Defense wants to argue 'complicity of banks' in McCormack trial

The second day of the Clay McCormack trial began Tuesday with discussion of a motion filed by the government to suppress any mention of the negligence or fault of the "victims," or banks, former Jackson attorney McCormack is accused of defrauding.

"Any evidence toward negligence of the victim is not an element of defense," Assistant U.S. Attorney Matt Wilson argued before Federal District Court Judge S. Thomas Anderson in the second-floor courtroom of the Ed Jones Federal Building.

Wilson referred to elements of the strategy that attorney Dan Warlick cited Monday that Warlick would use to defend McCormack.

"Such evidence would mislead or confuse the jury," Wilson said.

Warlick said Wilson had misunderstood how he would use the information about the banks.

"I'm not saying the victim was negligent," Warlick said. He said he was talking about "the complicity of the banks."

Wilson and Warlick took turns before the judge arguing over whether Warlick's assertions about the banks' complicity in the fraud for which McCormack is charged was relevant. Concerned about not being able to use the complicity of the banks as a central argument for his defense, Warlick said he was "compelled at this point to out my defense."

Warlick then laid out the defense's interpretation of what happened in the fraud.

Warlick said the banks mentioned in McCormack's indictment had taken on several foreclosed properties at auction, and when the economy then took a downturn during the recession, the housing market collapsed and the banks needed to get rid of the properties to avoid getting a lower Camels rating, which rates cash assets and management of assets in equity, he said.

Warlick said James Lee Bishop, a local real-estate investor who has pleaded guilty to bank fraud in the case, would bring in prospective investors into the banks. Warlick said Bishop would buy the foreclosed properties from the banks at the price that was owed for them, helping the banks. Then, Warlick said, Bishop would add value to the properties in order to make a profit and when the new investors came to the banks the banks would finance the purchase for the new buyers.

Warlick said Bishop also told the new investors that he would manage the properties for the investors, use rent from the properties to take his percentage, pay the mortgage and pay the investors.

Warlick said the properties were "overpriced" and that the banks knew this. Warlick said the investments started to fail.

Warlick said Bishop had a "piggy bank," a general fund, out of which he would pay for the expense of one property with the profits of another. Warlick said that he will argue that because Bishop had helped the banks, the banks helped Bishop to get new loans and allowed him to "swap collateral," swapping one house as collateral in the place of another.

"Mr. Bishop was like the Wizard of Oz," Warlick said. "Eventually, the curtain got pulled down, and he was a little guy pulling the strings."

Warlick said the substitutions ultimately didn't take place.

Judge Anderson stopped Warlick.

"Your position is that the banks were aware of this scheme and participated?" Anderson asked.

"Banks had a special relationship with (Bishop)," Warlick said, "but there wasn't a collusion with him, neither with my client. The banks weren't complaining that the money was being used elsewhere."

"There is proof that a bank or banks were aware that this process was going on?" Anderson asked.

"Absolutely," Warlick said. "There will be testimony to that effect."

Wilson stood in protest and asked that the defense proffer evidence that the banks knew the fraud was going on.

"I would like to see specific proof that any of our bank victims, the banks and their representatives were aware," Wilson said. "If so, we've missed somebody, we want to prosecute some bankers."

Anderson pressed McCormack and Warlick again if they believed there was evidence to prove this.

"If there is not, I will have to declare a mistrial and there will be severe sanctions and Mr. McCormack will be held in custody," Anderson said

Warlick conferred with McCormack.

"I understand," Warlick said. "It's what the evidence shows."​

The trial is continuing this afternoon and may last into next week.

Check jacksonsun.com for further updates and read more in Wednesday's Jackson Sun.