Eric Menden, a 53-year-old developer in downtown Norfolk, pleaded guilty Friday to a $41 million bank fraud and tax credit scheme that authorities say contributed to the failure of Bank of the Commonwealth.
Menden is the longtime business partner of George Hranowskyj, who was arrested and charged Thursday with a six-year historic tax credit fraud scheme valued at about $11 million.
Menden and Hranowskyj owned several of Norfolk’s marquee historic buildings, including the Wainwright building pictured above.
The U.S. Attorney’s office filed the charges in conjunction with the FBI, the IRS and the FDIC.
Menden pled guilty to conspiracy to commit wire fraud, making false statements and conspiracy to commit bank fraud. As part of his plea, he will testify against former accomplices. He faces a maximum penalty of five years in prison for each count. He’ll be sentenced July 23.
Hranowskyj has not entered a plea and remains in jail in Norfolk pending a bond hearing Tuesday.
The case against Menden is larger and more complex than the one against Hranowskyj.
Details released by the U.S. Attorney’s office today claim that Menden and his partner were in cahoots with unnamed “bank conspirators” to fund their historic renovation projects and to conceal the true levels of the Bank of the Commonwealth’s nonperforming assets.
“Mr. Menden used his relationship with bank insiders to use the bank as his own personal ATM,” said Neil MacBride, the U.S. Attorney for the Eastern District of Virginia, in a prepared statement.
“He raked in millions telling big fat lies to get loans, secure funding from investors, and defraud state and federal tax authorities. Over the last few years, many people in this country have begun to understandably question our financial institutions. Unfortunately, this case indicates that those concerns are sometimes well founded.”
Bank of the Commonwealth was seized and shuttered last fall by federal regulators after three years of massive losses on millions in soured loans.
At the time the bank failed on Sept. 23, 2011, Menden and his business partner owed the bank approximately $41 million.
Menden, according to the case, admitted that he and Hranowskyj “performed favors for insiders at the Bank of the Commonwealth in exchange for preferential lending treatment.”
The two also helped the bank cover its rising levels of bad loans by purchasing foreclosed property from the bank using money allegedly fronted by the bank.
Menden also pled guilty to a separate six-year historic tax credit fraud valued at about $12 million.
Menden admitted that he and his partner inflated the costs of historic rehab projects in order to receive more cash from the bank from construction draws.
A bank conspirator approved the draws without inspection, the case against Menden alleges.
The Bank of the Commonwealth applied in 2008 for $28 million in funds from the Troubled Asset Relief Program.
The application was denied, and the bank was forced into a written agreement with regulators in 2010 because of its deteriorating condition. That agreement prevented the bank from loaning money to troubled borrowers, which included Menden and Hranowskyj.
However, the bank allegedly continued to sell or try to sell foreclosed property to Menden through a third-party borrower, according to the case.
Norfolk banker Ed Woodard was the longtime head of Bank of the Commonwealth until he quit in December.
Neither of the cases against Menden or Hranowskyj specifically names any Bank of the Commonwealth employees.
After its failure, the bank’s assets were sold to North Carolina-based Southern Bank.