Brad Paul, a former executive vice president at Little Rock-based One Bank, choked back tears as he took the witness stand Thursday, saying he had waited two years for the chance to tell his side of the story that resulted in him being indicted last year on four federal charges.
He is accused of participating between 2007 and 2012 with three other bank executives to hide a bad $1.5 million loan from federal regulators.
A line of credit was extended in April 2007 to Alberto Solaroli, a Jacksonville, Fla., race-car maker with whom another bank executive, Gary Rickenbach, had personally invested $25,000 earlier that year -- unbeknownst to the other bank officers. Solaroli was to repay the loan with interest within a year, but never made a single payment.
Rickenbach, 59, a senior executive vice president at the bank, pleaded guilty to a reduced charge and testified for the government at the ongoing trial of Paul and Michael Heald, 56, both of whom face bank fraud, false statement and money laundering charges.
Like Paul, Heald testified Wednesday that he did nothing illegal, and was unaware of any illegal, behind-the-scenes maneuvers made by Rickenbach, former Chief Financial Officer Tom Monroe Whitehead and the bank's owner, the late Layton Stuart, to hide the loss from bank regulators.
Whitehead, 60, saw his charges dropped in December after he agreed to cooperate with prosecutors. He also testified at Paul's and Heald's federal trial, which is in its third week before U.S. District Judge Kristine Baker and may be submitted to jurors today.
Rickenbach testified that it gradually became apparent, after Solaroli failed to make any quarterly interest payments or repay the principal, that he was a "crook." So the bank sued Solaroli in a Florida court and got a $1.6 million judgment against him.
Rickenbach said he then conceived a complicated plan for the bank to loan money to another investor who was a top customer at the bank, and who in return expected to eventually collect on the judgment. Rickenbach said Stuart later insisted on joining in the Solaroli buyout plan by taking out a loan of more than $1 million, secured by three lots he owned in Little Rock's affluent Crestwood neighborhood, with the stated purpose of developing and reselling them.
Prosecutors say the bank wanted to keep the loss of the $1.5 million, plus the expected interest, off the bank's books because that would hurt its chances of receiving $10 million it had applied for from the government. The government offered loans through its Troubled Assets Relief Program to some banks across the country that were financially sound but were struggling to stay afloat after the 2008 financial crisis. One Bank eventually increased its TARP loan request to $17.3 million, and in June 2009 received the full amount.
Paul, whose wife and three sons sat in the courtroom gallery, teared up under questioning by his attorney, Lloyd "Tre" Kitchens. He said he approved the loan to Solaroli at Rickenbach's request "because it was a good loan" backed by "tons of stock," and it appeared to be sought by a man with a net worth of over $100 million, according to documents he was shown.
Solaroli asked for the loan to invest in new technology to build race cars, but Rickenbach said it turned out that the Florida man instead wired the money to complete his purchase of two Porsche race cars, including one that cost more than $750,000. Solaroli is now serving a prison sentence for money laundering.
Asked about "system bumps" that he approved at One Bank, such as those that extended the due date of the Solaroli loan repeatedly so it wouldn't show up as a loss on the bank's books, Paul testified that he approved bumps only on loans that were presented to him as viable loans that were still collecting interest.
Paul said he implemented that requirement for bumping loans upon discovering that the bank routinely "bumped" loans without any assurance that they were still producing interest, in violation of banking regulations. Paul denied conspiring to hide anything from regulators, testifying that all documents he approved were placed back in the loan file, where they were available for inspection.
Paul also testified that, contrary to what some believe, he wasn't part of the bank's "senior management team" and didn't consider himself part of an "advisory team" that approved several transactions that were later questioned by federal agents.
Metro on 10/28/2016