Sonoma Valley Bank executives sent to prison for bank fraud
SAN FRANCISCO - Two former senior executives at Sonoma Valley Bank and an attorney for one of its biggest borrowers were sentenced to prison Friday for their roles in defrauding the bank, costing taxpayers and investors millions of dollars when it collapsed in 2010.
Sean Cutting, the bank’s former president and CEO, and Brian Melland, its former vice president and chief loan officer, each received eight-year sentences from U.S. District Court Judge Susan Illston.
David Lonich, an attorney involved in the loans that destroyed the bank, was sentenced to 6½ years in prison.
The sentences capped an emotional hearing where bank investors asked the judge to hold the men accountable for the collapse, while their attorneys painted them as honorable family men trying to save a cherished community institution during an unprecedented financial meltdown.
“I would like you to send a message that as a community, we do not accept the looting of our institutions by the greedy or the careless,” Denise Adams, whose family lost $42,000 when the bank’s stock imploded, urged the judge.
Adams said her father had invested the money in the bank’s stock to help her son go to college. Financial pressures, in part because of the loss, forced her son to drop out of school.
“My dad felt guilty until the day he died that the investment went south,” Adams said.
Supporters for the men, through letters read by their attorneys, asked the judge to view the men’s actions as efforts to save an institution in trouble, not loot it for personal gain.
Cutting’s attorney, Neal Stephens, sobbed as he addressed the judge, saying his client’s entire life was about “service to other people.” Stephens asked the judge for leniency for the sake of Cutting’s family. His wife and two young children cried and hugged one another in court.
“He didn’t make a dime off any of these loans,” Stephens said. “All of his actions were to help save the bank, not destroy the bank.”
Illston acknowledged the strong community support for the men but showed little patience for the numerous objections of their attorneys.
“This whole situation has been a dreadful one,” Illston said.
Following an eight-week trial, the three men were convicted in December of more than 25 counts of bank fraud, wire fraud, money laundering and lying to regulators about the $35 million real estate loan scandal that brought the bank down.
A fourth defendant, Marin County developer Bijan Madjlessi, died in 2014 after his car plunged off a cliff near Muir Beach not long after charges were announced against him.
Prosecutors said Madjlessi was allowed to use straw borrowers to gain unlimited access to loans, which he used to pay old debts, finance new projects and lead a lavish lifestyle. Lonich was his attorney.
Prosecutors wanted more than 30 years each for the men: Cutting, 48, formerly of Sonoma; Melland, 48, of Santa Rosa; and Lonich, 63, of Santa Rosa.
Assistant U.S. Attorney Adam Reeves offered a scathing assessment of the men’s actions. He told Illston that Cutting’s “hubris and ego” continued even after the bank was being taken over, that Melland “took a bribe,” and that Lonich “lies about as much as he breathes.”
“Perhaps worst of all, these men believe they have done nothing wrong,” Reeves said.
But Illston said she didn’t feel such stiff sentences would serve justice. She held the two bank officers to slightly longer sentences because she said they made the final decisions on the bad loans. Lonich was “simply enabling” some of the loans in question, she said.
She ordered Lonich to forfeit his interest in Park Lane Villas East, a Santa Rosa apartment complex, ruling that his stake in the property was the result of a crime. The complex is worth approximately ?$20.8 million, according to prosecutors, but it was not clear how much Lonich owns.
The judge scheduled a Sept. 18 hearing to determine the amount of restitution the three men must pay.
Taxpayers lost more than $47 million in the failure of the bank, which was insured by the Federal Deposit Insurance Corp. and had borrowed additional money from the federal government to shore up its finances.
Investors also lost money when the bank’s stock collapsed, wiping out the value of their shares. Many had been customers of the bank and had proudly purchased stock to support an independent, community bank in the Sonoma Valley, where it operated branches in Sonoma, Glen Ellen and Boyes Hot Springs.
After the sentences were read, bank investor Jerry Marino said it would do little to comfort those who lost money.
“It doesn’t help us at all because we all took a big bath,” Marino said.