Former Bank of Clark County executive David Kennelly on Friday was sentenced to four months in prison for hiding loan appraisals from Federal Deposit Insurance Corp. examiners in the months before the bank’s failure.
The sentence, issued by U.S. District Court Judge Robert J. Bryan in Tacoma also included three years of supervised release and a $5,000 fine for the Vancouver resident.
“It is appropriate that there be a sentence that allows others to look and say, ‘This is serious’ … and encourages other bankers to be honest with the FDIC,” Bryan said in a statement.
Kennelly, 49, pleaded guilty in February to a “scheme to conceal material facts,” a felony charge that carried a maximum potential sentence of five years in prison and a fine of $250,000. He admitted to hiding appraisals in November 2008 on 17 properties that had lost significant value and represented a large loan loss to the bank.
As a result, FDIC inspectors told the bank to set aside $3.5 million in loan-loss reserves, instead of the $16.7 million the regulators would have required with the correct information. The bank’s rating was subsequently downgraded, and regulators seized the bank about two months later, on Jan. 16, 2009.
To send a message to other bankers and punish Kennelly for his actions, federal prosecutors sought a sentence of six months in prison, three years of supervised release and a $10,000 fine, according to court documents filed earlier this week. They argued that Kennelly, chief lending officer for the bank, “abused his position of considerable authority at the bank” with his “premeditated” scheme to conceal real estate appraisals, according to the documents.
In Kennelly’s defense, his attorney Marc Sellers argued that Kennelly was guilty for hiding documents but wasn’t responsible for the bank’s financial failure. He requested a sentence of probation only, or a term of home confinement.
“I felt (six months) was unduly harsh and the judge agreed,” Sellers said. “David Kennelly is not an icon for the banking industry. It (the bank failure) was a circumstance brought on by the declining value of real estate.”
Sellers also argued that Kennelly’s actions weren’t intended for personal gain, but instead were meant to preserve the bank for other employees, shareholders and depositors.
Kennelly, however, stood to lose about $250,000 per year in salary and bonuses if examiners found the bank to be undercapitalized, according to prosecutors. He therefore acted out of self-interest, they argued.
In the end, the judge settled on a lesser sentence than what the prosecutors requested.
“I’m disappointed Mr. Kennelly will be incarcerated, but I understand the court’s reasoning,” Sellers said. “The judge was concerned with deterrence — in other words, sending a message to the banking industry.”