Fraud Identification Training Sept-Oct 2022

CASE STUDY 19

The credit was written for 3 years based on a 15-year amortization. Quarterly interest payments are required the first year and quarterly amortization is scheduled beginning in the second year. Information provided indicates that appraisals had been performed on the pledged properties, but final copies have not yet been received. Additionally, while there are no title opinions a handwritten note from President Friendly indicates that the bank is in a second mortgage position and references an unsupported 80% loan-to-value. Financial statements consist of a borrower-prepared balance sheet and income statement, as well as a financial spreadsheet analysis prepared by President Friendly and used in the initial loan presentation. The bank’s spreadsheet analysis reflects that OMC has sufficient cash flow to service the debt; however, you notice that the income levels on the borrower-prepared statement, which is signed by S. Gravel, President, do not match the bank’s spread sheet. You also find a letter to the bank regarding OMC’s loan request but written on BTB letterhead. Now concerned that OMC’s debt may be related to BTB, you begin to compare line sheets with your AM. After comparing financial statements, the only tie-in you find is that both are signed by S. Gravel. However, in reviewing the pledged collateral, it appears that the same properties ‘secure’ both lines. If so, the remaining equity in collateral pledged to OMC’s debt would leave a shortfall of $900M. You also compare loan histories and demand deposit account statements, noting that $1.3 million was transferred from OMC’s deposit account to BTB just a few days after the loan advance to OMC. You recall from reading the Loan Policy that loans over $800M must be Board approved and vaguely remember OMC from your review of the minutes. Another perusal of the Board minutes reveals that many issues were discussed at the meeting. The loan presentation for OMC was made at the end of the meeting and the minutes reflect very little discussion on this loan. The identity of OMC’s principal was not reflected in the minutes. Additionally, attachments to the minutes include President Friendly’s required financial spreadsheet analysis and an indication that pledged collateral is a first mortgage. With these issues in mind, you decide it is time to confront President Friendly. What is your next course of action?

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