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Big Bank Failure Trial Opens

April 7, 2000

BLUEFIELD, W. Va. (AP) _ The trial of two executives in one of the nation’s biggest bank failures got under way today with a prosecutor saying the defendants tried to appear helpful to federal bank examiners, but were really misdirecting and delaying them.

Terry L. Church, a senior vice president of now-defunct First National Bank of Keystone, and Michael H. Graham, chief operating officer, are on trial for obstruction of justice in a bank failure case that could cost the Federal Deposit Insurance Corp. as much as $750 million.

``On the surface they appeared to be cooperative,″ Assistant U.S. Attorney Susan Arnold told jurors in her opening statement. ``Behind the scenes, they made sure they knew every document, ... every person these examiners were talking to. They tried to misdirect, delay, put every obstacle in the way.″

Church, 47, and Graham, 50, allegedly conspired to hide bank records by burying them on Church’s ranch near Keystone, according to an indictment.

Church also allegedly directed bank employees to disable a microfilm machine to prevent examiners from viewing records, and Graham allegedly disabled the machine, according to the indictment.

The former officials also are charged with providing false and misleading information to bank examiners about the bank’s record-keeping practices.

Church’s defense lawyer, Charles M. Love, conceded Church and her employees buried bank records, but said it was a routine disposal and there was nothing sneaky about it.

``It happened in broad daylight, with this bank examination going on. There was no attempt to hide what was going on. They drove the trucks through downtown Keystone.″

The records were buried on Church’s property because there was no landfill available and the records could not be burned because of a drought, he said.

Prosecutors must prove not only that Church obstructed the bank examiners but that her obstruction was ``corrupt,″ Love said.

Love said the defense will focus on the deteriorating relationship between bank officers and federal examiners.

``Regulators were aggravated at (bank president) Knox McConnell. Knox McConnell was aggravated, and the whole thing just degenerated,″ he said. McConnell died in October 1997.

If convicted on charges of conspiring and obstructing a federal investigation, Church and Graham each face up to 15 years in prison and a $750,000 fine.

The bank was closed Sept. 1, 1999, when federal regulators concluded that as much as $515 million in bank assets had disappeared.

The FDIC has said that if the total loss reaches the estimated $750 million, that would make Keystone among the 10 largest U.S. bank failures since the Great Depression.