Banking

5 takeaways from the trial of Paul Manafort’s banker

Prosecutors wrapped up their case Wednesday in the bribery trial of Stephen Calk, the onetime bank CEO accused of approving millions of dollars in loans in exchange for a potential job in the Trump administration.

During the two-week trial, prosecutors have portrayed Calk as motivated by a lust for power when he approved loans to former Trump campaign chairman Paul Manafort. Defense attorneys have argued that Calk was unaware of Manafort’s financial troubles at the time the loans were approved, and have also attacked the credibility of a key government witness.

The trial, held in federal court in Manhattan, has featured testimony from a top official at the Office of the Comptroller of the Currency and onetime White House communications director Anthony Scaramucci. But much of the drama has involved employees of the Chicago-based bank where Calk was chief executive, as defense attorneys have sought to pin blame on bank staffers even as lower-level employees have pointed the finger at their former boss.

“There was no way that Steve Calk would not make this loan, because that would mean he would not get a position with the Trump administration,” testified Anna Ivakhnik, a former employee at The Federal Savings Bank.

Former bank CEO Stephen Calk, who is shown exiting federal court in 2019, is on trial for bribery in connection with loans to former Trump campaign chairman Paul Manafort.

Calk, who stepped down as the $1.08 billion-asset bank’s chairman and CEO in 2019, will not testify in his own defense, one of his lawyers said Thursday. He faces two felony charges — financial institution bribery and conspiracy to commit financial institution bribery.

Prosecutors allege that Calk approved two loans to Manafort totaling $16 million in return for assistance in snagging a senior role in the Trump administration. Calk interviewed in early 2017 for the under secretary of the Army post, but he did not ultimately get a job in the administration.

What follows is a recap of key testimony during Calk’s trial, which could wrap up as early as next week.

Scaramucci disclaimed knowledge of business ties

Scaramucci, a financier who was part of the “Tiger Team” interviewing candidates for top posts in the Trump administration, testified that he agreed to get Calk an interview as a favor to Manafort.

But Manafort, who was later imprisoned on financial fraud charges before being pardoned by Trump, never mentioned that he was in talks with Calk about loans, according to Scaramucci.

Calk also did not raise that relationship in his numerous conversations with Scaramucci, who said that Calk was unusually persistent in his follow-ups.

Scaramucci testified that he would not have recommended Calk for a job interview if he had known about his business ties to Manafort.

In an early wish list that Calk sent to Manafort, he expressed interest in becoming secretary of Treasury, Commerce and Defense, according to prosecutors. Calk later pursued the secretary of the Army post, though the job had already been reserved for Vincent Viola, the founder of the electronic trading firm Virtu Financial, who was later nominated for the Army role but quickly withdrew.

With that job out of the picture, Calk sought an appointment as under secretary of the Army, and he interviewed with the transition team for the post.

Calk’s lawyers, however, noted that the interview was just that — an interview. Scaramucci had less power than those closer to Trump, such as son-in-law Jared Kushner and top advisor Stephen Bannon, Calk’s lawyers stated.

To ultimately land the job, Calk would have needed to get sign-off from top Trump transition officials, as well as Trump himself, and to clear the FBI’s vetting process before being confirmed by the Senate.

“All you had the power to do is get Mr. Calk an interview at Trump Tower … for a job you thought he was never going to get?” defense attorney Paul Schoeman asked Scaramucci, who responded affirmatively.

Bank staffers detailed their discomfort with the loans

Federal Savings Bank employees testified that they had reservations about both the loans and Calk’s interest in leveraging his relationship with Manafort to land an administration job.

“In my mind, the only reason [the loan] wouldn’t die was because Mr. Calk wanted it to continue to live,” said James Brennan, an underwriter at Federal Savings.

Prosecutors flagged an email that Brennan wrote to other bank officials, including Calk, after Manafort clarified that a property he owned in the Hamptons had an existing $3.5 million first mortgage. That amount was $1 million higher than Manafort originally told the bank, which had inquired about the issue after realizing Manafort did not own the property “free and clear,” Brennan said.

“What the hell he just took the loan out at the end of August how can he be $1,000,000 off!” Brennan wrote in the email.

Other red flags arose, including a sharp drop in Manafort’s credit score, an unpaid $300,000 credit card bill, difficulties verifying Manafort’s income and the fact that Manafort was in default to another lender in connection with a property in California.

