Bank executives rarely go to jail. Very few bankers have faced prison time related to actions leading up to the economic crisis in 2008. Yet, bank executives, as well as officers, directors, and other individuals involved in the financial services industry are not immune from prosecution. On May 25, 2016, the U.S. Attorney's Office for the District of Minnesota announced the sentencing of Timothy Owens, the former CEO and Chairman of Voyager Bank, to 18 months in prison and two years' supervised release for obstructing an examination by the Board of Governors of the Federal Reserve (the "FRB").
The case resulted from an investigation conducted by the Offices of Inspectors General of the FRB, CFPB, FDIC, FHFA, and the FBI. In a 2009 exam, the FRB focused on loans made to bank insiders, including Owens. During the exam, the FRB found that the bank had issued four direct loans to Owens for more than $5.4 million, and had purchased participation in a letter of credit worth $7.5 million obtained by Owens from another bank. Owens hid an FRB demand letter from the bank's board of directors and prepared false and misleading documentation in response to the FRB.
The FRB had demanded that the bank's board of directors review Owens' loans and submit documentation showing that the loans had been reviewed by the board in accordance with bank policies. According to his plea, Owens received the letter from the FRB, but failed to disclose it to the board. He then secretly prepared a response that was found to be false and misleading because it stated that the board had reviewed the loans, that there were fewer loans than he actually had, that he only had access to a $3.6 million family trust, and that the board approved the loans pursuant to bank policy. Owens also pled guilty to submitting a false and misleading bank policy statement that had not been approved by the board. Finally, Owens submitted documents that inaccurately described his financial circumstances and ability to repay his loans.
This prosecution is a reminder that financial institutions should always respond truthfully to regulators. It also flags the increased focus on individuals by regulators and law enforcement, coming on the heels of the Office of the Comptroller of the Currency's guidance on individual responsibility and anti-money laundering issues. For its part, the CFPB has continued to pursue individuals in its enforcement actions.