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ASHEBORO — CommunityOne Bank was celebrating its rescue from the brink of failure when a dark cloud blew in.

Hours after the financially troubled bank announced its merger with Bank of Granite, the U.S. Department of Justice said it had reached a deferred prosecution agreement with CommunityOne.

The Justice Department filed criminal charges against the bank in 2010 related to a $40 million ponzi scheme operated by one of its depositors.

The criminal charges say the bank failed to detect and report the scheme.

The Justice Department agreed to delay any prosecution of the charges for two years if CommunityOne beefs up its anti-laundering measures and pays $400,000 in restitution to victims of the scheme.

The Department of Justice said in a news release that CommunityOne “waived indictment and accepted and acknowledged responsibility for its conduct.”

CommunityOne must make the payment when it closes its merger with Bank of Granite, which is expected in the third quarter of 2011.

CommunityOne and Bank of Granite referred all interview requests to an SEC document about the merger.

The U.S. Attorney’s Office did not return a phone call.

Bank customer Keith Franklin Simmons was convicted on charges relating to the $40 million scheme, which he ran for two and a half years almost entirely through an account at the bank.

Simmons was convicted of securities fraud, wire fraud and money laundering after a jury trial in Charlotte in December 2010 and is being held pending sentencing. He faces a maximum prison sentence of 80 years.

From April 2007 until September 2009, Simmons deposited more than $35 million in investor funds into one account with the bank, and over the same time span, he withdrew more than $35 million from the same account.

According to court documents, the bank failed to detect and report the suspicious transactions, as required by the Bank Secrecy Act, because of deficiencies in its anti-money laundering program.

The Justice Department said the bank did not file any reports on Simmons during this period, despite the hundreds of suspicious transactions that took place over those two and a half years.

According to court documents, the bank’s records also showed that Simmons diverted more than $2 million to other accounts with the bank that he controlled to operate his other businesses; diverted nearly $800,000 in cash withdrawals, gift cards and transfers to his personal account with the bank; and diverted numerous payments to support his luxurious lifestyle including payments for private jets, vehicles and gifts.

“Banks asleep at the switch need to wake up,” U.S. Attorney Anne Tompkins of the Western District of North Carolina said in a news release.

“Federal law requires banks to implement a robust and proactive anti-money laundering program to detect fraud and protect the public from harm.... Other financial institutions should heed this warning: The Bank Secrecy Act applies to more than just drug and terrorist financing.”

Assistant Attorney General Lanny Breuer said in the same release that “CommunityOne Bank turned a blind eye to criminal conduct occurring under its nose. By agreeing to pay restitution to the victims of a customer’s investment fraud scheme and to overhaul its anti-money laundering program, the bank has begun the process of righting its wrongs. We will take every necessary step to hold banks committing similar offenses to account.”

In a Securities and Exchange Commission filing that details the merger, CommunityOne discussed its agreement.

Investment bankers Oak Hill Capital Partners and the Carlyle Group are investing a total of $155 million and taking over a 49.8 percent ownership of the merged company.

According to the filing, the bank said the charges stem from a grand jury subpoena in the Western District on Aug. 11, 2010.

Before agreeing to the investment, the capital companies required the bank to resolve the issue with the U.S. Attorney’s Office and negotiate a settlement.

The deferred prosecution agreement was signed Tuesday.

The merger of these 100-year-old institutions will create a North Carolina community banking organization with about $2.9 billion in assets, $2.4 billion in deposits and 63 full-service banking offices.

The new bank will take the CommunityOne name.

The combined parent company will be called FNB United Corp. and will be operated by new management. Brian Simpson will be chief executive officer, and Bob Reid will be president.

FNB United will be based in Asheboro. Bank of Granite is based in Granite Falls.

CommunityOne Bank has lost about $280 million in the past three years as it struggled with a series of bad loans, foreclosed properties and other troubles caused by the recession. The bank has been under special orders from federal regulators to prevent it from collapsing.

Earlier this year, CommunityOne’s balance sheet was loaded with nearly $400 million in bad assets such as foreclosed houses, repossessed commercial properties and unpaid loans. That’s nearly four times the $111 million in capital and money for loan losses that the bank had on hand.

The Associated Press and staff writer Margaret Moffett Banks contributed to this report.

Contact Richard M. Barron at 373-7371 or richard.barron@news-record.com