March 11, 2022
Fraud Friday – Former President and CEO of Iowa Bank Sentenced to 9 Months and $4.5 in Restitution for Loan Guaranty Fraud
Three former executives of the defunct Valley Bank and the President of a lending service provider all pleaded guilty to conspiracy to commit wire fraud affecting a financial institution at the end of 2021. In total, the defendants attempted to secure guarantees on more than $14 million in loans, and they were successful in obtaining the guaranties on over $9 million in loans. The SBA suffered losses of more than $4.5 million.
Michael Slater, Founder and President of Vital Financial Services, and Larry Henson, former President and CEO of Valley Bank, worked to fraudulently obtain loan guarantees from the SBA knowing that the loans did not meet guidelines and requirements. To achieve this, they altered loan payment histories, renamed businesses after applications were denied, and hid the borrowers’ histories of defaulted loans.
In 2011, Valley Bank made a $5 million loan to a business that was “highly leveraged and had limited capital”. Slater allegedly guided Henson to ensure the borrower is no more than 29 days late even if that required giving the borrower a 90-day payment deferral. The Valley Bank Vice President, Andrew Erpelding, was notified by Slater that the loan would not be able to be refinanced due to due to past-due payments. Allegedly, Erpelding and Henson instructed another Valley Bank Vice President, Susan McLaughlin, to alter loan-payment reports and hide any delinquent payments. The fraudulent documentation was sent to the SBA in an application for refinancing.
Another two loans made to companies in Florida allegedly revealed similar conduct. One loan involved a $4.6 million refinancing, and the other involved a $5 million loan that defaulted. This led to $3.4 million in losses for the Small Business Administration.
Larry Henson was sentenced to nine months of incarceration in a federal prison for male inmates that require specialized or long-term medical care due to a heart condition. Prosecutors argued for some time in prison while a supporter of Henson asked that he face a shorter sentence after indicating that Henson would likely die in prison. He will also face five years of supervised release and must pay $4,528,191 in restitution.
The other defendants are expected to be sentenced during Spring 2022.