First National Bank of Keystone bandits Terry L. Church and Michael H. Graham - both charged with obstruction and illegal disposal of bank documents - hit the courts last week for a second round of pre-trial motions.

Though the Office of the Comptroller of the Currency had bore most of the grunt for the bank's failure - a failure that could cost the government as much as $800 million - last week the Treasury Office of the Inspector General released a detailed critique of the OCC's performance that in part recognized political pressure as an issue contributing to the OCC's lack of effectiveness.

Namely, the document states that West Virginia Senators Robert C. Byrd and Jay Rockefeller wrote letters on behalf of Keystone to the OCC in December of 1998.

The OCC declined to comment on the issue; however a spokesman said, "The fact that the attorney general is handling this case is really indicative of the level of complications involved in this. It's a very complicated case and it will take a while to wind its way through the system."

Though the regulators had suspected problems at Keystone for years, it wasn't until Sept. 1 1999 that the OCC actually closed the bank. The OCC, after investigating the loan servicing operations, found that approximately $500 million in loans that had been securitized still appeared on Keystone's books.

Church and Graham were both arrested in October after federal regulators discovered, on Church's ranch estate, a 10-foot deep, 100-foot long ditch, filled with more than 300 boxes of bank documents. The ditch was filled and seeded for grass.

The proceedings last week were held before U.S. Judge David A. Faber of the Southern District of West Virginia, in a federal court in Beckley, W. Va. The trial, which is scheduled for April 4, will be held in Bluefield, W. Va.

A source familiar with the situation explained that the prosecutors will likely focus on the actual burying of the documents, as opposed to the economic issues associated with the securitizations and the phony records.

"What they're trying to do is bring a case that a jury in that area can understand," the source said. "And digging a big hole and sticking a box of records in it to hide them from examiners seems to be something that most people understanding."

The source said that the government will likely convict Graham first, and thereby offer him a deal to testify against Church.

Among other issues at last week's proceedings, the prosecution made motions to disqualify Church's attorney. The attorney's law firm, ironically, represented Keystone five years ago in designing the bank's record retention policy.

"The reason they wanted to get this issue of the conflict with her attorney out of the way, was that if she's convicted, she could later appeal alleging she had a conflict and her attorney was improper," the source said. "So by bringing this disqualification before the judge, they force the judge to decide whether there's a conflict or not. And that way it's less likely that she could appeal it upon conviction."

Also a heated topic at last weeks sessions, the judge was asked to decide whether or not the incriminating e-mails, allegedly sent internally between officials at the OCC, could be admitted in the case.

The e-mails, which describe plots against the bank on the OCC's part, were submitted by Graham last summer. Graham, whose past is checkered with charges of tax evasion and fraud, said he found the documents inside a box the OCC had left in a conference room at the bank.

The government's argument was that even if these emails are real, which they don't believe they are, the emails have no relevance to the fact that Church and Graham dug a big hole and stuck bank records in it.

The judge decided to let the jury decide.

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