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Fraud Friday – Cows at the Center of a Ponzi Scheme

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September 6, 2013

CowHerdBy Bob Coleman
Editor, Coleman Report

Our periodic reporting of the Greely, Colorado failed New Frontier Bank keeps getting more and more bizarre.

In a FDIC lawsuit against the bank’s insurer the rhetoric has ratcheted up to the p word describing a $50 million fraudulent loan scheme.

Says the FDIC, “This action arises from a multi-year criminal fraud, in the nature of a Ponzi scheme, perpetrated by Gregory William Bell , the former chief lending officer of New Frontier Bank, involving millions of dollars of bank loans to or for the benefit of Johnson Dairy and its affiliates.

“Before it went bankrupt in 2009, Johnson Dairy was one of the largest dairy operations in Colorado and one of Bell’s largest bank customers.

“The bank’s loans supported Johnson Dairy’s operations for several years, and looked legitimate on the surface. But they were actually fraudulent; Bell was concealing Johnson Dairy’s financial woes and using NFB loans to keep it alive because Bell secretly had his hand in the till. That is, Bell was getting improper personal benefits from the loans, such as a cut of Johnson Dairy’s monthly cow lease payments to the Bank’s borrowers, or a cash kickback from the loan — money Bell used for things like a new Corvette.

“‘All of the cow lease arrangements generally worked as follows: (a) First, a bank director, family member or friend of a bank officer, would put up a small amount of capital or collateral with NFB, and agree to serve as an ‘owner’ or ‘lessor’ in an outside agreement with Johnson; (b) Second, NFB would loan money to the ‘owner’ or ‘lessor,’ at an interest rate of 8-9 percent; (c) Third, the ‘owner’ or ‘lessor’ would provide close to the same amount of money to Johnson to ‘buy’ heifers or cows from Johnson; (d) Under the same or subsequent agreement, Johnson would lease back the same cows for a cost of approximately 8-9 percent more annually than what the ‘lessor’ had paid and borrowed from NFB; (f) As such, Johnson would effectively borrow money from NFB paying double interest – interest to the ‘lessor’ as well as interest on the lessor’s loan from the Bank; (g) The cows would never leave Johnson’s property, and the risk of death or disease, as well as all other incidents of ownership, remained with Johnson; (h) The right to depreciate, however, went to the ‘owner’ or ‘lessor,’ resulting in an additional financial gain to the ‘owner’ or ‘lessor,’ because his/her entire income would be offset and he/she would therefore pay no income tax on other, unrelated income during the term of the cow lease.'”

Bell pleaded guilty in February this year and was sentenced to 2½ years in federal prison.

Read more of the reporting by Courthouse News Service here.

 

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