SONOMA (CBS SF) — A North Bay real estate developer, a lawyer and two former bank executives have been indicted in federal court in San Francisco and arrested on charges of loan fraud in a case involving the now-failed Sonoma Valley Bank.
U.S. Attorney Melinda Haag said the four men were arrested in Marin and Sonoma counties on Wednesday, made initial appearances before a federal magistrate in San Francisco that day, and were each freed on a $250,000 bond.
The defendants are real estate developer Bijan Madjlessi, 58, of Mill Valley; attorney David Lonich, 59, of Santa Rosa, who worked for Madjlessi; former Sonoma Valley Bank President Sean Cutting, 44, of Sonoma; and former Chief Loan Officer Brian Melland, 45, of Santa Rosa.
They are due to return to federal court in San Francisco on April 18 for a state conference before U.S. District Judge Susan Illston, the trial judge assigned to the case.
The four men were named in an indictment that was issued under seal by a federal grand jury on March 18 and unsealed after their arrests.
The indictment alleges that after Madjlessi defaulted on a $30 million loan made by another bank for project known as Park Lane Villas East in Santa Rosa, he and Lonich obtained another loan from Sonoma Valley Bank in a false name to purchase his defaulted loan.
The new loan from SVB amounted to $9.5 million, including $4 million to buy back the defaulted loan and $4.5 million for a construction company owned by Madjlessi, according to the indictment.
The indictment alleges that Cutting and Melland knew the true identity of the borrowers and that the loan would likely exceed the bank’s lending limits for Madjlessi, but nevertheless recommended that the bank’s loan committee approve the transaction.
The loan enabled Madjlessi and Lonich to regain title to Park Lane Villas East, according to the indictment.
The bank failed in 2010 and was placed in receivership under the Federal Deposit Insurance Corp., which transferred it to Westamerica Bank. In December 2010, the FDIC issued an order barring Cutting and Melland from working in the banking industry on the ground that they had engaged in “reckless unsafe or unsound banking practices.”
All four defendants are charged with 22 counts, including one count of conspiracy to commit wire and bank fraud, one count of bank fraud, six counts of wire fraud, one count of conspiring to make false statements to a bank, one count of conspiring to launder money and 12 counts of money laundering.
Cutting, Lonich and Madjlessi are also accused of five counts causing false bank entries in connection with letters Cutting wrote on bank letterhead that allegedly falsely stated that supposed buyers had sufficient funds to buy units at Park Lane Villas East.
The purported buyers were in fact so-called “straw names” used by Madjlessi and Lonich to gain control of more units at the project, the indictment alleges.
Cutting and Melland are also charged with conspiring to misapply bank funds, and Madjlessi and Lonich are additionally accused of obstruction of justice.
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