FBI building, Washington – CC 2.0 Ajay SureshA Wichita courtroom rang out with sobs and cheers when over two dozen people learned that their life savings had been recovered after being lost by a local bank.
Over $8 million in children’s university funds, retirement accounts, funds for eldercare, and bequeathments to children and grandchildren were returned after the FBI located and seized a cryptocurrency wallet linked to an account in the Cayman Islands.
The bank’s founder Shan Hanes, claims he had unintentionally lost it all by investing in a sophisticated cryptocurrency scam, though he ultimately lost his defense and received 24 years in prison for defrauding depositors and investors.
In August, Heartland Tri-State Bank was put into receivership by federal regulators after being drained of cash. The FDIC paid out $47 million to everyday depositors and other investors, but the rural, community-owned bank had 30 shareholders who had carefully planned long-term accounts that were not insured.
Last Monday, in Judge John W. Broome’s courtroom, the shareholders were told one by one that they were going to be made entirely whole again, after the FBI’s financial crimes division located the cryptocurrency account linked to Tether Ltd. where their savings had been moved.
The AP reported that shareholder Margaret Grice came to court that day figuring she’d get $1,000 back. Instead, she learned she’d recover almost $250,000, her entire 401(k).
“I’m just really thrilled,” she said. “I can breathe.”
The shareholders were almost all Hanes’ friends and neighbors, but that didn’t stop him from putting millions of debt on the books in a “pig butchering” scam.
Having gained his trust through WhatsApp communications, scammers convinced Hanes to buy $5,000 in cryptocurrency. The money appears on a fake website and proceeds to grow in value over time.
Either believing he had made the investment pick of a lifetime, or because he was in on the scam somehow, Hanes eventually spent $60,000 belonging to his local church, $10,000 from a local investment club, and $60,000 from his Daughter’s college fund, before making 11 separate wire transfers totaling $47 million—the entire deposit value of the bank—over a series of weeks.
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Hanes’ defense stated that the money was being put up in order to close the account and cash out on what appeared to be close to 400% returns, but instead, the money was “jettisoned into the ether.”
Ironically, Hanes has been a long-time advocate of community-owned and operated banks and the necessity of these local institutions in protecting Americans from the shark-infested waters of international investment markets. He even testified before Congressional banking and finance committees on the topic.
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However, an investigation from the Federal Reserve revealed that it was exactly this community aspect, and it was exactly his prominent role in the culture of local banks, that disarmed Heartland employees who might have otherwise detected the fraudulent activity.
“Heartland employees circumvented the bank’s internal controls and policies; following those internal controls and policies may have prevented or detected the alleged fraudulent activity,” the report read. “We believe that the CEO’s dominant role in the bank and prominent role in the community contributed to a reluctance on the part of Heartland employees to question or report the alleged fraudulent activities earlier.”
Prosecutors argued that even if Hanes was just the first of the scam’s many victims, he knowingly broke both customer agreements and federal banking regs when he began transferring depositors’ and investors’ funds into the scam account.
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“I just can’t describe the weight lifted off of us,” said local shareholder Bart Camilli to the AP, who will be recovering a half-million dollar fund he lost in the scam. It’s life-changing.”
The story of Heartland Tri-State Bank is a great reminder to make certain you understand the risks before any investment.
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