Failed bank CEO gets 14 months for trying to scam $13M in TARP funds

Mortgage & Real Estate

The former president and chief executive officer of a failed bank will spend 14 months in prison after being convicted of faking millions of dollars in investments in the bank as part of a scheme to defraud the federal government of more than $13 million from the Troubled Asset Relief Program.

Earlier this year, a federal jury found Brian Hartline, the former president and CEO of NOVA Bank, guilty of criminally defrauding the government.

On Tuesday, Hartline received his sentence – 14 months.

According to the office of the Special Inspector General of the Troubled Asset Relief Program, Hartline and others founded NOVA Bank in 2002, but by 2008, the bank “faced the risk of failure” due to bad loans and investments.

In an attempt to save the failing bank, NOVA Financial Holdings, the parent company of NOVA Bank, applied for approximately $13.5 million in TARP funds. The bank was one of just seven out of 700 banks that applied for TARP funds to be conditionally approved.

As part of that conditional approval, the government stipulated that the bank would only receive TARP money if it raised $15 million from investors.

Hartline and others then devised a scheme to make NOVA Bank appear more financially sound than it was, making it look like the bank was receiving funds from outside investors, when the bank was actually recycling its own money to make it look like new money.

“Pure and simple, Hartline committed fraud in an attempt to get TARP,” SIGTARP’s Christy Goldsmith Romero said.

“NOVA Bank was not a healthy bank when it applied for a TARP program for healthy banks. It was suffering major losses and lacked sufficient capital. So when the U.S. government made NOVA Bank’s approval of TARP funds contingent upon raising $15 million in private capital, CEO and president Brain Hartline had a simple decision to make,” Goldsmith Romero said.

“He could be truthful, follow the law, and – if the bank could not raise the funds – accept the consequences, or he could lie and commit a crime,” Goldsmith Romero added. “Make no mistake. CEO Hartline chose to commit a crime, by lying, breaking the law, and trying to con taxpayers out of $13 million in TARP funds, which the bank would have gotten except for sheer luck and timing.”

Goldsmith Romero said that Hartline used his position at the bank to “hatch a fraudulent scheme to dupe the government” into believing the bank raised money.

“The reality was that the bank’s own money flowed out to purported ‘investors’ and then came right back into the bank within the space of two hours. CEO Hartline hid this fact from the government, which wanted new money in the bank—not double counting of existing money,” Goldsmith Romero said.

“Today another bank CEO was sentenced to prison after being investigated by SIGTARP,” Goldsmith Romero concluded. “This case sends a strong message that trying to defraud the U.S. government out of millions of dollars will carry serious consequences, even if you do not get the federal dollars.”

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