BLUEFIELD, W. Va. (AP) — A trial of two executives began Friday in one of the country's biggest bank failures, with a prosecutor saying the defendants tried to appear helpful to bank examiners, while actually obstructing them.
The charge, by Assistant U.S. Attorney Susan Arnold, was delivered in her opening statement in the case of Terry L. Church and Michael H. Graham, of the now-defunct First National Bank of Keystone.
"On the surface they appeared to be cooperative," Arnold said. "Behind the scenes, they made sure they knew every document, ... every person these examiners were talking to. They tried to misdirect, delay, put every obstacle in the way."
Church, 47, a senior vice president, and Graham, 50, chief operating officer, are on trial for obstruction of justice in a case that could cost the Federal Deposit Insurance Corp. as much as $750 million. That amount would make Keystone among the 10 largest U.S. bank failures since the Great Depression.
The two allegedly conspired to hide bank records by burying them on Church's ranch near Keystone, according to an indictment.
Church also allegedly directed bank employees to disable a microfilm machine to prevent examiners from viewing records, and Graham allegedly disabled the machine, according to the indictment.
The former officials also are charged with providing false and misleading information to bank examiners about the bank's record-keeping practices.
Church's defense lawyer, Charles M. Love, conceded Church and her employees buried bank records, but said it was a routine disposal and there was nothing sneaky about it.
"It happened in broad daylight, with this bank examination going on. There was no attempt to hide what was going on. They drove the trucks through downtown Keystone."
The records were buried on Church's property because there was no landfill available and the records could not be burned because of a drought, he said.
Later, William Miles, a mechanic at a construction company owned by Church's husband said Church told him to bury the records instead of burning them because there were too many and not enough time.
Defense lawyer Love said he will focus on the deteriorating relationship between bank officers and federal examiners.
"Regulators were aggravated at (bank president) Knox McConnell. Knox McConnell was aggravated, and the whole thing just degenerated," he said. McConnell died in October 1997.
The record burial had nothing to do with the dispute with bank examiners, Love said.
Prosecutors must prove not only that Church obstructed the bank examiners but that her obstruction was "corrupt," Love said.
A lawyer for Michael Graham said, "The government is going to try to prove that 18 people reached agreement to obstruct this examination. That will stretch your common sense."
Federal regulators did not like the bank because it made high-risk home improvement loans to impoverished area residents, Pierson said.
"Regulators don't like this bank because they like banks to be solid with no risk. ... But high-risk loans are the service this bank provides," Pierson said.
Graham did throw old bank records into a dump truck, but they were records from the 1950s and 1960s, Pierson said.
If convicted on charges of conspiring and obstructing a federal investigation, Church and Graham each face up to 15 years in prison and a $750,000 fine.
The bank was closed Sept. 1, 1999, when federal regulators concluded that as much as $515 million in bank assets had disappeared.