Whistleblower Says Failed Texas Bank Lied About Housing Losses

A former executive for a failed Texas bank alleged that his superiors refused to acknowledge the company's heavy exposure to the housing market, which eventually led to its collapse.

Craig Wolfe, who served previously as vice president for loss mitigation at Houston-based Franklin Bank, claimed in a whistleblower letter prior to the failure that others at the institution improperly shifted losses that should have been booked in 2007 into 2008.

A behind-the-scenes account of the events leading to the $5.1 billion bank's collapse last November was posted Monday on FinCriAdvisor.com, another site that has been tracking issues related to the economic crisis and the government bailout of financial companies.

Wolfe's letter was included in documents that the Federal Deposit Insurance Corp. filed as part of a lawsuit seeking access to internal Franklin Bank documents.

Wolfe said in the letter that he refused on three different occasions to sign the bank's Sarbanes-Oxley attestation certifying its balance sheet and financial statements. He was swiftly demoted, and the company moved forward with the statements as presented to him.

After Franklin Bank shut its doors, a loss review conducted by the FDIC identified major accounting errors and raised "significant questions about the competency of the management."

In addition to facing continued regulatory scrutiny, the bank's parent company was hit with several securities class-action suits alleging that it misled investors.