Four former financial executives, including a Clive businessman, have pleaded guilty to fraud charges stemming from the 2014 collapse of Quad Cities-based Valley Bank.
The U.S. Attorney for the Southern District of Iowa announced Friday that Larry Henson, Andrew Erpelding and Susan McLaughlin, former Valley Bank leaders, and Michael Slater, founder and former president of Clive-based Vital Financial, have all pleaded guilty to conspiracy to commit wire fraud affecting a financial institution.
They will be sentenced in March, according to court documents.
Attorney Sean Spellman represented Slater, the only central Iowa defendant. He said Friday his client regrets his actions.
“He accepts responsibility for his conduct in this matter, he regrets that it occurred, and he appreciates he has the opportunity to rectify the situation,” Spellman said.
Moline-based Valley Bank had 15 offices, all but one located in Iowa, when it was ordered shut down by Illinois bank regulators on June 20, 2014. The Federal Deposit Insurance Corporation stepped in and arranged the sale of the bank’s deposits and most of its assets to Missouri-based Great Southern Bank.
From 2014: Moline-based Valley Bank is shut down
At the time, Valley Bank had roughly $456 million in total assets, including loans as well as real estate, and $360 million in deposits. Great Southern purchased all Valley’s deposits and about $375 million in assets. The rest remained in a receivership with the FDIC, which estimated it would spend $51.4 million from its insurance fund to wind down or write off Valley’s remaining assets.
The FDIC also took over a sister Valley Bank in Fort Lauderdale, Florida, at the same time.
In the wake of the bank’s collapse, the Quad City Times reported that former officials had been interviewed by FBI, Federal Reserve and IRS. The charges and guilty pleas announced Friday focus on several risky loans that Valley Bank officials, with assistance from Slater’s Vital Financial, sought to refinance with the U.S. Small Business Administration, falsifying loan records to do so.
The three loans identified in court filings ranged from $4.6 to $5 million and were taken out by businesses in Kentucky and Florida. In 2011 and 2012, according to prosecutors. Valley leaders sought to refinance the troubled loans with the Small Business Administration, which would then guarantee them against failure.
In order to qualify for Small Business Administration financing, court records show, Slater coached Valley Bank officials in how to falsify their bank records. Examples included erasing evidence of past overdue loan payments and resubmitting failed applications under new company names.
Prosecutors say many of the documents were submitted directly to the Small Business Administration by Slater, whose company specialized in helping companies secure Small Business Administration-backed loans. Two of the three loans later defaulted, causing losses to the Small Business Administration of more than $4.5 million.
Vital Financial was acquired in 2017 by Reinbeck, Iowa-based Lincoln Savings Bank. President and CEO Erik Skovgard said Lincoln had no knowledge of the fraud or investigation until earlier this week, when it accepted Slater’s resignation. Court records do not contain any allegations of Vital wrongdoing after its acquisition by Lincoln.
“Lincoln Savings Bank has a long history of being an outstanding bank, and we take these matters very seriously,” Skovgard said. “We think we have very robust controls to prevent anything like this.”