Ex-bank exec defends handling of bad loan

Plan sound, not conspiracy, he testifies

Michael Heald, former chief operating officer at One Bank & Trust, testified Wednesday that it "would have been irresponsible" for the bank to write off a bad $1.5 million loan in 2008 when its management team had found a way to recoup the lost funds.

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Heald, 56, is on trial in a Little Rock federal courtroom alongside a former executive vice president of the bank, Bradley Stephen Paul, 54, on charges of conspiring with other bank executives to commit bank fraud between December 2007 and September 2012. Prosecutors say the group hid the defaulted loan from federal regulators to keep the bank from losing its eligibility for a $17.3 million government loan in the wake of a national financial crisis.

Heald and Paul are also charged with aiding and abetting the making of false entries on bank records to deceive regulators on Oct. 30, 2008, and conspiring with the other executives to commit money laundering through a series of transactions involving bank-fraud proceeds from January 2009 through September 2012.

Paul is charged separately with helping create a false bank entry on May 29, 2009, that extended the maturity date of another line of credit so it wouldn't appear past-due to regulators.

Both Heald, represented by Little Rock attorney Gary Corum, and Paul, represented by Little Rock attorney Tre Kitchens, have maintained their innocence, and both rejected earlier offers from federal prosecutors to plead guilty to a greatly reduced charge of misprision of a felony, or knowing about a crime but failing to report it.

One of the other executives, Gary Rickenbach, pleaded guilty to misprision and is awaiting sentencing. Prosecutors dropped charges against the fourth executive, Tom Whitehead, in December.

The executives' boss, Layton Stuart, who was the bank's sole shareholder and chief executive officer, was ousted from the bank in 2012 by regulators and died in March 2013 before he could be indicted. The government later filed a civil lawsuit to collect millions of dollars that prosecutors said he stole from the bank.

If a federal jury convicts Heald and Paul, prosecutors have vowed to seek the forfeiture of any property they own that was purchased with crime proceeds.

As the defense began its case Wednesday, in the trial's third week, Heald confirmed that Rickenbach's testimony earlier in the trial was "very consistent" with what Rickenbach, a close friend, had told him in 2008 and 2009 while devising a way to prevent the bank from losing the $1.5 million it had loaned, on Rickenbach's signature, to Alberto Solaroli, a Florida race-car builder. Solaroli, who is now in prison, was supposed to repay the line of credit within a year but never did.

Heald said Rickenbach told him then that Stuart was willing to offer three lots he owned in the pricey Crestwood neighborhood of Little Rock as collateral for one of two loans that would be used to "buy out" the Solaroli loan, for which the bank had received a default judgment through a Florida court.

Heald acknowledged that Rickenbach's loan-takeover proposal "was clearly a complicated transaction," so much so that he recommended that Rickenbach hire a transactional lawyer to review the plan, which Rickenbach did. But Heald said he had no concerns about the plan's ability to take on the Solaroli loan at full value, though "I did" have concern about the "moving parts" of the proposal.

The reason the bank didn't record a loss on its books after the Solaroli loan went into default wasn't to hide anything from federal regulators, Heald said, but because he was confident that Rickenbach's plan would prevent the bank from suffering the loss.

"We had a [$1.25 million] real estate loan secured by three lots in Crestwood with a $1,750,000 appraised value. I can't think of any reason why there would be any concern about this," said Heald, who was also on the board of directors of the bank's holding company, One Financial Corp. He said he also had no concerns about another loan in the Solaroli plan that also appeared to be well-secured.

"So there was no reason why I should disclose anything to the OCC," he said, referring to the federal Office of the Comptroller of the Currency, a government agency tasked with preserving the integrity of the banking system.

Heald said he knew nothing about two other executives' alleged diversion of funds in December 2009 to pay off one of the loans for taking on the Solaroli loan.

He said he left the bank in 2011 after a falling-out with Stuart, who wanted to borrow some money from insurance policies to pay on loans, which Heald said he believed was wrong. He said Stuart terminated him but that his departure was also voluntary because he "gave up" after months of trying to negotiate an agreeable severance package and went to work for a friend.

While defense attorneys say the Rickenbach plan worked and the bank didn't lose any money from the defaulted Solaroli loan, prosecutors say the plan endangered the bank and its depositors. They also say that the bank lost more than $500,000 through the loan-takeover plan, such as through lost interest payments that the Solaroli loan was expected to generate.

Metro on 10/27/2016

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