Heartland Tri-State Bank in Elkhart, Kansas, had to close its doors after its CEO, Shan Hanes, was duped out of millions in a cryptocurrency fraud.
The situation came to light on July 5 when a desperate Hanes approached a well-off client with an unusual proposition, as detailed in a Bloomberg report.
Hanes sought a loan of $12 million from the client, pledging to pay back the sum with an added $1 million in interest within a mere 10-day window.
Explaining his situation, Hanes mentioned that he was involved in a cryptocurrency investment guided by another individual. He cited issues with wire payments that required an immediate cash injection to resolve.
However, the client, a local agriculturist, grew suspicious of Hanes’ narrative and ultimately turned down the loan request, suspecting the involvement of a cryptocurrency scam.
The client not only turned down Hanes’ loan request but also purportedly suggested he travel to Hong Kong to retrieve the lost funds.
However, once the client learned that Hanes had actually transferred the substantial sum of $12 million, he escalated the matter to a Heartland board member.
Following this revelation, the Kansas Office of the State Bank Commissioner initiated a probe into the bank’s affairs and deemed it financially unsound by July 28, leading to its closure.
The shutting down of Heartland Tri-State Bank has reverberated throughout Elkhart, a closely bonded community. The bank was an integral part of Elkhart’s day-to-day life, being one of the town’s only two banks. Heartland wasn’t just a financial institution; it was a cornerstone of the community, backing local initiatives and extending financial support to residents in times of need.
FDIC Estimates Heartland’s Loss at $54 Million
The Federal Deposit Insurance Corp. (FDIC), designated as the bank’s overseer in its demise, projects a significant $54 million hit to its insurance fund meant to safeguard depositors.
This considerable deficit underscores the gravity of the situation, especially considering Heartland’s assets amounted to a mere $139 million.
Shareholders, which count Hanes and his kin among them, are grappling with potential losses, given the bank’s shares were held by a distinct holding entity.
The ripple effect of this debacle has garnered the attention of criminal justice authorities.
FBI operatives are delving into the matter, engaging in dialogues with key figures in the community associated with the bank. However, the FBI remains tight-lipped, refraining from acknowledging or refuting the presence of an ongoing inquiry.
Exact Details of the Crypto Scam Remain Unclear
The precise nature of the cryptocurrency scam that entrapped Hanes is still shrouded in mystery.
Nevertheless, an advisory from the US Department of the Treasury’s Financial Crimes Enforcement Network hints that the scam might have been a variation of the “pig butchering” scheme.
To date, Hanes hasn’t faced any formal charges.
He has stepped down from his roles within the school board and the Kansas Bankers Association and is presently awaiting the results of the active probe.
The downfall of Heartland is particularly noteworthy as it aligns with the failures of four other prominent US banking institutions this year, specifically Silvergate Bank, Signature Bank, Silicon Valley Bank, and First Republic Bank.
It’s notable that the collapses of Silvergate and Signature had ties, at least in part, to the cryptocurrency market downturn in 2022.