The Money Issue - Banking: Fraud
Was Jerry Williams too eager to save his bank -- or himself?
Williams remained confident. In late 2007, he told Florida Trend he would add six branches to the bank's 21 in 2008. "There's still some rough weather ahead," he said of the economic outlook. He urged borrowers to come early to lenders with their troubles. "The sooner they communicate with their bank and their bankers, the easier it will be. A lot of the people look like deer in the headlights now. They don't know what to do," Williams said.
He could have been referring to himself. Belatedly, Williams saw the danger and then took what his lawyers would argue were measures not to enrich himself but to save Orion from the recession. The record detailed by the government suggests a more selfish motive.
Williams' finances were as precarious as Orion's. As the recession loomed, all but $858,000 of his $127 million net worth was in Orion stock. He was $15 million in debt and had $750,000 in annual debt service. He kept up thanks to a $575,000 salary and $300,000 to $400,000 in quarterly dividends. As the bank's outlook worsened and its need for cash grew, Williams used its dwindling cash to pay a large dividend to its 800 shareholders, with himself the largest shareholder of all.
When regulators put a halt to dividends, Williams looked elsewhere for cash. In April 2008, he had the company employee stock option 401(k) plan borrow money to buy $1 million of his shares. He used much of the proceeds to pay his taxes and the rest to buy a boat and bulk up his account at Bank of America. At roughly the same time, the 401(k) plan was withholding cash from other employees. The bank told them the plan was short of cash.
By 2009, Williams' net worth was down to $78 million, all but $65,000 of it in bank stock. In June 2009, three friends, including former Miami Dolphins head coach Dave Wannstedt, bought $765,600 in Orion shares. In his sales pitch, Williams spoke of an elderly investor with health issues who needed to cash out. In fact, Williams sold them his own shares. At roughly the same time, he hit on the illegal idea of raising capital for the bank by lending bank money to borrowers and convincing them to invest it in the bank. He duped one developer into believing it was legal; the bank boosted a loan to the developer by $7 million so that he could invest $10 million in the bank.
That same month, Williams executed his most complex and egregious maneuver. In essence, Williams ran roughshod over lending policies to hide bad loans, make the bank appear to have new capital and fool regulators into thinking it was sound. The vehicle was a borrower Williams recruited — Francesco Mileto, a self-described heir to an Italian fortune, to whom Orion would lend money.
Before the deal closed, it became apparent to Williams and other bank officers that Mileto was a fraud. A lawyer in Italy that the bank hired to check on Mileto tried to warn Orion. But in June 2009 Williams pushed through an $82-million loan to Mileto — through companies serving as fronts for Mileto — with the understanding that Mileto would invest $15 million in Orion to recapitalize it. Between that $15 million and the $10 million from the duped developer, Williams was able to email regulators on July 2, 2009, "We raised the $25 million from private individuals and without any financing."
In fact, "he was lending money to buy capital, which is totally illegal," says Miami banking analyst Ken Thomas.
Efforts to obtain comment from Williams weren't successful. But his lawyers later would say that the illegality was an anomaly in an otherwise exemplary career. "When Orion Bank was faltering amidst unprecedented economic conditions, Jerry Williams did everything he could to try to save it," they wrote.
Once regulators discovered the fraud later in 2009, they ordered Williams out of his job. The bank failed in days, costing the FDIC $884 million. Williams' lawyers said the Mileto deal didn't cause the failure and emphasized that Williams didn't get a penny from the transaction.
Mileto drew a 5½-year sentence, and two other bank executives received two-year and 2½-year sentences. Williams eventually pleaded guilty to conspiracy to commit fraud and making false statements to regulators.
"The failure of Orion Bank was more than just a calamity caused by an economic downturn. It was fraud at the highest level of bank management," a federal prosecutor, Nicole H. Waid, wrote a judge. "He ignored regulators' warnings, fought examiners at every turn, refused to listen to employees and turned to criminal activity when he finally acknowledged the seriousness of Orion's deteriorating financial condition." Said Waid in an interview, "Mr. Williams was trying to help himself rather than the bank." She says the government hopes the case will deter others by showing "the government is not going to ignore lying to regulators."