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Fraud Friday — Community Bank President Gets 4 Years for Bank Fraud

March 3, 2017

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Community Bank President Gets 4 Years for Bank Fraud

The former president and chairman of Oklahoma-based First State Bank of Altus is heading to jail for four years.

67-year old Paul Doughty approved a series of loans to companies he controlled that led to the bank’s failure in 2009 at a cost of $25 million to the FDIC insurance fund.
His partner in several business ventures, Fred Anderson, also 67, pled guilty to one count of bank fraud and testified against him at the trail. He is serving 18 months in jail.

The jury heard that in 2006 and 2007, Doughty and Anderson recruited buyers for 19 Colorado real estate lots priced at approximately $700,000 each. Doughty approved and issued 14 lot loans to buyers, totaling more than $10,000,000 in loan proceeds for the seller, Mountain Adventure Property Investments. MAPI was a Colorado company that Anderson had an indirect ownership interest in and where he served as president and manager.

Evidence at trial showed that each loan exceeded Doughty’s individual lending authority at FSB, and most of the loans were issued without approval of FSB’s loan committee, including a $580,000 loan to Anderson’s personal company. The jury heard that Doughty and Anderson presented lots to borrowers as “zero money down” investments, and that the down payments for the purchases were often advanced or refunded to the buyers by Anderson on behalf of MAPI. Doughty and Anderson also assured the buyers that MAPI would make all payments on the loans to the bank. The jury heard that on the few occasions when Doughty presented a Colorado loan to FSB’s loan committee, he misrepresented the source and amount of borrowers’ down payments and the borrowers’ responsibility for making payment on the loans.

Second, trial evidence showed that Doughty funded five so-called “senior life settlement” loans through FSB in 2008. Each loan was $2.5 million, and one of the loans went to Anderson’s personal company. Doughty and Anderson recruited borrowers to take out these “self-paying” loans to provide money for investments in Altus-based Quartz Mountain Aerospace. Evidence at trial showed that a portion of the loan proceeds was invested in QMA, and another portion would pay the loan’s interest. The remaining proceeds on the loans would buy and maintain third-party life insurance policies, where the death benefits on the third parties were intended to repay the loan’s principal. The jury heard that each loan exceeded Doughty’s lending authority, and that he issued at least $10,000,000 in senior life settlement loans without FSB’s loan committee or board approval. With each loan, Doughty and Anderson directed $125,000 in “service fee”” to Altus Ventures, a company under their control. The jury heard evidence that at the time the loans were issued, the fees to Altus Ventures were not disclosed to FSB or to the borrowers taking out those loans.

Third, the jury heard evidence that in January 2008, Doughty arranged a $2 million loan from FSB to Ethanol Products Group, a startup company in which both Anderson and Doughty had ownership interests. Evidence showed that Doughty advanced the $2 million from FSB, above his individual lending authority, without approval by FSB’s loan committee or board. Soon before issuing the loan, Doughty e-mailed Anderson his “cash strategy” for two other companies they controlled; the “strategy” showed all the EPG loan proceeds would be directed to companies controlled by Anderson and Doughty, ultimately diverting $100,000 in “officer bonuses” to Anderson and Doughty.

The jury heard evidence over seven days, and deliberated about seven hours before reaching a verdict. The jury acquitted Doughty on three charges.

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