Banking and Finance Law Daily Wrap Up, CRIMES AND OFFENSES—7th Cir.: Embezzlementconspiracy convictions tied to Washington Federal collapse affirmed, (Aug 20, 2026)

By Shashi Kant, B.A. LL.B., LL.M.

Seventh Circuit upholds developer's embezzlement-conspiracy convictions over hidden bad loans that helped topple Washington Federal, costing the FDIC $140 million

The U.S. Court of Appeals for the Seventh Circuit affirmed the conspiracy and aidingandabetting embezzlement convictions of Miroslaw Krezja, a Chicagoarea real estate developer found to have participated in a multiyear scheme that contributed to the 2017 collapse of Washington Federal Bank for Savings (WFBS), rejecting his arguments that the government’s trial evidence departed from the indictment and that the evidence was insufficient to sustain the jury’s verdict. Writing for a unanimous panel, Circuit Judge JacksonAkiwumi held that a rational jury could find Krezja knowingly participated in a scheme through which bank insiders concealed his nonperforming construction loans from federal regulators, and concluded that the district court acted within its discretion in excluding evidence that Krezja had repaid earlier WFBS loans and in admitting testimony and records concerning the bank’s regulatory examinations and eventual collapse (United States v. Krezja, No. 251770 (7th Cir. Aug. 18, 2026)).

Background. WFBS was a federally insured Chicago bank regulated by the Office of the Comptroller of the Currency (OCC). Between 2005 and 2007, WFBS issued Krezja four residential construction loans secured by three Chicago properties. According to trial evidence, thenbank president John Gembara directed senior officials to extend favorable treatment to a group of borrowers, including Krezja, by granting repeated payment extensions and continued advances despite loan nonperformance, while insiders manipulated accounting entries and created artificial records to keep the arrangements hidden from examiners. By 2017, the outstanding balance on Krezja’s loans totaled roughly $5.9 million against collateral appraised at $1.9 million. An OCC examination that year, led by Billy Lyons, uncovered the discrepancy; WFBS failed shortly after, leaving the FDIC with losses of approximately $140 million as receiver. A grand jury charged Krezja in 2021 with conspiracy under 18 U.S.C. § 371 and aiding and abetting embezzlement under 18 U.S.C. §§ 656 and 2; a jury convicted him on both counts following a tenday trial in 2023.

Variance and constructive amendment. Krezja argued the government proved a broader scheme of institutional corruption at trial than the embezzlement and falseentry conspiracy charged in the indictment, and that this shift deprived him of adequate notice. The panel disagreed, holding the government’s theory, that favored borrowers benefited from noncompliant loans they helped conceal from regulators, remained materially consistent from indictment through closing argument, and that Krezja could show no prejudice because he was aware before trial that the government intended to introduce evidence of the broader scheme.

Sufficiency of the conspiracy evidence. Reviewing de novo, the panel found sufficient evidence that Krezja knowingly joined a conspiracy to embezzle bank funds and to falsify bank records. It pointed to evidence that disbursements to Krezja continued despite warning signs that ordinarily would have triggered default or foreclosure, that a recreated promissory note bearing his signature was recovered in his possession, and that he used loan proceeds for international travel and car payments rather than construction costs. The court held a reasonable juror could infer that Krezja was a knowing participant seeking to prevent discovery of the scheme, rather than a passive borrower.

Aiding and abetting embezzlement. Krezja separately argued the government failed to prove Gembara personally benefited from the embezzled funds, which he characterized as a prerequisite to aidingandabetting liability. The panel declined to resolve that legal question, holding the evidence was sufficient even under Krezja’s own standard: testimony showed Krezja remitted payments to Gembara’s insurance agency in 2014 and 2015. Given the timing of those payments, a juror could infer that he used loan disbursements to make them for Gembara’s benefit, and so aided Gembara’s embezzlement.

Evidentiary rulings. The panel upheld the district court’s exclusion of evidence that Krezja had repaid four earlier WFBS construction loans between 1999 and 2006, agreeing that material differences between the loan sets, including payments made on the earlier loans, finished and sold properties, and charged loans that vastly exceeded their approved amounts, diminished the evidence’s relevance and risked an improper propensity inference. The panel pointed to a further ground: gaps in the surviving payment records, which could have left the jury speculating. It added that an intention to repay a loan does not negate intent to defraud. It also rejected Krezja’s Confrontation Clause challenge to an OCC memorandum summarizing his loan files, holding that Lyons, who supervised the examination and approved the memo, could stand in as its author for crossexamination purposes. The court further held that evidence of the OCC’s examination findings and the FDIC’s roughly $140 million loss was probative of how the scheme evaded regulatory detection, and that any error in admitting it was harmless given the extensive independent evidence of Krezja’s intent to defraud.

Decision. Krezja’s convictions stand undisturbed. The Seventh Circuit’s ruling closes his direct appeal on the sufficiency and evidentiary issues raised, leaving intact the jury’s findings that he participated in the scheme that contributed to WFBS’s collapse.

The case is No. 251770.

Judge: JacksonAkiwumi, C.

Attorneys: Kristin Pinkston, Office of the United States Attorney, for United States of America. Michael Bernard Nash, U.S. Department of Justice, for Miroslaw Krezja.

Companies: Washington Federal Bank for Savings

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