WASHINGTON—Four former top executives of a failed Virginia bank were charged with fraud, a rare federal criminal case against bank chiefs arising from the recent financial crisis.

The U.S. attorney for Virginia's eastern district alleged in an indictment that those executives and a few favored borrowers orchestrated and masked fraudulent loans, in some cases to purchase properties owned by bank insiders.

Bank of the Commonwealth failed in 2011, costing the Federal Deposit Insurance Corp. an estimated $268 million, after unsuccessfully applying for aid from the Troubled Asset Relief Program.

The Justice Department has come under criticism in recent years for failing to bring cases against top executives of the nation's big financial institutions whose troubles with bad loans brought the financial world to the brink of disaster in 2008. Attorney General Eric Holder and other officials have said prosecutors are pursuing every possible case but note that many of the practices that led to the financial problems were highly flawed but not necessarily criminal.

The grand-jury indictment was announced against six people after federal authorities took the defendants into custody Thursday.

Those charged were: Edward Woodard, 69 years old, who served as chief executive and chairman of the bank; Simon Hounslow, 47, chief lending officer; Stephen Fields, 48, commercial loan officer; and Troy Woodard, 35, son of the CEO who was an executive with a bank subsidiary. Also charged were Thomas Arney, 56, a residential developer whose company leased office space in the bank's headquarters, and Dwight Etheridge, 47, a commercial and residential developer.

The men, all charged with bank fraud and related charges, were arrested Thursday and appeared in court but didn't respond to the charges. They were released on bond pending arraignment July 18.

An attorney for Mr. Arney declined to comment. Lawyers for the other defendants didn't immediately respond to a request for comment.

Six others previously were charged in the case and have either pleaded guilty or were convicted.

U.S. Attorney Neil MacBride, whose office brought the case, said the allegations expose the roots of the housing meltdown, which exposed shoddy loan standards at big banks during the real-estate boom years.

Established in 1971, Bank of the Commonwealth grew in the last 10 years from a small bank in the Norfolk, Va., area with about $230 million in assets to a regional bank that sprawled into North Carolina's tourist-beach areas with $1.3 billion in assets.

"The bank leadership made a calculated strategic effort to grow this bank to make it big and flashy," Mr. McBride said in an interview. They allegedly used techniques now familiar from the financial crisis, including "falsifying records and using loan Ponzi schemes to hide the financial health of the bank from regulators, shareholders and even their board of directors."

The bank's troubles were exposed when the real-estate downturn began and loans began performing poorly. The indictment alleges that the bank's insiders used the bank to fund real-estate loans to certain favored borrowers to purchase property owned by the insiders. As some of the borrowers' loans turned sour, insiders changed loan terms to make poorly performing loans appear current, according to the indictment.

As the bank careened toward failure in 2008, executives requested aid from the TARP program but were turned down because of the bank's ailing health. Federal Bureau of Investigation agents began probing the bank in 2009.

Commonwealth was the eighth largest of the 92 bank failures in 2011.

The Federal Reserve's inspector general, in a report earlier this year, faulted regulators for not spotting the bank's troubles early enough. The report said the bank failed because of "corporate governance weaknesses, an aggressive growth strategy that resulted in concentration risk, insufficient credit risk management practices, and pervasive internal control weaknesses."


Corrections & Amplifications
An earlier version of this article said five former top executives of Bank of the Commonweath were charged with fraud Thursday. Four former executives were charged.