The office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announced that four men—Sean Cutting, Brian Melland, Bijan Madjlessi, David Lonich—have been indicted on federal charges of conspiracy, bank fraud, wire fraud, money laundering, false statements to a bank, false bank entries, and obstruction of justice.
Cutting was the former president and CEO of TARP-recipient Sonoma Valley Bank. Melland served as a SVP and chief lending officer at the bank. Madjlessi is a real estate developer, and Lonich an attorney for Madjlessi.
According to an indictment by a federal jury, Madjlessi is alleged to have defaulted on a loan of more than $30 million relating to a real estate project known as Park Lane Villas East in Santa Rosa, California. Working with the other three, Madjlessi allegedly obtained a loan from Sonoma Valley Bank to purchase his own defaulted loan on the premise that the nominee was the actual borrower, when in fact Madjlessi and Lonich were the real borrowers.
"According to the Indictment, Cutting and Melland failed to disclose their knowledge of the true identities of the borrowers to Sonoma Valley Bank and took steps to authorize the loan. Madjlessi's nominee successfully obtained the loan from Sonoma Valley Bank and purchased the defaulted loan from a Federal Deposit Insurance Corporation contractor," SIGTARP said.
Madjlessi and Lonich then settled litigation related to the property, obtaining the title to Park Lane Villas East. The two obtained refinancing on the property through Freddie Mac, but not before Sonoma Valley Bank failed in August 2010. The bank had received more than $8.65 million from TARP.
"The two TARP bank executives, Cutting and Melland, are alleged to have skirted the bank's internal controls and defrauded Sonoma Valley Bank by authorizing the bank to lend $9.5 million to a straw purchaser so that the funds could be used by real estate developer Madjlessi to repurchase part of the same condominium project for which Madjlessi had already defaulted on a construction loan," said Christy Romero, Special Inspector General for TARP.
She continued, "In order to help Madjlessi regain control of residential units in the project that had already been sold and to obtain financing from Freddie Mac, TARP bank CEO Cutting is alleged to have produced letters, on Sonoma Valley Bank letterhead, falsely stating that straw buyers had sufficient funds at the bank to purchase the units."
All four defendants were arrested on April 9 and released on a $250,000 bond. The next scheduled hearing is on April 18, 2014.