Sonoma Valley Bank officials, attorney to pay $19.2 million in restitution

Two former top executives at Sonoma Valley Bank and an attorney for one of its largest borrowers were ordered Thursday to pay the government more than $19 million in restitution for their roles in defrauding the financial institution before its implosion.

Federal prosecutors had sought more than twice as much money from the three men, but U.S. District Judge Susan Illston ruled the government did not provide adequate evidence supporting its demand for $47.8 million in restitution or submit its figure in a timely fashion.

The decision brings an end to the four-year effort to hold someone accountable for the 2010 failure of Sonoma Valley Bank, the only bank in Sonoma County to collapse during the global financial crisis that deepened the Great Recession.

The three surviving defendants in the case - Sean Cutting, the bank’s president and CEO; Brian Melland, its chief loan officer; and David Lonich, an attorney who was involved in loans linked to the bank’s demise - were ordered to repay $19.2 million to the Federal Deposit Insurance Corp. and the U.S. Treasury Department’s Troubled Asset Relief Program, according to a court filing.

Neal Stephens, Cutting’s attorney, said his client has filed a notice of appeal. Lawyers for Melland and Lonich could not be reached for comment.

“We agree the court should have rejected the argument the government made to try to set (the restitution) to an amount that was not supported by the law. We look forward to the appeal so that Sean has an opportunity to vindicate his rights,” Stephens said. “I still think that there are some issues with the government proof that got it to $19 million.”

Abraham Simmons, a spokesman for the U.S. Attorney’s Office, declined to comment on the restitution order.

“The time for either side to seek additional relief is still not over,” he said, referencing the appeal process.

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 destroyed the bank. Cutting and Melland received eight-year sentences from Illston in August. Lonich was handed a 6½ year prison sentence.

In March, a probation officer recommended a restitution payment of $20.1 million, according to court documents. The government didn’t object at the time, Illston noted in her ruling, but in July sought an additional $28.6 million.

“In a case that has been pending for as many years as this case has, the Court sees no reason why the government should be permitted to more than double the restitution request less than two weeks before sentencing,” Illston wrote.

Illston also ruled prosecutors did not adequately document their request for the additional money, rejecting their request for $47.8 million in restitution from the three defendants.

A fourth defendant, Marin County developer Bijan Madjlessi, died in 2014 after his car plunged off a cliff near Muir Beach shortly after charges were announced against him. Prosecutors said Madjlessi played a central role in the case, using straw borrowers to gain unfettered access to loans. He used them to absolve old debts, fund new projects and pay for an extravagant lifestyle. Lonich was his attorney.

Taxpayers lost more than $47 million in the failure of the bank, which was insured by the FDIC and had borrowed additional money from the Treasury Department through its TARP fund to shore up shaky banks. Investors also lost money as the bank’s stock collapsed, knocking out the value of their shares.

While in prison, the men will pay $25 a quarter to fulfill the restitution. Within 60 days of their release, each of the men will be required to pay a maximum of $5,000 a month, or 10 percent of their earnings, whichever is less, according to the restitution order.

Simmons said forfeited property “might satisfy much of that judgment,” but was not able to provide further specifics. The order mandates Cutting and Melland to forfeit any interest they have as shareholders of Sonoma Valley Bancorp.

Of the total restitution, $10.5 million will go the FDIC while $8.7 will go to the TARP fund.

It was unclear Thursday what, if any, money could be directed to shareholders.