Calk’s lawyers argued that the bank’s CEO was unaware of his staff’s grumblings about the loan, saying that he was not looped in on several concerning developments.

They noted, for example, that Ivakhnik did not forward to Calk emails showing that the bank had learned that Manafort’s credit score dropped below the level at which banks would typically lend. Calk also did not receive an internal bank email that noted that Manafort and his son-in-law, Jeffrey Yohai, appeared to be in default to a lender called Genesis Capital.

Calk’s lawyers stated that Brennan gave Manafort’s loans an average risk rating. The sign-off from the underwriting department is a “very inconvenient truth for the prosecution,” one defense lawyer said.

Witnesses sowed doubt about the credibility of a key prosecution witness

Calk’s lawyers have also placed blame on Dennis Raico, a former senior vice president at the bank, who they said wanted to earn a commission and helped Manafort defraud the bank.

Raico hid information from Calk and underwriters and consistently painted Manafort in “the most glowing terms,” defense attorney Paul Schoeman said in his opening statement. As a result, Manafort appeared to be a “rock star in the world of politics” and “exactly the kind of big, wealthy customer that Steve Calk would want for his bank,” Schoeman said.

Raico was a key prosecution witness, who testified that it was unusual for Calk to become as personally involved in a loan decision as he did in Manafort’s case.

Raico also stated that Calk asked him to call Manafort to ask if Calk was in the running for Treasury secretary or secretary of the Department of Housing and Urban Development. Raico said that he recorded the request in his notebook because it was “bizarre,” and ultimately did not make the call.

But defense lawyers have had some success during the trial in undermining Raico’s credibility.

Under cross-examination, Ivakhnik said that after working with Raico, she thought that he was a “pathological liar,” while Brennan said he did not trust that Raico provided all relevant information to the bank’s underwriters. Calk’s lawyers later said that Raico lied to the FBI about his job history and about getting a master’s degree from New York University’s business school.

Defense attorneys also pointed to some examples of Raico forwarding altered versions of emails and withholding information from underwriters, including a negative property appraisal as he waited for a new appraisal from a different company.

Prosecutors noted that Raico was not in a position to alter other people’s emails.

The role of collateral in lending decisions has been a focus of testimony

Manafort was facing a slew of financial problems at the time the loans were made, and one issue at the trial involves the value of the collateral that he pledged as security.

Schoeman, Calk’s lawyer, has argued that the loans were not a “sweetheart deal,” since they had appropriately high interest rates and valuable collateral to protect the Federal Savings Bank if the loans were to fail.

He noted that Calk at one point sought to get Manafort to post a mansion in the Hamptons — which he characterized as Manafort’s wife’s “treasure” — as collateral.

Calk “didn’t think he was doing anything corrupt because he thought these were great loans for his bank,” Schoeman argued.

But prosecutors stated that banks are supposed to make loan decisions based on the borrower’s creditworthiness, not the value of the collateral.

Ivakhnik, Raico’s former assistant, said she thought it was very important for the Hamptons property to be added as collateral, but noted that foreclosure “is not the end goal” of a loan.

Brennan, the underwriter, testified that “you never know how long it’s going to take for you to foreclose.” He also cited uncertainty about the value of a property once foreclosure begins. And he flagged other underwriting concerns, such as income that Manafort received from sources in eastern Europe, which were later scrutinized during Manafort’s own criminal trial.

Manafort did not ultimately repay the loans, and in 2018, a federal judge declared that Manafort-owned properties in Brooklyn and the Hamptons were forfeitable to the U.S. government.

A prosecution witness suggested that Calk was not truthful with regulators.

Calk’s interactions with examiners from the OCC have also been spotlighted during the trial.

In one July 2018 meeting, Calk “strongly denied” media reports about his interest in a job in the Trump administration, according to testimony by Blake Paulson, an OCC official who attended the meeting and later led the agency on an interim basis.

The comment was significant and a “bit surprising” because Calk offered the information voluntarily, Paulson said.

At the start of another meeting, Calk was “angry” because he thought the meeting was politically motivated, though the conversation later became cordial, according to testimony by OCC examiner Jack Gongaware.

That meeting focused partly on a move that Federal Savings made to enable a larger loan to Manafort. Since the loan would have pushed the bank over its legal lending limits to a single borrower, the bank sold a portion of the loan to its holding company, a maneuver that it had never made before.

In response to questions from Calk’s lawyers, Gongaware said that another OCC official determined the move did not violate the bank’s legal lending limits.



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