Fraud Friday — Two Community Bankers, Borrower Guilty of Insider Loan Fraud

February 16, 2018

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — Two Community Bankers, Borrower Guilty of Insider Loan Fraud

“These convictions are an important step in the fight against fraud that hurt a TARP bank which lost $4 million in TARP funds,” says Christy Goldsmith Romero, Special Inspector General for TARP.

“Banker Shaun Hayes, as the majority shareholder of Excel Bank, controlled the bank’s lending. He directed former executive vice president Tim Murphy to increase dramatically the bank’s commercial and real estate lending. So called “friends of Shaun” loans were approved absent Excel Bank’s normal underwriting safeguards such as appraisals—putting the bank at risk. Hayes also made the bank issue millions of dollars in loans to straw borrowers, concealing that the loans personally benefited himself and his business partner, Michael Litz. I commend the Office of the U.S. Attorney for the Eastern District of Missouri for its commitment to bringing justice to bankers who break the law.”

“Michael Litz used his connections to banker Shaun Hayes to commit fraud. The two men worked together to enrich themselves at the expense of Excel Bank,” says Special Agent in Charge Richard Quinn of the FBI St. Louis Division. “This type of self-dealing and fraud violates the integrity of our banking system and undermines consumer confidence.”

In 2009, Eighteen Investments was delinquent on over $100 million in loans at banks throughout the St. Louis area. Litz and Hayes were also partners in a number of real estate development projects.

Litz and Hayes were guarantors on a loan at Centrue Bank in the amount of $900,000. That loan was delinquent in July, 2009. At the same time Eighteen Investments was delinquent on $3.6 million in loans at Centrue Bank. Litz admitted that he recruited a close friend, identified in the court papers as LS, to sign on to a $3.3 million loan at Excel Bank to assist Litz in his business. LS was assured that he would not be held liable on the note and that the loan would be taken care of. The LS loan was secured on paper by a list of Eighteen Investments loans which were not performing and were substandard. Litz provided no details to LS on the specifics of the loan.

According to court papers, LS was simply assisting Litz as a friend. The loan proceeds were used to pay off Litz’s and Hayes’s McKnight Man debt at Centrue Bank as well as the Eighteen Investments debt at that bank. Since Hayes was a principal at Excel Bank, the use of the LS loan funds to pay off the Hayes-Litz liability at Centrue Bank constituted unlawful self-dealing. Litz admitted that he participated in that transaction and directly benefited from it. According to court papers, Litz and Hayes set up other straw party loans at Excel Bank to cover millions of dollars in other delinquent loans of Eighteen Investments.

Bank regulators closed Excel Bank in October, 2012.

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 April 13.

Timothy Murphy, 53, pled guilty on January 11 to bank fraud and sentencing is scheduled for April 24.

Michael Litz, 63, pled guilty January 16 to assisting in an unlawful insider loan scheme at Excel Bank. Sentencing is scheduled for April 25.