We write today about an action filed by an allegedly defrauded bank, which seeks, among other things, a declaratory judgment that its insurer is obligated to indemnify it for losses stemming from the issuance of “tens of millions of dollars in fraudulent loans.” According to the allegations in the complaint, Stuart Harrington, a former Executive Vice President of Commercial Lending at Integra Bank, approved and issued a series of loans to Louis Pearlman and several of Pearlman’s companies, which Harrington knew were supported by fabricated financial statements and backed by fraudulent stock certificates. The complaint seeks a declaration that Integra’s insurer is obligated to provide coverage for losses related to these fraudulent loans under the employee dishonesty and forgery coverage provisions of a financial institution bond. According to the complaint, Pearlman is now serving 25 years in federal prison and has “admitted to federal prosecutors that he defrauded investors through a Ponzi scheme, as well as banks through a bank fraud scheme by making fraudulent misrepresentations” regarding his financial condition and the financial condition of several of his companies. Integra alleges that Harrington was “an essential part” of arranging eight “fraudulent” loans it made to Pearlman and his companies between June 1999 and September 2004, which totaled more than $25 million.
Click on the PDF link above to view the full alert.