Federal prosecutors and attorneys for three former BestBank of Boulder executives charged with fraud took turns Tuesday assigning blame for the financial institution’s collapse.
The 1998 failure, which led to $200 million in losses, came at the height of Colorado’s technology boom and was the state’s first bank collapse in five years.
The BestBank executives conspired with two Florida businessmen in a credit-card scheme to increase the bank’s revenue and enrich themselves with millions of dollars in bonuses, a federal prosecutor alleged during the trial’s opening statements.
“The bank was based on a house of bad debt,” Michael Carey, first assistant U.S. attorney, told a jury of eight men and seven women in Denver.
Defense attorneys blamed the fraud on the Florida businessmen and painted the Best Bank executives as victims.
“This case is about a little bank that dared to be successful,” said attorney Peter Bornstein, who represents Edward Mattar III, who bought the bank in 1989 and was the chief executive when it shuttered in 1998.
The defendants “never conspired to destroy, rape or steal from their own dream of success,” Bornstein said.
Mattar, former BestBank president Thomas Alan Boyd and former chief financial officer Jack Grace face 95 counts of conspiracy, fraud and other charges.
The Federal Deposit Insurance Corp. covered most of the bank’s $200 million in deposits. Uninsured depositors lost $27 million.
Last year, a Denver jury convicted the Florida businessmen, Douglas Baetz and Glenn Gallant, on 63 counts of fraud, conspiracy and false bank reporting. Some of the counts were later thrown out by a federal judge. Baetz and Gallant face at least 10 years in prison.
BestBank teamed with Century Financial, Baetz and Gallant’s company, to issue credit cards to subprime borrowers. The companies had lax requirements and approved a half-million applications from 1994 to 1998, Carey alleged.
Four out of five accounts defaulted, he said, but the companies conspired to hide the bad debt by using a scheme called “re-aging” – in which delinquent credit-card accounts are set back to current.
Keeping the defaulted accounts active allowed BestBank to book the revenue they received from interest on the credit cards’ outstanding balance, Carey said.
In turn, the bank hit its revenue targets and in late 1997 and early 1998 Mattar and Boyd received two bonuses of $2.3 million each. Brace received a $92,000 bonus in early 1998.
“BestBank made money by fraudulently keeping the card active,” Carey said.
Century Financial kept the accounts active unbeknownst to the BestBank executives, defense attorney Virginia Grady, who represents Boyd, told jurors during her opening statement.
Grady said Century made payments over a two-year period totaling $40 million to keep accounts current. If an account defaulted, the company was required to reimburse BestBank any funds it lost due to the defaulted account.
“Alan Boyd wanted to own Best Bank,” Grady said. “He wanted it to be his legacy.”
Daniel Sears, Brace’s attorney, will present his opening statement today.
The case could take up to 10 weeks, U.S. District Judge Richard Matsch told jurors this week. Prosecutors are expected to call several former BestBank employees as witnesses, while the defense is expected to call former members of the bank’s board of directors.
Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.
