December 11, 2020

Caity Roach
Editor

Fraud Friday — Bank of America Executive Arrested in $8 Million Bank Fraud and Bribery Scheme

Kurt Phelps, a former New York-based Bank of America executive, was arrested on October 29, 2020, for allegedly receiving hundreds of thousands of dollars in exchange for fraudulently helping a New Jersey printing firm get a line of credit at the bank.

Federal prosecutors say Phelps coached executives at the Starnet Business Solutions printing firm on how to falsify financial records to get a line of credit from Bank of America. In order to get approved for that line of credit, the Starnet executives sent Phelps drafts of their firm’s financial information. Phelps then compared the financials to other bank clients who had been approved in the past and instructed the print shop to inflate or falsify certain numbers. 

With Phelps’ guidance, Starnet successfully got its first line of credit from Bank of America in 2013 for $1.5 million. In exchange for helping Starnet grow that line of credit and avoid audits, the printing firm executives allegedly pooled their cash to pay Phelps hundreds of thousands of dollars in bribes, which were hand-delivered in FedEx envelopes. By 2018 Starnet’s line of credit had grown to $8 million.

Although the filings do not indicate whether any other Bank of America employees are under investigation, text messages exchanged between Phelps and others inside the bank suggest that he may have implicated other employees and that he may have run a similar bribery scheme with other companies.

“If there’s any credibility about him being able to bribe other people in the bank, that’s a much broader problem,” says the former FBI Chief of the Financial Crimes Division. “The regulators are going to need to determine if this is a one-off situation.”

Since the scheme was discovered, Starnet Business Solutions has gone out of business and all of the firm’s executives involved in the fraud have pleaded guilty. Phelps has been charged with one count of conspiracy to commit bank fraud and one count of bank bribery. If found guilty, Phelps could face up to 30 years in prison and a fine of twice the gross gain or loss from the offense.

Sources: 

The Department of Justice

Criminal Complaint: U.S. v. Phelps

The Charlotte Observer