February 28, 2020
By Caity Witucki
Contributing Editor, Fraud Friday
Fraud Friday – Community Banker, Mary Halsey, Indicted On Fraud Allegations
A Maryland federal grand jury has indicted the former CEO and president of Cecil Bank, Mary Beyer Halsey, on fraud charges related to the purchase of a foreclosed-upon home. To obtain the property, Halsey allegedly made false representations to the bank’s Board of Directors about the identity of the buyer and the home’s true market value.
In 2011, the community bank began the foreclosure process for a single-family home in Rising Sun, Maryland. Although the home needed significant renovations, the bank’s appraisal valued the full property at $295,000. When Halsey saw the appraisal, she allegedly expressed an interest in acquiring the house for herself. However, because she could not buy the house under the bank’s conflict of interest policy, she asked Daniel Whitehurst, an employee of a real estate development company, to act as a straw purchaser in exchange for a $650,000 line of credit.
When Halsey sought authorization from Cecil Bank’s Board of Directors to sell the foreclosed home to Whitehurst, she allegedly told them that she negotiated a fair price of $150,000. To justify the lower sale price, she used inappropriate residential properties as comparables and misrepresented the physical condition of the home.
When the fraud scheme was finally discovered, Cecil Bank began struggling with other bad loans and was forced to sell off branches as a way to boost capital. Cecil eventually filed for Chapter 11 bankruptcy but was ultimately able to undergo successful recapitalization.
Investigation into the fraud scheme is being conducted by SIGTARP since the community bank received $11,560,000 in federal taxpayer funds in 2008 as part of the Troubled Asset Relief Program (TARP).
“TARP bailed out banks to stabilize financial institutions, and SIGTARP is charged with investigating fraud in banks while the bank was in TARP,” says Special Inspector General Christy Goldsmith Romero. Bankers that break the law to personally enrich themselves will be investigated, caught, and prosecuted.”
Daniel Whitehurst has already pleaded guilty to mail fraud and now faces a maximum sentence of 30 years in federal prison if convicted on all charges. Although actual sentences for federal crimes are typically less than the maximum penalties, Halsey could face a lifetime sentence of 180 years.