La Jolla Bank Manager Conspired with Senior Bank Officials to Issue Hundreds of Millions of Dollars in Bad Loans
SAN DIEGO - September 25, 2015 - Amalia Martinez, the head of Small Business Administration (“SBA”) lending at the now-defunct La Jolla Bank, pleaded guilty today to conspiracy to misapply bank funds, admitting that she and other senior bank executives accepted cash bribes and kickbacks from borrowers in return for issuing hundreds of millions of dollars in loans to borrowers they knew were unqualified and unlikely to repay. The mismanagement contributed to the bank’s collapse in February 2010, when the Federal Deposit Insurance Corporation (“FDIC”) took over and absorbed its outstanding debt of more than $1 billion. That $1 billion tab was ultimately passed on to the taxpayers.
Beginning in 2004, Martinez and senior bank officers agreed to issue loans under favorable terms to high-volume borrowers they referred to as “Friends of the Bank,” or “FOBs.” They accepted fraudulent loan applications from the FOBs, and overlooked negative information about the borrowers’ creditworthiness. When the FOBs defaulted on their repayment obligations, the bank executives would issue more loans, so that the borrowers could use bank funds to make payments on their existing loans. In this way, the executives covered up the bank’s true poor performance, and allowed the bad loans to inflate their performance measures—which, in turn, increased their compensation from the bank.
Several of the FOBs participated in the conspiracy by making large cash payments in return for loans. In late 2007, one construction borrower handed $100,000 in cash to a senior bank official, who went on to share that money with Martinez and others. Another borrower, who received $75 million in loans, met with the same bank official in Las Vegas in 2008, where he hand-delivered $250,000 in cash. In 2006, a restaurant owner paid $50,000 in cash in return for loans; later, when the borrower struggled to repay his debts, Martinez arranged to issue another $150,000 loan, to be used to make payments on existing debts.
The conspirators also took efforts to cover up the scheme. In 2009, as the bank was failing, regulators began to investigate La Jolla Bank’s poor performance. In order to conceal the mismanagement and self-dealing from the regulators, senior bank officials directed Martinez and other co-conspirators to destroy fraudulent financial statements and “FOB” designations contained within the bank’s files, according to Martinez’s plea agreement.
Martinez admitted that she arranged to lend more than $55 million in SBA-backed loans as part of the conspiracy, and lost nearly $20 million in bank funds when those loans defaulted. The bank’s conventional lending portfolio was much larger, resulting in hundreds of millions of dollars in loans issued as part of the conspiracy.
To date, three other defendants have been charged in this case. SBA borrower Annand Sluman pled guilty and admitted paying cash bribes to Martinez in return for several SBA loans he was issued between 2006 and 2008. By 2008, Sliuman was not qualified to borrow, and he submitted fraudulent documents as part of his loan application that made his businesses appear to be qualified. Sliuman’s assistant, Laura Ortuondo, assisted in creating the fraudulent loan documents. She pled guilty to making false statements to investigators about her involvement in the case; as part of her plea, she also admitted that she destroyed evidence and instructed her then-husband to testify falsely on her behalf to help cover up the crime.
In August 2015, La Jolla Bank loan broker Jocelyn Brown was indicted for paying bribes to Martinez and others, in return for their help arranging loans for Brown’s borrowers. According to the indictment, Brown kicked back a portion of her broker commission to ensure that loans she referred to the bank were approved, regardless of the soundness of the loans and their benefit to the bank. Brown was arrested on August 7, 2015, and her case is pending before United States District Judge Anthony J. Battaglia. No trial date has yet been set.
“By accepting bribes in exchange for lending out the bank’s money, corrupt officials at La Jolla Bank exposed the bank to a substantial risk and, ultimately, ran the bank into the ground. Their greed cost the taxpayers, who had to step in and repay its depositors,” said U.S. Attorney Laura E. Duffy. “Attacking corruption at financial institutions is one important tool we have to protect taxpayers and reduce the likelihood that our country will have to ‘bail out’ another bank.” U.S. Attorney Duffy noted that the investigation of La Jolla Bank continues, and anyone with information is encouraged to call the Federal Bureau of Investigation at 858-320-1800.
