December 21, 2018
By Dominic J Bartolone
Contributing Editor, Fraud Friday
Fraud Friday – Former Community Bank President Gets 4 Years for Bank Fraud
A former bank executive was sentenced in Oklahoma City to four years in federal prison and ordered to pay $137 million in restitution, in part, for making false statements to the FDIC during his time at The Bank of Union in El Reno, Oklahoma.
John Arnold Shelley, 68, was President, Chief Executive Officer, Chairman of the Board, and a loan officer at BOU from the late 90s until his resignation on November 30, 2013. In January 2014, state banking regulators closed BOU because of a series of loan losses and appointed the FDIC as the receiver.
A federal grand jury indicted Shelley on December 13, 2016, with a 23-count indictment connected to the failure of BOU. Shelley was charged with bank fraud, money laundering, making false statements to a bank, false bank entries, misapplication of bank funds, wire fraud, and making false statements to the FDIC.
According to the indictment, Shelley’s fraud ran deep. Prosecutors say he issued loans without sufficient collateral and falsified financial statements for several high-dollar bank borrowers; originated nominee loans to circumvent the bank’s legal lending limit; hid the bank’s true financial condition from the Board of Directors; solicited a fraudulent investment;, and falsely represented the bank’s economic status to the FDIC.
Beginning in 2009, Shelley conspired with some BOU borrowers to defraud the bank by issuing millions in BOU loans secured by collateral they did not own. Although the borrowers were already overburdened by debt they could not repay, he continued to issue them new loans and capitalized on the interest.
During the bank’s monthly Board meetings, Shelley failed to disclose the actual status of the delinquent loans and instead told the Board that borrowers were working on paying down the debt. Shelley also issued new loans to these same delinquent borrowers to keep them off of bank’s monthly overdraft report.
Prosecutors also allege that Shelley developed and executed a scheme in 2012 to defraud a partial BOU owner and investor. According to court documents, Shelley persuaded the investor to invest $40 million by falsely representing that the bank was thriving and expanding operations, assuring him that his money was not at risk.
Shelley knew the bank was close to failing and lied in order to get the capital infusion the bank needed to remain solvent.
Lastly, in October 2013, Shelley falsely represented to the FDIC that he had not renewed or extended any loans without full collection of the interest owed the bank.
Shelley pleaded guilty on Sept. 18, 2017, to making a false statement to the FDIC, representing that the bank had total equity capital of $36,290,000 while knowing full well that the bank held far less capital reserves.
Shelley was sentenced on December 14, 2018, with U.S. District Judge Timothy D. DeGiusti finding that Shelley’s actions caused over $85 million in losses for the bank. For restitution, Shelley was ordered to pay the investor $40 million and owes the remaining $97 million to the FDIC, which lost money when it assumed the bank’s liabilities.