury about $6.2 million and the Commonwealth of Virginia about $6.3 million.
The bad loans and tax credits involved two properties owned by the partners, the former Madison Hotel in downtown Norfolk and the Mercer Apartments in the city’s Ghent neighborhood.