November 18, 2016
By Bob Coleman
Editor, Fraud Friday
Fraud Friday — Jury Finds Two Arkansas Community Bankers Not Guilty of Bank Fraud
Former One Bank & Trust community bankers Michael Heald and Brad Paul have been acquitted of charges related to a 2007 loan after a three-week trial in federal court in Little Rock.
I’m happy to tell you how extremely pleased we are that Mike’s vindicted at long last,” Heald’s attorney said.
They were charged, along with three other bank executives to hide a bad $1.5 million loan from federal regulators.
The line of credit was extended in 2007 to Alberto Solaroli, a Jacksonville, Fla., race-car maker with whom another bank executive, Gary Rickenbach, had personally invested $25,000 earlier that year — unbeknownst to the other bank officers. Solaroli was to repay the loan with interest within a year, but never made a single payment.
Rickenbach, 59, a senior executive vice president at the bank, pleaded guilty to a reduced charge and testified for the government at the ongoing trial of Paul and Michael Heald.
Heald was acquitted on four counts: one each of conspiracy and money laundering and two of aiding and abetting false entries.
Brad Paul, was acquitted of the same charges, plus one more count of abetting a false entry.
Following are excerpts from Northwest Arkansas Democrat Gazette’s Linda Slater Reporting of the trial.
Brad Paul, a former executive vice president at Little Rock-based One Bank, choked back tears as he took the witness stand, saying he had waited two years for the chance to tell his side of the story that resulted in him being indicted last year on four federal charges.
Paul, whose wife and three sons sat in the courtroom gallery, teared up under questioning by his attorney. He said he approved the loan to Solaroli at Rickenbach’s request “because it was a good loan” backed by “tons of stock,” and it appeared to be sought by a man with a net worth of over $100 million, according to documents he was shown.
Rickenbach testified that it gradually became apparent, after Solaroli failed to make any quarterly interest payments or repay the principal, that he was a “crook.” So the bank sued Solaroli in a Florida court and got a $1.6 million judgment against him.
Rickenbach said he then conceived a complicated plan for the bank to loan money to another investor who was a top customer at the bank, and who in return expected to eventually collect on the judgment. Rickenbach said Stuart later insisted on joining in the Solaroli buyout plan by taking out a loan of more than $1 million, secured by three lots he owned in Little Rock’s affluent Crestwood neighborhood, with the stated purpose of developing and reselling them.
Prosecutors say the bank wanted to keep the loss of the $1.5 million, plus the expected interest, off the bank’s books because that would hurt its chances of receiving $10 million it had applied for from the government. The government offered loans through its Troubled Assets Relief Program to some banks across the country that were financially sound but were struggling to stay afloat after the 2008 financial crisis. One Bank eventually increased its TARP loan request to $17.3 million, and in June 2009 received the full amount.
Solaroli asked for the loan to invest in new technology to build race cars, but Rickenbach said it turned out that the Florida man instead wired the money to complete his purchase of two Porsche race cars, including one that cost more than $750,000. Solaroli is now serving a prison sentence for money laundering.
Asked about “system bumps” that he approved at One Bank, such as those that extended the due date of the Solaroli loan repeatedly so it wouldn’t show up as a loss on the bank’s books, Paul testified that he approved bumps only on loans that were presented to him as viable loans that were still collecting interest.
Paul said he implemented that requirement for bumping loans upon discovering that the bank routinely “bumped” loans without any assurance that they were still producing interest, in violation of banking regulations. Paul denied conspiring to hide anything from regulators, testifying that all documents he approved were placed back in the loan file, where they were available for inspection.
Michael Heald, former chief operating officer at One Bank & Trust, testified that it “would have been irresponsible” for the bank to write off a bad $1.5 million loan in 2008 when its management team had found a way to recoup the lost funds.
The executives’ boss, Layton Stuart, who was the bank’s sole shareholder and chief executive officer, was ousted from the bank in 2012 by regulators and died in March 2013 before he could be indicted. The government later filed a civil lawsuit to collect millions of dollars that prosecutors said he stole from the bank.
The reason the bank didn’t record a loss on its books after the Solaroli loan went into default wasn’t to hide anything from federal regulators, Heald said, but because he was confident that Rickenbach’s plan would prevent the bank from suffering the loss.
“We had a [$1.25 million] real estate loan secured by three lots in Crestwood with a $1,750,000 appraised value. I can’t think of any reason why there would be any concern about this,” said Heald, who was also on the board of directors of the bank’s holding company, One Financial Corp. He said he also had no concerns about another loan in the Solaroli plan that also appeared to be well-secured.
“So there was no reason why I should disclose anything to the OCC,” he said, referring to the federal Office of the Comptroller of the Currency, a government agency tasked with preserving the integrity of the banking system.
Heald said he knew nothing about two other executives’ alleged diversion of funds in December 2009 to pay off one of the loans for taking on the Solaroli loan.
While defense attorneys say the Rickenbach plan worked and the bank didn’t lose any money from the defaulted Solaroli loan, prosecutors say the plan endangered the bank and its depositors. They also say that the bank lost more than $500,000 through the loan-takeover plan, such as through lost interest payments that the Solaroli loan was expected to generate.