Former Bank of Oswego execs sentenced to prison
Former Chief Executive Officer Dan Heine was sentenced to 24 months in prison and former Chief Financial Officer Diana Yates received an 18-month term Wednesday for their roles in a conspiracy to commit bank fraud while the two worked at The Bank of Oswego.
U.S. District Judge Michael Simon also fined each of the former executives $1,300 in court fees and required both to serve three years of supervised probation after their release.
Both defendants were ordered to begin serving their sentences on Sept. 12, pending the results of an Aug. 7 hearing that will determine whether Heine and Yates can stay out of prison while they appeal Simon's decision to the Ninth Circuit Court of Appeals.
Simon imposed several conditions on the defendants' supervised probation, including restrictions on their future financial dealings; both will be required to get approval from probation officers before applying for credit or taking out a loan. Yates also was ordered not to drink alcohol or go to bars without permission once she leaves prison.
The issue of potential restitution and forfeiture was left open, and prosecutors now have 90 days to decide whether to pursue the matter. Lead prosecutor Michelle Kerin told Simon at the end of the sentencing hearing that her office would aim to resolve the restitution issue at the Aug. 7 hearing.
Heine and Yates were both found guilty of one count of conspiracy to commit bank fraud and 12 counts of falsifying bank records following a seven-week trial that concluded in November 2017. Simon sentenced Heine to 24 months and Yates to 18 months for each conviction, but the judge said the terms would be served concurrently.
Wednesday's sentencing hearing was originally scheduled for March 5, but was delayed after Heine and Yates each filed motions seeking to overturn the verdict or be granted a new trial, all of which were denied.
According to a May 30 sentencing memorandum filed with the court, federal prosecutors wanted an eight-year prison sentence for Heine and a six-and-a-half-year sentence for Yates. Prosecutors also sought five years of supervised release in addition to the $1,300 fines for each defendant.
"Dan Heine and Diane Yates orchestrated one of the largest and most complex bank fraud schemes in Oregon's history. Their selfish acts of greed are deplorable," said Billy J. Williams, the U.S. Attorney for the District of Oregon. "While we urged the court to impose longer sentences, these sentences still serve as a warning to bank executives and others entrusted with fiduciary responsibilities. We will continue to work with federal investigators to protect investors and ensure the trustworthiness of our financial institutions."
Heine, a co-founder of The Bank of Oswego, was president, CEO and a member of the board of directors from September 2004 until his retirement in September 2014. Yates, also a co-founder, was executive vice president, CFO and secretary of the board of directors from 2004 until she resigned in March 2012.
Both were arrested and arraigned on June 26, 2015. Heine was in Florida and now makes his home there. Yates lives in Oregon. The Bank of Oswego was sold in 2016 to Seattle-based Homestreet Bank, which took over its two local branches.
Heine and Yates were charged with concealing the true financial condition of the bank from regulators and the bank's board by falsely reporting that the bank had title to a property in a straw-buyer transaction, falsely reporting that delinquent loans were paid and falsely reporting the sale of bank-owned property.
During the trial, the defense teams sought to place most of the blame on the bank's former chief loan officer, Geoff Walsh. Walsh conducted most of the transactions in question, and lawyers for Heine and Yates argued that the two had trusted Walsh and been misled.
But the jury sided with government prosecutors who made the case that Heine and Yates were aware of Walsh's crimes and worked to cover them up. Walsh separately pleaded guilty to fraud and testified against his former bosses; he was sentenced in January to 30 months in prison.
Determining a sentence
The first two hours of the June 13 sentencing hearing were devoted to witness testimony and focused primarily on the finer points of the guidelines that Simon would use to determine a recommended sentencing range for Heine and Yates.
The two defense teams disagreed with prosecutors about a number of the guidelines, particularly those that would be contingent on the extent to which Heine and Yates benefited financially from the crimes, and the extent of the financial damage suffered by The Bank of Oswego and the Federal Deposit Insurance Corp., which must cover bank losses.
The government argued that the board of directors would have fired Heine and Yates if they had known about their illegal behavior when it was taking place, and that their salaries in subsequent years should therefore be counted among the bank's losses. Prosecutors also argued that the bank suffered intangible harm because the illegal activity threatened to impugn its reputation.
Heine's attorney, Jeffrey Alberts, said prosecutors were overstating the damage in order to maximize the potential sentence. He again pointed to Walsh as being primarily responsible for the damage to the bank, and said it was Walsh who made the decision to pursue the bad loans.
Later in the hearing, three former Bank of Oswego shareholders made statements to the court. Despite acknowledging the losses they suffered when the bank was sold, two of the shareholders spoke positively about Heine's character and life achievements and asked Simon to not sentence him to prison.
Yates's husband also asked Simon for leniency, saying his wife may have made unintentional mistakes, but that she worked hard for the bank and plays a critical role in supporting her family.
Simon accepted most of the government's arguments, setting the advisory sentencing range for Heine at 108-135 months and 87-108 months for Yates. However, he said the guidelines were just one factor in determining the sentences and that his final decision could fall outside of those ranges.
Alberts and Yates' attorney, Janet Hoffman, each delivered closing statements asking for sentences of home confinement without any time in prison. In a sentencing memorandum filed earlier with the court, Alberts noted that Heine is 71 and has a heart condition and family history of heart disease, and he argued that any prison sentence would risk becoming a life sentence.
At the hearing, Alberts also noted that the court had received dozens of letters in support of Heine and asking for leniency. He again asserted that Heine had not been seeking direct financial gain from his crimes, and suggested that it would be inappropriate for Heine to receive a harsher sentence than the 30 months in prison that Walsh received.
"I take responsibility, as the bank's CEO, for everything that happened at the bank. The bank was my baby," Heine told Simon in a statement near the end of the hearing. "I ask you to allow me to spend my remaining years contributing to society and helping my family."
Hoffman emphasized the central role that Heine played in the fraud. She said Yates was committed to the success of the bank and worked hard to maintain it. In her own statement, Yates also said she took responsibility for what happened.
"I saw the bank as a reflection of myself, and I always believed I was acting in its best interest," she said.
Simon said his decision to sentence Heine and Yates to 24 months and 18 months respectively was based on a number of factors, including Walsh's sentence, Heine and Yates's personal situations and the fact that they both had no prior criminal record.
"This is a different sort of case than your typical white-collar case," he noted, "in that neither defendant directly tried to line their pockets."
However, he said, they did lie to the board of directors and the FDIC, and the sentence also needs to serve as a deterrent to future white-collar crime.
Heine's defense memorandum stated that he would appeal the case to the Ninth Circuit Court of Appeals if he was sentenced to a prison term, and he asked Simon to grant him bail pending that appeal. Hoffman made a similar request for Yates at the end of the hearing.
Simon initially directed Heine and Yates to report to prison on July 26, but then opted to delay the surrender date to Sept. 12 when it became clear that the appeal hearing could not take place until Aug. 7. Simon said he intended to issue a ruling on the requests for bail either immediately after the Aug . 7 hearing, or within the following few days.