US banks' trio of alleged loan fraud spark fear of broader issues

Relative to the collapse of First Brands Group and Tricolor Holdings, the hits disclosed by regional lenders Zions Bancorp and Western Alliance Bancorp seemed small - a figure in the tens of millions, not billions.

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Still, the back-to-back reveal of loan fraud has renewed the simmering debate on Wall Street about whether the era of free wheeling capital is about to bring a comeuppance for banks and non-banks alike.

In the case of Zions and Western Alliance, the alleged culprits were the same: Investment funds tied to Mr Andrew Stupin and Mr Gerald Marcil, among other parties, borrowed the funds to finance their purchases of distressed commercial mortgage loans.

A lawsuit from Zions revealed that its wholly owned subsidiary, California Bank & Trust, provided US$60 million (S$77.6 million) to the borrowers, and that an investigation found many of the notes and underlying properties were transferred to other entities - allegations that the two men's attorney said they "vehemently deny".