UPDATE: Bank caught up in $2B Plainville check-kiting scheme under FDIC scrutiny

UPDATE: Bank caught up in Plainville check-kiting scheme under FDIC scrutiny

UPDATED: 4:30 p.m. Friday, June 28, with comment from bank chairman of the board Shad Chandler.

By CRISTINA JANNEY
Hays Post

Almena Bank of Almena stipulated to a consent order with the FDIC to correct what court records called “unsafe and unsound banking practices and violations of laws and regulations.”

The consent order was dated March 28, 2019, but the order indicated the recommendations were based on a bank examination on Nov. 5, 2018. As part of the consent agreement, the bank did not admit to any wrong doing.

Shad Chandler, Almena Bank chairman of the board, said the bank had a strong management, the consent order is being addressed and that he expects the consent order to be lifted soon.

Almena Bank is one of the banks caught in a $2 billion check-kiting scheme, involving Tyler and Camden Gillum and their cattle market agency, Plainville Livestock Commission.

Almena Bank held the operating account and the custodial account for the Plainville Livestock Commission.

On Feb. 12, Almena Bank froze two of Plainville Livestock Commission’s bank accounts, one of which held more than $900,000 When the bank froze the accounts, tens of thousands of dollars worth of checks Gillum had written to area ranchers who had recently sold cattle at the Plainville Livestock Commission bounced.

The Livestock Commission filed for bankruptcy March 1. The livestock producers are yet to be paid as the case makes its way through the court system. The funds the Plainville Livestock Commission had in its accounts with Almena Bank are now under the control of the U.S. Bankruptcy Court.

In an interpleader case filed by Almena Bank, the bank indicated Plainville Livestock Commission had defaulted on three loans with its bank totaling more than $3.49 million. According to bankruptcy records, the Livestock Commission owes more than $14.5 million to its creditors.

An auction was conducted by the bankruptcy court on Thursday for the real estate and much of the Livestock Commission’s equipment.

According to court documents filed May 31 in federal bankruptcy court, the trustee indicated Almena State Bank has the first lien on the real property and the the second lien on the equipment. The first lien on the equipment is held by TBK Bank.

The consent order did not say if the Plainville Livestock Commission case had anything to do with the FDIC involvement at Almena Bank. The consent order also does not say if the bank examination on Nov. 5 had any bearing on the bank ultimately freezing the Plainville Livestock Commission’s accounts.

An official from the FDIC’s national public information office said it does not comment on consent orders. Bank examinations are confidential and can’t be released by law.

According to the FDIC website updated March 31, Almena Bank had assets of $125,235,000. Its net income for the year to date was -$3,357,000 According to its website, the bank has branches in Almena and Norton. [Corrected 11:41 a.m. Friday, June 28]

The consent order lays out 18 pages of corrective action required by the FDIC.

Read the entire consent order HERE.

Some of these included:

• Hiring a new CEO with experience working with problem banks.

• Adding two independent, outside directors.

• Hiring a third-party consultant to analyze the bank’s management, staffing, performance and compensation.

• Establishing a plan of action based on the consultant report, including a three-year strategic plan and a one-year profit and budget plan. This is to include plans on how to increase earnings at the bank.

• Not accept brokered deposits, which are usually large-denomination and are often sold by a bank to a brokerage, which then divides it into smaller pieces for sale to its customers, according to Investopedia.

• Increase its level of liquidity.

• Reduce the banks adversely classified assets and borrowers. These would be loans in which the repayment is in question.

• Review its loan policy and credit administration.

• Develop an independent loan review program.

• Develop a plan to strengthen the bank’s concentration of credit.

• Correct weaknesses in internal controls.

• Correct violations of laws, rules and regulations.

• Meet minimum capital requirements.

• The bank can’t pay dividends or management or director’s fees and bonuses at this time.

• Revise its interest rate risk policy.

The bank was required to disclose the consent order to its shareholders and make regular reports to regulators on its progress.

Chandler said in a call to the Hays Post on Friday afternoon, “The bank has a strong management team in place. We are addressing the consent order daily. Our management has experience dealing with consent orders, and we are confident the consent order will be lifted sometime in the near future.”

Previous calls to bank representatives to gain comment on the Plainville Livestock Commission case were not returned.

Almena Bank is not the only bank that has been caught up in the Gillums’ alleged wrong doings.

The indictment alleges the Gillums also defrauded Landmark Bank in Manhattan; Colorado East Bank and Trust in Lamar, Colo.; Astra Bank in Scandia; TBK Bank in Dallas; Guaranty State Bank in Beloit; and The Bank in Oberlin. Landmark Bank listed its loses in the bankruptcy at $8 million.

If possible, the trustee in the Plainville Livestock Commission bankruptcy case is supposed to report back to the court on the auction results as soon as Friday. The court case involving the bounced checks to the cattle ranchers is expected to be back in court at 10:30 a.m. July 11.