Fraud Friday — Another Community Bank President Indicted for Bank Failure

January 13, 2017

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Another Community Bank President Indicted for Bank Failure

Last month, the former President, CEO and Chairman of the Board of one of Oklahoma’s oldest community bank was indicted on 23 charges of bank fraud for rolling over delinquent loans to his borrowers.

66-year old John Shelley’s bank was seized by Oklahoma state regulators in 2014 with estimated losses of over $100 million to the FDIC.

First, the Feds say Shelley conspired with four BOU borrowers by loaning them millions of dollars secured by collateral that they did not actually have.

Which allowed him to justify an “unusually high” salary — over $1 million in 2011. The average Oklahoma bank community president made $198,000 that year.

Allegedly says the Feds, this is what happened.

The four borrowers had accumulated significant debt that they could not repay, but Shelley continued to issue them new loans to cover their outstanding loan balance with accrued interest.

At monthly Board meetings Shelley failed to disclose the true status of these delinquent loan accounts. Instead, he advised the Board that the borrowers were continuing to pay down their loans as agreed.

In October 2012 and again in 2013, Shelley directed three of the borrowers to prepare inflated cattle inventory reports falsely representing that they had sufficient collateral, in the form of cattle, to repay their loans to the bank.

Shelley also conspired to transfer some of the loans to the others, thereby avoiding the bank’s legal lending limit.

Shelley issued new loans to these borrowers in order to keep them off of BOU’s monthly overdraft reports. BOU’s lending policy directed that overdrafts generally should not be granted, particularly where a borrower’s loans were 30 days or more past due. In June 2011 and again in August 2011, Shelley, knowing that two of these borrower accounts were more than 30 consecutive days overdrawn by hundreds of thousands and, at times, millions of dollars, issued new loans to cover these account overdrafts just before the Board’s monthly meetings.

Additionally, Shelley persuaded an investor of the bank to wire $40 million to BOU by falsely representing that BOU was growing rapidly and performing well. Unfortunately, Shelley knew that the bank was on the brink of failure and needed an immediate capital infusion to ensure its solvency. He advised the investor that there was “zero” risk that he would lose his $40 million investment.

Finally, Shelley lied to the Feds. He said he had not renewed or extended any loans without full collection of the interest due.

The four borrowers have pleaded guilty to charges accusing them of providing false financial statements to a bank. One has been sentenced to 63 months in prison and ordered to make restitution in the amount of about $4.5 million.

Shelley faces the obligatory hundreds of years in jail and millions of dollars in fines