Developer Gets 11 1/2 Years in Bank, Tax Fraud Scheme

By | September 27, 2012

( Source: Tim McGlone The Virginian-Pilot (MCT) — Eric Menden, the former owner of the Wainwright building and the old James Madison Hotel downtown, was sentenced Wednesday to 11-1/2 years in federal prison after admitting to his role in two fraud schemes that grossed more than $40 million.

Menden began to weep as he asked for forgiveness from “God, my family and my friends” while speaking before U.S. District Judge Raymond A. Jackson.

“I’m sorry,” he said.

Menden, 53, of Chesapeake, pleaded guilty to charges of bank and wire fraud and making false statements. He admitted his role in scamming the state and federal government’s historic tax credit program and to defrauding Bank of the Commonwealth out of tens of millions in a loan scheme.

Menden has been cooperating with the government in its pending criminal case against top bank officials.

Jackson allowed Menden to remain free on bond until Oct. 29, when he is to report to the federal prison he is assigned to, or if he has no assignment by then, to surrender to the U.S. Marshals at the courthouse.

After the proceeding, Menden said he is ashamed of his behavior but felt a sense of relief when he began cooperating with federal agents and prosecutors.

“I feel awful for what I’ve done,” he said in an interview.

“I feel embarrassed for what I’ve done and the damage I’ve caused to my family and the community,” he continued.

Menden said when he left the courthouse that he planned to immediately shed his gray suit and put on his work clothes to head to his self-employed job renovating a friend’s house.

“I came here and took my punishment,” he said before leaving.

Prosecutors sought a maximum 15-year prison term, while Menden’s attorney, Fernando Groene, said nine to 11 years would suffice.

Groene pointed fingers at the bank officials, saying his client was “pressured by the bank to obtain unfettered credit.”

But Assistant U.S. Attorney Melissa O’Boyle told the judge the scheme was more akin to one in which “you scratch my back, and I’ll scratch yours.”

She also said a hefty prison term would send a message to other developers who, she added, “should be forewarned.”

Menden’s former business partner, George Hranowskyj, is scheduled to be sentenced Oct. 15 for his role in the scheme.

At the time the Norfolk-based Bank of the Commonwealth failed last September, they owed it $41 million. With the sale of their real estate assets, the loan loss to date stands at more than $13 million.

The two admitted swindling the historic tax credit program of $8.7 million, a loss to the government that grew to $12.5 million when investors who purchased the credits cashed them in for a profit.

Menden and Hranowskyj bilked the tax credit program during the renovations of the James Madison and an apartment building in Ghent by inflating costs of the work.

Menden has agreed to make restitution to the government of nearly $33 million, an amount the judge concluded probably will be impossible to reach unless Menden “hits the lottery.” Hranowskyj will be required to pay restitution as well.

Menden is expected to be a key witness in the upcoming trial of the bank officers. He acknowledged in a court filing that he wore a wire to record conversations with others accused in the conspiracy.

Former bank president Edward J. Woodard Jr., his son T. Brandon Woodard, former bank officers Stephen Fields and Simon Hounslow, and another developer, Dwight Etheridge, are scheduled to stand trial Jan. 8.

The officers are accused of providing loans to Menden, Hranowskyj and other “favored customers” to buy up bank-owned property, with some of the proceeds going into the developers’ pockets and other proceeds being used to pay off other bank loans.

Authorities have said that the bank officers conducted this scheme to try to hide growing losses. The bank failed after writing off around $150 million in loan losses in its final years.

The courtroom was nearly filled with Menden’s family and friends on one side and federal agents on the other. The FBI, the Internal Revenue Service, and the inspectors general for the Troubled Asset Relief Program and the Federal Deposit Insurance Corp. all worked the case.

U.S. Attorney Neil H. MacBride issued a statement saying that the fraud scheme has had “a devastating impact on the Hampton Roads community.”

“A high school dropout who worked to own a construction company, Mr. Menden was making a good living doing what he loved. Yet he threw it all away by stealing millions from taxpayers, investors, and the Bank of the Commonwealth,” he said.

“Today’s sentence is just punishment.”

Tim McGlone, 757-446-2343, tim.mcglone@pilotonline.com

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©2012 The Virginian-Pilot (Norfolk, Va.)

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Distributed by MCT Information Services

Source: Tim McGlone The Virginian-Pilot (MCT)

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