A federal grand jury is sifting through the collapse of Sonoma Valley Bank and its use of taxpayer bailout money, part of a criminal probe examining loans the bank made to one of its largest borrowers.
The bank, which imploded 11 months ago amid overwhelming loan losses, was only the fifth bank in the nation to fail after receiving an infusion of money through the federal bank bailout program.
A government agency created by Congress to examine misuse of bailout money has interviewed at least a half-dozen former bank employees. Most of the questions have focused on Marin County developer Bijan Madjlessi and his relationship with the bank and its senior management, said a former bank employee, who spoke on condition of anonymity.
The far-reaching criminal investigation, which includes agents from the FBI and Internal Revenue Service, is also exploring personal financial ties between Madjlessi's wife and one of the bank's loan officers, according to sources close to the case.
The full extent of the probe remains closely guarded while investigators work with the U.S. Attorney's Office to present evidence to a grand jury that has been meeting in U.S. District Court in San Francisco.
The grand jury ultimately will decide whether anyone should be indicted on criminal charges. No criminal charges have been filed.
The bank repeatedly broke standard lending rules in its dealings with Madjlessi, his companies, his employees and his business associates, The Press Democrat discovered in public records, private documents and interviews with dozens of former employees, borrowers, investors, analysts and other banking executives.
"There is no question there was a violation of standard bank lending practices," said Fred Ptucha, a local banking analyst with Financial West Group in Santa Rosa. "Whether they broke any laws, well, that remains to be seen."
Loans to Madjlessi were arranged by a bank officer who had a personal financial relationship with the developer's wife, according to documents obtained by The Press Democrat.
Brian Melland, who helped arrange more than $40 million in loans for Madjlessi and his business partners, solicited and accepted startup money from people associated with the developers in order to fund his fledgling energy drink company, according to a copy of an investment agreement.
Melland's wife alleged in January that her husband was under investigation as part of an FBI probe into bank fraud, according to divorce papers she filed in Sonoma County Superior Court.
Melland, who now works for Sonoma Bank in Santa Rosa, declined to comment on the investigation.
Madjlessi referred questions to his attorney, David Lonich. Lonich said his client had done nothing illegal.
Last year, when regulators suddenly locked the doors on Aug. 20 at the close of the banking day, Sonoma Valley Bank became the only Sonoma County bank to collapse since the economic downturn began toppling financial institutions across the country in 2008. Its three branches and most of its assets were purchased by San Rafael-based Westamerica Bank.
Former Sonoma Valley president Sean Cutting, who is now senior relationship manager at Rabobank in Sonoma, and other former executives and directors of the shuttered bank declined to comment.
But shortly after its closure, Cutting issued a public statement signed by bank directors blaming the sharp real estate downturn for their troubled loans. They said overly aggressive regulators shut down a stable, profitable bank that had earned a reputation over two decades of being "one of the most generous, helpful, caring and supportive institutions in town."