A decade after Great Recession, bankers face fraud indictment

Federal prosecutors in Seattle have again brought fraud allegations against former employees of Pierce Commercial Bank, a Tacoma-based mortgage lender that issued and resold hundreds of bad loans during the "lending spree" that ended in the Great Recession. 

Federal prosecutors in Seattle have again brought fraud allegations...

Not surprisingly, 2010 was a very bad year for Pierce Commercial Bank.

It wasn’t a good year for most who made a fortune in the ill-considered mortgage blitz that prompted the Great Recession.

Pierce Commercial Bank’s failure that fall was something of a footnote, coming two years after Washington Mutual epically collapsed in September 2008. Both banks broke under the same weight – risky loans made to precariously situated homebuyers and sold to third parties eager to invest in a booming real estate market.

Washington Mutual’s bankruptcy was one for the record books. It had been the nation’s largest savings and loan; its bankruptcy was the largest bank failure in U.S. history.

Compared to the WaMu whale, Pierce Commercial Bank was a little fish. There proved to be another big difference between the two banks’ failures – PC Bank’s leaders and employees were prosecuted for fraud.

A year after Tacoma-based PC Bank went broke, federal prosecutors began bringing indictments against its workers. Now, nine years after the fraud is alleged to have ended at the defunct bank, prosecutors in Seattle are at it again.

Among the five ex-PC Bank workers recently charged are Sam Tuttle and Craig Meyer, both former loan officers and vice presidents with the bank’s mortgage business. They, like the bank’s now-notorious frontman Shawn Portmann, profited directly from every loan closed by the bank’s mortgage lending business, PC Bank Home Loans.

Meyer, 54, has pleaded guilty to making false statements on mortgage applications and is slated to be sentenced in April. Tuttle has yet to make an initial plea.

As a dozen or so of their former coworkers had been before, Tuttle, Meyer and the rest are accused of doctoring mortgage applications to extend loans to unqualified buyers. Prosecutors claim they did so for money – though small compared to WaMu, PC Bank Home Loans originated more than 5,000 mortgages worth $1 billion inside of four years.

U.S. Attorney’s Office spokeswoman Emily Langlie said the indictment arrived now because the investigation was paperwork-intensive. A 10-year statute of limitations generally governs fraud charges, but that restriction can be overcome during long-running investigations.

Prior to the recent indictment, the highest-profile target of the FBI-Internal Revenue Service investigation into PC Bank had been Portmann, who led the bank’s mortgage lending operation.

Portmann was one of the most productive loan officers in the country before being fired in 2008. His loans accounted for about half the loans issued by the bank during that time.

For his trouble, Portmann was paid about $1.7 million a year. He is currently housed at a federal prison in Oregon, with a November 2021 release date.

He wasn’t the only PC Bank worker to fall. Just the richest.

Several women earning mid-five-figure salaries at the bank were also convicted in the same fraud. Prosecutions have steadily flowed since Portmann’s indictment in August 2011.

The same day Portmann was indicted, then-U.S. Attorney for Western Washington Jenny Durkan announced there would be no criminal charges against Washington Mutual’s leaders. The announcement came months after Federal Deposit Insurance Corporation investigators leveled claims of negligence and fraud at WaMu brass.

Sentencing Portmann in 2013, U.S. District Judge Benjamin Settle imposed the shortest sentence available to him – 10 years.

Settle noted most of those who sustained the rush of bad loans that brought down world economy – from banking leaders to government regulators to homebuyers who lied on their mortgage applications – had not been held to account. Many involved were willing to adjust their values and ethics to make money and gain power.

“This problem,” Settle continued, “was systematic over the past decade in the U.S. banking industry.”

PC Bank issued mortgages but rarely held onto the loans for long. Instead, in a story that became painfully familiar to many Americans after the 2007 collapse, the loans were bundled and resold to other banks.

Banks and other investors that bought PC Bank Home Loans mortgages relied on the bank to vet the customers to whom it loaned money. Portmann and others doctored loan applications so mortgages would be extended to unqualified buyers.

Unemployed borrowers claimed to work at one of Portmann’s companies, while underpaid borrowers saw their salaries balloon. Cashier’s checks written to creditors – but never delivered – cleared up disqualifying debts. Investment properties became primary residences – banks believe people will work harder to make payments on their home than a failing rental property or vacation property.

Hundreds of loans issued by PC Bank Home Loans contained fraudulent information. Loan processors handled the “fixed” loan applications, while Portmann’s stamp of approval as an underwriter cleared the loans for secondary sale. At least a dozen people have been convicted of crimes related to the fraud.

While the fraud was ongoing, state and federal regulators conducted four reviews of the bank’s practices. At no point was the fraud detected, and Pierce Commercial Bank continued to receive high marks until its collapse.

Regulators shuttered Pierce Commercial Bank on Nov. 5, 2010. The collapse cost the federal deposit insurance fund $25 million. Pierce Commercial Bank’s failure also cost taxpayers at least $6.8 million in funds loaned to Pierce Commercial Bank through the Troubled Asset Relief Program.

An inspector general’s report to the Board of Governors of the Federal Reserve System found management at Pierce Commercial Bank failed to watch its mortgage lending arm.

“The Board of Directors and senior management allowed the mortgage banking division – PC Bank – to operate independently without appropriate oversight and failed to conduct adequate strategic planning or implement robust internal controls,” Assistant Inspector General Anthony Castaldo said in the report.

Now, Tuttle, Meyer and their codefendants – loan officer Ben Leske, loan processor Angela Crozier and loan officer Ed Rounds – are accused of the same crimes that sent their former coworkers to jail and prison.

In an indictment issued last Thursday, federal prosecutors reiterated fraud claims related to PC Bank Home Loans. Tuttle and the rest are alleged to have helped in the fraud between July 2004 and July 2008, when Portmann was forced out of the bank.

Tuttle and Meyer are described by prosecutors as having been deeply involved in the mortgage loan business with Portmann. The three split 70 percent of the profits generated by PC Bank Home Loans, meaning they individually profited from every loan closed by the mortgage lender.

Prosecutors claim the men and other leaders at the bank directed the lower-level workers in the fraud, demanding that they puff up loan applications so they could be approved.

“WE NEED TO CLOSE EVERYTHING WE PLANNED ON CLOSING!” one manager wrote in an email to workers. Employees, the email continued, should “NOT LET ANY CHALLENGES GET IN YOUR WAY; BRING ALL ISSUES TO ME FOR REVIEW BEFORE LETTING A DEAL GO.”

Leske’s attorney, Peter Offenbecher, declined to comment in detail on the allegations.

“We are studying the Indictment and will be responding in court at the appropriate time,” said Offenbecher, an attorney with the Seattle firm Skellenger Bender.

None of the most recently indicted defendants is currently jailed.

Seattlepi.com reporter Levi Pulkkinen can be reached at 206-448-8348 or levipulkkinen@seattlepi.com. Follow Levi on Twitter at twitter.com/levipulk.