A federal jury began hearing testimony Wednesday against two former One Bank executives accused of concealing a bad $1.5 million line of credit extended in 2007 to a Florida race-car builder while secretly working to cover the debt by misapplying other funds and credits.
Prosecutors say Michael Francis Heald and Bradley Stephen Paul were among five bank executives who conspired between December 2007 and September 2012 to hide the losses from federal regulators and nonbank members of the bank's board of directors. They each face two counts of bank-fraud conspiracy and two counts of making false bank entries.
Heald was a senior executive vice president and chief operating officer of the nationally chartered financial institution, based in Little Rock, and a director of the bank's holding company, One Financial Corp., until July 2011. Paul was executive vice president of the bank and served on the loan committee until late 2014.
The other bank officers accused of conspiring with them included the former bank chairman and chief executive officer, Layton "Scooter" Stuart, who essentially owned the bank and died in the spring of 2013 before he could be indicted; Gary Rickenbach, a former senior executive vice president who was fired in January 2013; and Tom Monroe Whitehead, former chief financial officer who left the bank in 2012 or early 2013.
Prosecutors dropped charges against Whitehead in December. Rickenbach is awaiting sentencing after negotiating a guilty plea in July to a charge of misprision, or knowing about a crime but failing to report it, in connection with false bank entries made to disguise the line of credit that he approved but that was never repaid.
Rickenbach first negotiated a guilty plea in November that called for prosecutors to recommend a probationary sentence, but U.S. District Judge Kristine Baker rejected that agreement in July, leading to a new agreement that doesn't include a specific sentencing recommendation from prosecutors.
Both Rickenbach and Whitehead are expected to testify for the government.
The $1.5 million line of credit went to Albert Solaroli of Jacksonville, Fla., who is serving a year in federal prison after pleading guilty to a money-laundering charge. Solaroli was supposed to make interest payments every quarter on the loan and pay it off after a year, but he never made a single payment.
Although the stated purpose of the line of credit was for "business/investment," prosecutors said Solaroli used it, in part, to buy two Porsches and to repay a $300,000 debt.
The bank sued Solaroli in a Florida court and received a judgment of $1,598,958.85 but was never able to collect any of the money, according to the indictment. Heald's attorney, Cary Corum of Little Rock, told jurors that the loan was paid off, including interest, in 2009 when two businesses -- including one owned by Stuart -- put up collateral to buy the loan.
Corum said Stuart fired Heald in 2011 when Heald refused to be involved with the Solaroli deal. Corum noted that it was more than a year later that the government kicked Stuart out of the bank.
One Bank, which does business as onebanc, was the most sanctioned bank in the state in 2011 and 2012, facing reprimands from federal regulators in January 2011, May 2012 and September 2012. In the third sanction, One Bank was ordered to remove Stuart.
Corum told jurors that Heald and Paul had nothing to do with the bank fraud.
Paul's attorney, Lloyd "Tre" Kitchens of Little Rock, said his client was charged only because he was copied on several emails concerning One Bank's bad loans. Kitchens noted, "There is no evidence he opened the emails, read the emails or did anything in response to the emails."
Kitchens said Paul, who was recruited by Rickenbach in 2006, also wasn't involved in either of the loans that bought out Solaroli's bad loan. And he had nothing to do with a $17.3 million loan the bank received through the government's Troubled Asset Relief Program, known as TARP, Kitchens said.
According to the indictment, One Bank applied on Oct. 23, 2008, for a $10 million TARP loan that hinged on the bank's financial statements.
It alleges that the conspirators falsified loan documents, created new entities to apply for loans, and authorized loans and lines of credit to those newly formed entities, to minimize the bank's losses in the eyes of regulators. It specifically mentions a company called Ox Investments LLC that was formed in early 2009 at the direction of Rickenbach and Heald, and a company called Crestwood Investments LLC that was also formed in early 2009 at Stuart's direction.
In June 2009, One Bank received a $17.3 million TARP loan, according to the indictment.
First Assistant U.S. Attorney Pat Harris called Paul Berry of Little Rock, a nonbanker who has been on One Bank's board of directors since 2002, as the trial's first witness.
Berry testified that a day or two after regulators ordered Stuart's removal from the bank, Rickenbach said in an internal memorandum to the board that as a result of the $1.5 million bad loan, he had been directed to "come up with a solution," and had done so in a way that was illegal but that he didn't personally profit from.
Berry recalled the details as "very confusing" and "disconcerting," as well as out of character for Rickenbach, whom he had known for several years.
"I thought Heald was the key man," he said when Harris asked him which of the bank officers seemed to be in charge, behind Stuart. Berry said he considered Heald first, Rickenbach second, and Paul and Whitehead tied for third.
When Harris asked who Berry considered "the sharpest pencil in the box," Berry named both Rickenbach and Heald as "very talented."
The trial resumes at 9 a.m. today in Baker's Little Rock courtroom. It is expected to last about two weeks.
A Section on 10/13/2016