United States: You Can't Cover Up Fraud With TARP Funds: US Government Sues Bank President's Estate

On July 1, 2015, the United States for the District of Columbia sued the estate and trusts of the late Layton P. Stuart – the former owner of One Financial Corporation and its subsidiary One Bank & Trust– and the trust's beneficiaries, for alleged fraud on the Treasury Department and its Troubled Asset Relief Program ("TARP").  This civil suit is the latest in a growing list of cases brought by the government to recover TARP funds that it alleges were fraudulently procured.

The suit arose out of requests by Stuart in October 2008 and May 2009 for an aggregate of $17.3 million of TARP funds for One Financial.  In its complaint, the United States alleges that, Stuart, and several One Financial executives, engaged in fraudulent schemes in connection with the TARP funds.  In applying for the TARP funds, Stuart allegedly overstated One Financial's risk weighted assets, and made false statements regarding its financial condition by concealing the existence of the frauds perpetrated against One Bank, and the effects of such fraud on One Financial's financial health.  Also, within two weeks of One Financial's receipt of the TARP funds, Stuart allegedly fraudulently diverted over $2.1 million for his and his family's personal use.  He held the remaining TARP investment in a One Bank operating account, and commingled the funds with other bank assets, which he continued to divert.  According to the complaint, One Bank incurred over $17 million in losses because of the frauds allegedly perpetrated by Stuart and senior executives.

The United States alleges violations of the False Claims Act, civil conspiracy, fraud, payment under the mistake of fact, and unjust enrichment, and seeks treble damages and penalties.  This case highlights the government's use of yet another tool—in this case a civil suit brought against an individual's estate and third party beneficiaries—to recover TARP funds that it believes were fraudulently obtained.

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