© Reuters.
© Reuters.

By Jonathan Stempel

(Reuters) – A federal appeals court on Tuesday overturned the convictions of four former Wilmington Trust Co executives charged with concealing from regulators the amount of troubled loans on the company’s books following the 2008 global financial crisis.

Former President Robert Harra, Chief Financial Officer David Gibson, Controller Kevyn Rakowski and Chief Credit Officer William North had been charged with underreporting the amount of Wilmington’s “past due” commercial real estate loans to the Federal Reserve and the Securities and Exchange Commission.

Prosecutors said the defendants wanted to make Wilmington’s finances look better, enabling it to raise $273.9 million in a February 2010 stock offering, just over a year after accepting $330 million from the federal government’s bank bailout program.

But a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals in Philadelphia agreed with the defendants that the reporting rules were ambiguous, and that prosecutors failed to prove that only their own view of the rules was objectively reasonable.

In voiding the May 2018 convictions, the appeals court ordered acquittals on charges of making false statements and certifications, and returned conspiracy and securities fraud charges to a lower court for a possible new trial.

“Needless to say, I am disappointed,” U.S. Attorney David Weiss in Delaware said, adding that the defendants may be retried.

Wilmington was founded by the du Pont family in 1903. M&T Bank Corp (NYSE:), of Buffalo, New York, bought Wilmington in 2011 after loan losses prompted Wilmington to sell itself at a fire-sale price, 46% below its market value.

Rakowski’s lawyer Henry Klingeman called Tuesday’s decision a “vindication,” saying “it was never the defendants’ fault that the bank struggled.” Harra’s lawyer Lawrence Lustberg, Gibson’s lawyer Kenneth Breen, and North’s lawyer George Hicks were also pleased with the decision.

Wilmington was indicted in 2016 over the loans, becoming the first recipient of federal bailout money under the Troubled Asset Relief Program to be charged. It reached a $60 million settlement in 2017.

The case is U.S. v. Harra et al, 3rd U.S. Circuit Court of Appeals, No. 19-1136.

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