Traverse City Record-Eagle

September 29, 2013

Bank charges detailed

By BRIAN McGILLIVARY
bmcgillivary@record-eagle.com

---- — TRAVERSE CITY — For more than two years Northwestern Bank's then-president and two other executives tried to hide in excess of $38 million in loan defaults by the bank's largest borrower from the bank's board of directors and government regulators, federal authorities allege.

The Federal Deposit Insurance Corporation made public late Friday civil charges it levied on Aug. 20 against Harry "Scrub" Calcutt, Northwestern's retired president, CEO, and board chairman. Also accused are the bank's former senior loan officer William Green and bank executive vice president Richard Jackson.

The agency accused the men of a pattern of dishonesty and unsound and unsafe banking practices that caused the bank to suffer financial losses.

The FDIC notice also accused Calcutt of improper financial gain based on an annual bonus equal to 4 percent of Northwestern's profits.

"In 2009 and 2010 Calcutt's bonus compensation was approximately $95,000 more than it should have been as a result of the bank's inflated net income figures," the documents state. "Calcutt, as a major shareholder of the bank's holding company, also benefited when the bank issued substantial dividends in 2010 and 2011 based on the board of directors' false perception regarding the bank's performance and overall financial condition."

The FDIC wants all three men banned from working for any federally regulated bank, and proposed fines against Calcutt of $125,000 and $100,000 each against Green and Jackson.

Calcutt declined to discuss details of the charges in a meeting with the Record-Eagle on Friday, but said he "did nothing wrong" and will fight the allegations.

The defaulted real estate loans are tied to a group of 19 separate limited liability companies collectively controlled by members of the Nielson family of Generations Management LLC and Generations Realty. The loans represented almost half of the bank's Tier One, or core capital investments.

The Nielsons contacted Green in 2009 to inform the bank of their inability to meet their loan obligations, according to federal documents. They stopped making payments on all loans in September 2009 while they worked out a deal with Green and Calcutt. The FDIC alleges Jackson also was involved.

Cori Nielson of Generations Management said her company's representatives met with all three men and one other person she declined to name while attempting to renegotiate the loans.

In December 2009, Calcutt, Green, and Jackson gave the Nielson companies a $760,000 loan and released $600,000 in Nielson family investments used to secure one of the loans, documents state. The money was used to bring the loans current and cover future payments.

The Nielsons ran into similar problems the following year and the bank executives released another $690,000 in collateral to bring the loans current and extend loans that were expiring with lower interest payments and other concessions.

The FDIC said Calcutt and the other bank executives provided misleading information to Northwestern's board; failed to obtain updated property appraisals or company financials from the Nielsons; backdated loan documents; withheld the loans from its external auditors, and concealed or denied the existence of extensive documentation related to the loans from regulators.

Northwestern Bank in 2012 reported an $8.5 million loss on the loans and to date more than $27 million from those loans remains uncollected.

Cori Nielson said in 2011 Calcutt and the other bank executives began to talk openly with them about "doing certain things" so the government wouldn't know what was going on.

"I don't know banking law ... but when you start talking about hiding things from the federal government, you know that's not right and we refused," she said. "That's when everything blew up."