Long ago, in another universe, my job of managing failed savings & loan institutions, readying them for sale, evolved into the investigation of potential criminality as it may have pertained to the failure of those banks. Of course, the overriding goal was to recover lost funds for the RTC/FDIC and the taxpayer by whatever means possible which included pursuing culpable officers & directors. In that pursuit, the identification of criminal activity became a significant component of the process. It is probable that breach of criminal statutes was a significant factor in the failure of many savings & loans.
The infamous Whitewater Development investigation was integral to the failure of Arkansas’ Madison Guaranty Savings & Loan. Madison formed a real estate subsidiary, Madison Financial Corporation, that was engaged in real estate development. There was an Arkansas law that restricted investment by the parent bank in a real estate subsidiary to no more than 6% of the bank’s capital. Madison had been fined more than once and warned on numerous occasions that its investment in Madison financial exceeded 6%. Madison ownership & management ignored the warnings as Whitewater Development and others required more and more capital for development and operation. My investigation found that Madison executives circumvented normal & accepted banking procedures in order to invest additional monies in Whitewater by approving and charging off significant Whitewater overdrafts during regular business in monthly board meetings. The overdrafts approached $2,000,000 and were an additional factor in Madison’s failure. The CEO was indicted and went to prison.
The aforesaid account of just one of Madison’s criminal referrals is meant to help illustrate the potential for abuse that exists within the financial industry. Honorable owners, professional management and well-trained state & federal regulators mitigate the chances for wide spread abuse. However, depositors, investors, borrowers have the duty to investigate the financial institutions with which they entrust their wealth and reputations.