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Former CEO of failed bank pleads guilty after losing $47 million in cryptocurrency scheme
From May to July 2023, Shan Hanes, then CEO of Heartland Tri-State Bank, initiated a series of outgoing wire transfers totaling $47.1 million of the institution’s funds to a cryptocurrency wallet. According to prosecutors, the money was then transferred to multiple cryptocurrency accounts controlled by unidentified third parties.
BRENDAN SMIALOWSKI/Photographer: BRENDAN SMIALOWSKI
Shan Hanes, former CEO of Heartland Tri-State Bank failedpleaded guilty in U.S. District Court to charges that he stole millions of dollars from the Elkhart, Kansas-based lender.
Hanes, 52, admitted May 23 misappropriation of funds from Heartland Tri-State with assets of $139 million and its clients. He now faces up to 30 years in prison.
From May to July 2023, Hanes initiated a series of 10 outgoing wire transfers totaling $47.1 million in Heartland funds to a cryptocurrency wallet. According to the U.S. Attorney’s Office for the District of Kansas, the money was then transferred to multiple cryptocurrency accounts controlled by unidentified third parties.
“Even as he was squandering tens of millions of dollars in cryptocurrency, Hanes orchestrated plans to cover his tracks regarding the bank’s losses,” U.S. Attorney Kate Brubacher said in a statement.
Hanes, who could not be reached for comment, admitted in court that he embezzled bank funds, causing the bank to fail and investors to lose capital. Prosecutors said Hanes withdrew money from multiple client accounts, including one held by a local church.
The transfers ultimately resulted in failed and steep investments losses for the bank That led to his disappearance, prosecutors argued.
The Kansas State Bank Commissioner’s Office closed Heartland Tri-State and the Federal Deposit Insurance Corp. seized the bank on July 28. Dream First Bank of Syracuse, Kansas, took over all of its deposits.
Heartland Tri-State was the first community bank failure of 2023. The FDIC said it caused $54.2 million in damage to its Deposit Insurance Fund.
There were five total failures last year, including the $66 million asset Citizens Bank in Sac City, Iowa. The others were large regional banks struggling under the weight of high interest rates and a run on deposits.
There were no bank failures in 2022 or the previous year. But four banks failed in 2019 and 2020, respectively, according to FDIC data. The 6 billion dollar asset Republic First Bank of Philadelphia it is the only bank to be taken over by regulators this year.
Hanes, former president of the Kansas Bankers Association, will be sentenced Aug. 8. He was charged in February. A federal district court judge will determine the sentence.
Kansas Banking Commissioner David Herndon told the American Banker last year that Heartland Tri-State “fell victim to a scam.” Herndon also said that the bank collapse was a “very sudden” event and was unrelated to the failures of much larger ones Silicon Valley Bank, Signature Bank and First Republic Bank in early 2023.
Herndon said Heartland Tri-State, prior to the cryptocurrency transfers, had not been subject to any special regulatory scrutiny. The bank had reported stable deposit levels to the FDIC and had no major credit problems or securities losses.
Prosecutors and federal investigators said that while the scam was ongoing, Hanes lied to the bank’s board of directors, investors and employees about the wire transfers. Federal authorities estimated that shareholders lost between $9.3 million and $13.4 million.
Hanes “exploited his position as a banking executive to commit fraud and misappropriate funds that ultimately led to the failure of the Tri-State Bank,” said Jon Ellwanger, special agent in charge for the Federal Reserve System’s Western Region and the Consumer Financial Protection Bureau. a declaration.