“The Treasury Inspector General for Tax Administration is committed to investigating and prosecuting individuals to the fullest extent of the law when they choose to commit acts of bribery,” said Special Agent in Charge Rod Ammari. “Bribery will never be tolerated and TIGTA is committed to rooting out such illegal activity, especially when the millions of dollars that are lost from bribery are passed on to the hard working American taxpayer.”
“The Federal Deposit Insurance Corporation Office of Inspector General is pleased to join our law enforcement colleagues in announcing today’s guilty plea,” said Wade V. Walters, Special Agent in Charge of the FDIC’s Office of Inspector General. “We are proud to have played a role in uncovering a complex conspiracy that contributed to substantial losses to the Deposit Insurance Fund. We are committed to continuing investigative efforts to protect the viability of the fund and ensure integrity in our nation’s banks.”
“Ms. Martinez abused her position of trust to unjustly enrich herself at the expense of American taxpayers,” stated FBI Special Agent in Charge, Eric S. Birnbaum. “The FBI is committed to using our investigative and intelligence capabilities to identify, disrupt and dismantle corrupt business practices within our financial industry.”
“When individuals defraud a bank they are in effect defrauding the community as well,” said Special Agent in Charge Leslie P. DeMarco of the Federal Housing Finance Agency’s Office of Inspector General. “It is particularly egregious when the individuals engaging in the fraud are the very individuals entrusted by the bank to serve the community. These individuals caused great harm to the bank, the community, and ultimately the taxpayers. We are committed to holding all bad actors accountable for their actions.”
Martinez’s guilty plea was taken before U.S. Magistrate Judge Bernard G. Skomal. She is scheduled to be sentenced by Judge Battaglia on November 30, 2015 at 9:00 a.m. On September 12, 2014, Judge Battaglia sentenced Laura Ortuondo to three years’ probation including 12 months of home detention, and ordered her to pay a $3,000 fine. Annand Sliuman is scheduled to be sentenced by Judge Battaglia on December 14, 2015, at 9:00 a.m..
DEFENDANTS AND CHARGES:
- Amalia Martinez, 15CR2471-AJB Age 51 San Diego, CA
- Conspiracy to misapply bank funds, in violation of 18 U.S.C. § 371
- Maximum Penalties: five years’ imprisonment, $250,000 fine or twice the pecuniary loss or gain, three years’ supervised release, $100 special assessment, restitution.
- Jocelyn J. Brown, 15CR2049-AJB Age: 59 San Diego, CA
- Conspiracy to commit bank bribery, in violation of 18 U.S.C. § 371
- Maximum Penalties: five years’ imprisonment, $250,000 fine or twice the pecuniary loss or gain, three years’ supervised release, $100 special assessment, restitution.
- Bank bribery, in violation of 18 U.S.C. § 215
- Maximum Penalties: 30 years’ imprisonment, $1,000,000 fine or three times the value of the thing given, offered, or promised, five years’ supervised release, $100 special assessment, restitution.
- Making a false statement to a federal agent, in violation of 18 U.S.C. § 1001
- Maximum Penalties: five years’ imprisonment, $250,000 fine, $100 special assessment, restitution.
- Annand Sliuman, 13CR3673-AJB Age 34 Spring Valley, CA
- Bank bribery, in violation of 18 U.S.C. § 215
- Maximum Penalties: 30 years’ imprisonment, $1,000,000 fine or three times the value of the thing given, offered, or promised, five years’ supervised release, $100 special assessment, restitution.
- Laura Ortuondo, 13CR3879-AJB Age 34 Cupertino, CA
- Making a false statement to a federal agent, in violation of 18 U.S.C. § 1001
- Maximum Penalties: five years’ imprisonment, $250,000 fine, $100 special assessment, restitution.
AGENCIES
- Federal Bureau of Investigation
- U.S. Small Business Administration – Office of Inspector General
- Treasury Inspector General for Tax Administration
- Federal Deposit Insurance Corporation – Office of Inspector General
- Department of the Treasury – Office of Inspector General
- Federal Housing Finance Agency – Office of Inspector General
*The charges and allegations contained in an indictment or complaint are merely accusations, and the defendants are considered innocent unless and until proven guilty.
U.S. Attorney’s Office
Southern District of California
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