A former manager at a now-defunct La Jolla bank admitted in federal court Friday to accepting cash bribes and kickbacks from borrowers in return for issuing hundreds of millions of dollars in loans to borrowers she knew were unqualified and unlikely to repay.
Amalia Martinez, 51, and other senior executives took part in financial offenses that contributed to the 2010 collapse of La Jolla Bank, according to prosecutors.
The Federal Deposit Insurance Corp. took over the failed institution and absorbed its outstanding debt of more than $1 billion, a tab ultimately passed on to U.S. taxpayers.
Beginning in 2004, Martinez and her fellow senior bank officers agreed to issue loans under favorable terms to high-volume borrowers they referred to as “Friends of the Bank,” or “FOBs,” accepting fraudulent loan applications from them and overlooking negative information about their creditworthiness, court documents state.
When these customers inevitably 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, according to the U.S. Attorney’s Office in San Diego.
The executives thus 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, prosecutors allege. In late 2007, one construction borrower allegedly 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 and hand-delivered $250,000 in cash, court papers state. In 2006, a restaurant owner turned over $50,000 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, authorities said.
Martinez, who was head of Small Business Administration lending for the bank, 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 the loans defaulted.
Martinez will face maximum penalties of five years in prison, three years’ supervised release, a $250,000 fine and restitution at her sentencing, scheduled for Nov. 30.
To date, three other defendants have been charged in this case. Annand Sliuman, an SBA borrower, pleaded 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, according to court documents.
Sliuman’s assistant, Laura Ortuondo, pleaded 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.
Last month, La Jolla Bank loan broker Jocelyn Brown was indicted for allegedly 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 Aug. 7. Her case is pending, with no trial date yet set.
In September 2014, Ortuondo was sentenced to three years’ probation and ordered to pay a $3,000 fine.
Sliuman is scheduled to be sentenced Dec. 14.