Iowa Capital Dispatch: Davenport Banker Charged with Fraud in Million Dollar Scheme Targeting SBA | Business and Economy
An Iowa banking executive accused of attempting to defraud the Small Business Administration through a scheme involving millions of dollars has pleaded guilty to a charge of wire fraud.
Larry Charles Henson of Davenport, the former chairman and chairman of the now-closed Valley Bank in Moline, is expected to be sentenced on March 8. He is accused of conspiring with others to transfer millions of dollars in potential losses from Valley Bank to the SBA. .
Court records indicate Valley Bank worked with a Clive-based lending institution, identified by prosecutors only as “Company 1,” to help Valley grant SBA-backed loans that the federal agency would pay back in the event of default. borrowers.
According to prosecutors, the founder and chairman of Company 1, identified by prosecutors only as “Co-Conspirator 1,” worked with Henson and other Valley Bank employees to design these loans so it appears that borrowers are qualified for SBA guarantees. To do so, they reportedly completed loan guarantee applications that included false statements regarding both the borrowers’ eligibility to receive the loans and the eventual disbursement of the loan proceeds.
For example, in September 2011, Valley Bank reportedly attempted to evade any risk associated with a $ 5 million loan it had made to a Kentucky company that was heavily in debt and had limited capital.
Co-conspirator 1 reportedly advised Henson to “do everything possible to ensure that the borrower is not more than 29 days late” in payments to ensure that his request for refinancing the secured loan by the SBA would be approved – even if that meant having Valley Bank grant the borrower a 90-day deferral of payment. Co-Conspirator 1 also reportedly called Henson and suggested various ways a bank could fraudulently conceal from the SBA the fact that a loan was in danger of defaulting.
Shortly thereafter, Co-Conspirator 1 called Valley Bank Vice President Andrew Erpelding to warn him that the loan could not be refinanced by the SBA due to past overdue payments. Erpelding reportedly called Henson and told him about the issue, after which the pair jointly called Valley Bank Vice President Susan McLaughlin, asking her to change the bank’s loan repayment reports.
McLaughlin reportedly complied, altering the borrower’s payment history to eliminate any overdue payments. The bank, along with Co-Conspirator 1, then forwarded the falsified information to the SBA as part of the refinancing request.
Around the same time, the SBA rejected Valley Bank’s request to refinance a $ 4.6 million loan involving a Florida company, pointing out that the borrower was already guarantor of two other SBA loans. in default. Co-Conspirator 1 would then have submitted a new loan application, this time identifying the borrower only by an acronym of the borrower’s real name.
With no credit history attached to this fictitious name, the SBA contacted Valley Bank and asked for their payment statements and other documents related to the loan. Co-Conspirator 1 reportedly emailed Erpelding and explained to him that the bank would have to ‘rewrite’ their loan documents to put them all in the fictitious name used on the SBA application, then make sure he didn’t There were no overdue payments referenced in these documents.
The SBA approved the falsified application and the borrower ultimately defaulted, leaving the federal agency on the hook for $ 2.1 million.
A few months later, in January 2012, Valley Bank attempted to transfer its risk of loss from a loan the bank made to another Florida company to the SBA, court documents show. As before, he attempted to do this by refinancing the loan through the SBA. As part of this refinancing, the borrower requested $ 5 million, of which $ 3.7 million was to be used to repay the loans and $ 1.3 million designated as working capital.
One problem with the request for refinancing: The borrower had a net worth of only $ 408,000. To help secure SBA approval, Co-Conspirator 1 allegedly falsely inflated the borrower’s equity to $ 2.2 million, with $ 750,000 in savings and other assets worth over $ 1 million. Prosecutors say Erpelding then falsely informed the SBA that the borrower would inject $ 750,000 of his own money into the business.
The SBS ultimately approved the $ 5 million loan. The borrower defaulted and the SBA suffered losses of $ 34 million.
Henson was recently charged with one count of wire fraud. He pleaded guilty on Tuesday and admitted that he now faces a maximum sentence of 30 years in prison and a fine of $ 1 million.
Regarding Co-Conspirator 1 and the role played by others in the alleged scheme, the US Department of Justice said on Wednesday the case remains under investigation.
In 2016, the Federal Deposit Insurance Corp. and Henson reached a settlement under which the former executive consented to an order ceasing all further involvement in the affairs of a financial institution.
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