Del. developer pleads not guilty to fraud charge

Delaware developer pleads not guilty to federal bank fraud, conspiracy charges

Associated Press

WILMINGTON, Del. (AP) -- Prominent Dover developer Michael Zimmerman pleaded not guilty in federal court Thursday to charges including bank fraud and conspiracy.

Zimmerman lawyer Dan Lyons entered the plea at a brief arraignment before a federal magistrate. Zimmerman, who did not speak at the hearing, is charged with conspiracy, money laundering and making false statements to a financial institution.

Prosecutors allege that Zimmerman, 55, obtained more than $37 million in financing from Wilmington Trust for three projects, then diverted construction loans for unauthorized purposes. Authorities say Wilmington Trust, which sold the debt related to the Zimmerman projects in 2011, incurred a loss of more than $26 million on the three projects.

Lyons contends that Wilmington Trust was not the victim of any fraud but instead engaged in sloppy accounting practices.

M&T Bank Corp. acquired Wilmington Trust Corp. at a fire sale price in 2011, resulting in more than 700 layoffs in Delaware. The sale came after Wilmington Trust posted a quarterly loss of about $370 million because of bad real estate construction loans in Delaware and said future losses also were likely.

Wilmington Trust is the subject of a securities class action lawsuit in federal court in Delaware alleging that senior officers and executives portrayed the bank as a conservative lender focused on mitigating credit risk but in fact played fast and loose with the company's real estate loan portfolio, perpetrating a fraud that led to the demise of the 107-year-old bank.

The lawsuit alleges that Wilmington Trust executives directed loan officers to ignore the bank's own underwriting policies, directed employees not to obtain updated appraisals to avoid charging off loans whose collateral had deteriorated in value, and vetoed an asset review group's decisions to downgrade internal loan risk ratings.

Zimmerman is charged with one count of conspiracy to commit bank fraud, seven counts of making false statements to a financial institution, and one count of money laundering. If convicted on all, he faces a maximum sentence of 250 years in prison and millions of dollars in fines.

According to federal officials, Zimmerman first began conducting business with Wilmington Trust in 1999 and by March 2010, the bank had aggregate loan commitments with him of more than $90 million, incurring millions of dollars in losses.

Yet court records suggest that Zimmerman had no problem getting money from Wilmington Trust when he asked for it. According to an FBI affidavit, Zimmerman got $1 million from Wilmington Trust in 2008 after he faxed a request saying he needed the money as soon as possible because "I have to pay my bar tab." The affidavit also cites an email in which a Wilmington Trust "relationship manager" who worked with Zimmerman joked about his own "reputation for reckless abandon ..."

The three projects at the heart of the indictment are the Salt Pond golf and community development in Ocean View, the Shoppes at Fieldstone shopping center in Kent County, and Compass Pointe, an office and commercial complex in Dover.

The indictment alleges that in 2007 and 2008 Zimmerman and uncharged co-conspirators submitted false draw requests for payment from the bank and requested and received advanced funds in violation of the terms of the loan agreements. Prosecutors allege that in one instance, Zimmerman requested and received $150,000 from Wilmington Trust that supposedly was for architectural and engineering costs but was actually used to finance acquisition of a personal interest in a development in the Bahamas.

Lyons told Magistrate Judge Mary Pat Thynge that, because of the volume of documents involved, he would be requesting an extension of time to submit initial motions on behalf of Zimmerman, which Lyons said afterward would include a motion for a bill of particulars, requiring prosecutors to provide more detailed information about the allegations against Zimmerman.

"This case is going to be a bear," Lyons said.

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