May 18, 2018

By Bob Coleman
Editor, Fraud Friday

Fraud Friday: Insider Loan Fraud Borrower Sentenced to Three Years in Prison

“Michael Litz was sentenced to three years in federal prison and ordered to pay more than $5 million in restitution for criminally defrauding TARP recipient Excel Bank, a bank that later failed and taxpayers lost $4 million in TARP funds,” says Special Inspector General Christy Goldsmith Romero of SIGTARP.

Litz is one of three individuals to be criminally charged for a scheme where he and Shaun Hayes, controlling shareholder of now defunct Sedalia, MO-based Excel Bank, utilized straw-party and insider loans to support their faltering joint real estate ventures. Litz ran Bellington Realty and Eighteen Investments, together managing over 1,000 properties. In 2009, the latter firm was delinquent on over $100 million in loans at multiple banks.

One of the investments the two partnered on was a development called McKnight Man. For this property, they both guaranteed a $900,000 loan from Centrue Bank, which became delinquent in July 2009. Separately and at the same time, Eighteen Investments was delinquent on $3.6 million in loans from Centrue.

In an attempt to solve these problems, Hayes developed an innovative loan program called “Friends of Shaun” loans, which were not subjected to the rigors of appraisals and other underwriting safeguards. The $3.3 million loan paid the McKnight Man obligation and other loans at Centrue Bank. The loan was signed by a friend of Litz who was assured he wouldn’t be responsible for the loan and ultimately wasn’t charged with any crime. Additional loans were also made to cover other delinquencies of Eighteen Investments.

“There are ways to remedy troubled businesses without committing fraud,” says Special Agent in Charge Richard Quinn of the FBI St. Louis Division. “Instead, Michael Litz chose greed and indirectly victimized taxpayers who bailed out his bad business decisions. Now he will be held accountable for his criminal behavior.”

Shaun Hayes, 58, pled guilty on January 3 to one count of bank fraud and one count of misapplication of Excel Bank funds and is scheduled for sentencing on May 24.

Timothy Murphy, 53, former Executive Vice President of Excel, cooperated with the investigation and was sentenced to probation.

See our previous coverage.