Directors of failed Chicago bank plead guilty to conspiracy

Andrew Harrer/Bloomberg

Three former board members of Chicago's failed Washington Bank for Savings have pleaded guilty to trying to deceive the bank's regulator to conceal rampant embezzlement.

William Mahon, George Kozdemba and Janice Weston conspired to falsify bank records shared with the Office of the Comptroller of the Currency, according to the pleas lodged in federal court for the Northern District of Illinois this month.

The pleas are the latest legal moves in a yearslong case that stems from Washington Federal's failure in December 2017, shortly after regulators learned the bank was insolvent and carrying at least $66 million in nonperforming loans. Since then, federal authorities have charged 16 high-ranking former employees of the bank with crimes ranging from fraud to conspiring to embezzle $31 million in bank money.

After the Office of the Comptroller of the Currency began to evaluate the bank's loan portfolio before its failure, Mahon, Kozdemba and Weston made false entries in bank records in an attempt to obstruct the agency's examination, according to a statement from the United States Attorney's Office for the Northern District of Illinois issued after the pleas were entered.

"They also falsified records to make it appear Washington Federal was operating in compliance with banking rules and internal policies and controls," the U.S. attorney's office said in the statement.

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The directors provided incorrect information on a range of topics, including loan approvals, loan maturity dates and borrower identities, according to the indictment of 14 defendants handed down in 2021.

Sentencing hearings are set for October and December, where Mahon, Kozdemba and Weston could each receive up to five years in prison, according to the U.S. attorney's office. Mahon is also facing an additional three years for the willful filing of false income tax returns.

Attorneys for the defendants did not immediately respond to requests for comment.

Washington Federal's former accounting firm, Bansley & Kiener, in 2020 agreed to pay $2.5 million to the Federal Deposit Insurance Corp. to resolve claims that it was liable for the bank's collapse. Jan Kowalski, another defendant in the case, received three years in prison for fraud related to the bank failure earlier this year.

Prior to its failure, Washington Federal Bank had about $166 million of assets, $144 million of deposits and two branches in the working-class Bridgeport neighborhood of Chicago.