August 13, 2021

Delaney Sexton
Contributing Editor

Fraud Friday – Newtek Alleges Fraud Prior to banc-serv Convictions

Newtek acquired banc-serv in June of 2016, a little more than a year before the FBI raided banc-serv in 2017. At the time of the sale, it is alleged that Kerri Agee was in default on a $750,000 loan, and a loan servicing account was running at a deficit of over $800,000. Newtek was not made aware of these financial issues.

In April of 2018, Newtek claimed they terminated Kerri while Kerri claimed she resigned. Three months later in July, Kerri filed a breach-of-contract suit against Newtek. She claimed they failed to pay her “wages as a ‘commission salesman,’ [had] failed to pay her Severance Payment, and [had] failed to reimburse her for legitimate business expenses.” Agee also alleged that Newtek made transfers and “caused banc-serv to incur debts beyond its ability to pay.” A few of her other claims are as follows:

• “banc-serv […] failed to pay its rent for the months of May, June and July, 2018”
• “without the consent of Ms. Agee, Newtek took at least as much as $400,000.00 from banc-serv’s account(s) as a distribution to its shareholders”
• “without the consent of Ms. Agee, Newtek applied an expense of at least as much as $100,000.00 to banc-serv in 2016 for ‘corporate overhead’”
• “Newtek began diminishing Ms. Agee’s role from her prior duties as President and Chief Executive Officer of banc-serv”
• “Ms. Agee was told by Newtek’s President, Chairman and Chief Executive Officer, Barry Sloane, that her job was just to sell, and not to actively manage the Company she founded and grew from 2002”
• “Other banc-serv employees were told by Newtek that Ms. Agee was no longer the first line of inquiry for fixing issues related to the operations of banc-serv”

Less than a year later, Kerri was indicted for the banc-serv fraud case, and she filed for Chapter 7 three months after the indictment. In this legal battle, Newtek sued Kerri three months after her bankruptcy because she allegedly lied about banc-serv’s absence of liabilities and falsified financial statements at the time of sale. These alleged liabilities include:

• “over $800,000 in liabilities owed to banc-serv’s clients resulting from the deficit in banc-serv’s servicing account caused by the conversion of funds belonging to banc-serv’s customers”
• “approximately $200,000 in employee bonuses”
• “Repair and Denial Liabilities as high as $3,000,000”
• “the requirement that banc-serv provide free services to a significant client (North Salem State Bank) through November 2019”
• “the claim of one of its clients that banc-serv overcharged it for over $200,000 in fees”
• “car leases that Agee allowed her family members to take out in bancserv’s name”
• “federal and state tax liabilities of approximately $8,135”

Newtek would not have entered a Purchase Agreement if they had known they were “materially misled and fraudulently induced entry into the Purchase Agreement.” In Newtek’s lawsuit they claim, “For example, the NSSB Lawsuit raised very serious allegations about the Debtor, her operation of banc-serv in an illegal manner, her violation of the SBA rules and regulations, and her character.”

The jury found Kerri Agee guilty of five charges of fraud during the banc-serv trial. Her co-conspirators were guilty of all charges totaling 13 guilty charges among the five defendants.

Source:
Agee v. Newtek
Newtek v. Agee