Fraud Friday – Former Bank Executive Convicted in $15 Million Fraud Scheme

January 24, 2020

By Caity Witucki
Contributing Editor, Fraud Friday

Fraud Friday – Former Bank Executive Convicted in $15 Million Fraud Scheme

Troy Gregory, a former senior lending officer at University National Bank in Kansas, has been found guilty of bank fraud in a scheme that ensnared 25 other banks.

In 2007, Gregory began the process of making a $15.2 million construction loan to build an apartment complex. The loan was for a group of real estate investors described by the U.S. Department of Justice as “financially unfit”. According to court documents, the borrowers were already underwater after funding a single-family home construction project in Junction City, Kansas. After completing the Junction City project, the borrowers discovered that a large portion of the city’s residents were soldiers who preferred renting apartments or living on base rather than buying homes.

Despite the borrowers’ preexisting financial struggles, Gregory agreed to prepare a new construction loan for an apartment project in Junction City. The loan was shared with 25 other Kansas banks. While preparing the loan, Gregory made false statements to the banks about the strength of the borrowers, the debt status of the apartment property and the existence of approximately $1.7 million in certificates of deposit for collateral on the loan. The other Kansas banks that shared in this loan would not have participated without Gregory’s false representations and promises.

After the loan funds were approved, Gregory immediately diverted over $1 million of the loan. He used the funds to purchase some of the certificates of deposit that he claimed were collateral on the loan, paid off some of the debt on the apartment property and made payments on the failed housing project.

When the housing bubble burst in 2007, the completed apartments were appraised at a far lower value than expected, pushing the loan into default. As a result, the 26 participating banks were forced to take millions of dollars in losses.

On August 20, 2019, Gregory was found guilty of four counts of bank fraud and two counts of false statements. His final sentencing is scheduled for Tuesday, January 28.

Sources:
Department of Justice
Kansas City Business Journal