Being one of just five American banks to fail in 2023, Heartland Tri-State’s huge theft caused it to collapse and be taken over by the FDIC.
Federal prosecutors said that the former CEO of a tiny Kansas bank received a sentence of more than 24 years in prison for embezzling $47 million from the bank and sending it to bitcoin wallets owned by con artists who had tricked him with a “pig butchering” plot that piqued his appetite.
One of just five U.S. banks to fail in 2023 was Heartland Tri-State Bank in Elkhart, which collapsed and was taken over by the FDIC due to the huge theft committed by former CEO Shan Hanes in a series of wire transactions over the course of just eight weeks last year.
According to documents from the U.S. District Court in Wichita, Kansas, Hanes, 53, also stole money from a nearby church, investment club, and a daughter’s college savings account. The scammers claimed they needed more money to unlock the alleged returns on his investments, so they transferred the money ostensibly to purchase cryptocurrency.
However, Hanes lost every penny he took as a result of the swindle and never made a profit.
After Hanes entered a guilty plea in May to one count of embezzlement by a bank officer, Judge John Broomes sentenced him to 293 months in prison on Monday. This is 29 months longer than what the prosecution had asked for.
Brian Mitchell, who had been Hanes’ next-door neighbor in Elkhart, a community of about 2,000 people in southwestern Kansas, just north of the Oklahoma panhandle, testified during the sentence hearing, “I called his actions ‘pure evil.'”
About thirty bank stockholders attended Hanes’ sentencing, according to Mitchell, whose network of farms and movie theaters was banked at Heartland Tri-State. This was more than a year after the collapse had destroyed the value of the bank’s stock.
As a result of Hanes’ conduct, “there were people who lost 70, 80% of their retirement,” Mitchell said over the phone with CNBC on Wednesday.
According to Mitchell, one local lady “struggling to afford a nursing home” for her mother, who is 93 years old, while another woman “cannot retire” at this time due to the crime.
Although he heard victims inform the judge about the consequences of his crime, Mitchell, an investor club member who was not a shareholder but was harmed by the CEO, claimed that Hanes exhibited little, if any, remorse for his conduct.
Mitchell described the incident in the courtroom: “Shan was facing the judge, and he just looked over his left shoulder for a second, and didn’t make eye contact, and said, ‘Sorry.'” “And that concluded it.”
However, Mitchell claimed that when Broomes handed down the harsh penalty and ordered the former bank CEO to be brought into jail right away, Hanes’ expression showed “absolute shock.”
For many years, according to Mitchell, he thought of Hanes as a “good guy,” who spoke at his neighborhood church and, like other Elkhart residents, pitched in to help others in need. Hanes also gave several testimony on community banking before Congress.
However, prosecutors and bank regulators said that Hanes, who is married to a school teacher and has three kids, started stealing in late 2022 after being the subject of a pig-butchering scam.
“A scammer convincing a victim (a pig) to invest in supposedly legitimate virtual currency investment opportunities and then steals the victim’s money — butchering the pig” is how the plan was characterized in a court file.
In December 2022, Hanes—who had previously chaired the Kansas Bankers Association and served on the board of the American Bankers Association—started buying cryptocurrency. Prosecutors stated in a court document that this “appeared to be precipitated by communication with an unidentified co-conspirator on the electronic messaging app ‘WhatsApp.'”
The lawsuit states, “As of now, the true identity of the co-conspirator, or conspirators, remain unknown.”
Hanes first purchased cryptocurrency with his own money, but according to prosecutors and a defense document, at the beginning of 2023 he stole $10,000 from the Santa Fe Investment Club and $40,000 from Elkhart Church of Christ.
According to a declaration from his attorney, he also used over $1 million in Elkhart Financial Corporation shares and $60,000 that was misappropriated from a daughter’s education fund.
He started sending $5,000 in wire transfers from Heartland Tri-State Bank to accounts owned by con artists in May 2023.
According to documents, Hanes sent $1.5 million two weeks later on May 30. The day after that, he sent another transfer of the same amount.
He instructed the bank to send two wire transfers totaling $6.7 million to the cryptocurrency wallet three days later. Less than two weeks later, he ordered the bank to send an astounding $10 million, and days later, another $3.3 million.
Hanes “made many misrepresentations to various people” to gain access to the monies so they could be moved, according to the prosecution, and instructed bank staff to carry out the wire transfers. In order to authorize Hanes’ wire transactions, Heartland Tri-State staff members disregarded the bank’s wire policy and daily limitations, according to an Office of the Inspector General of the Board of Governors of the Federal Reserve System investigation.
The study stated, “We believe that a reluctance on the part of Heartland employees to question or report the alleged fraudulent activities earlier was caused by the CEO’s dominant role in the bank and prominent role in the community.”
The 11 wire transfers from Hanes to the con artist, according to the prosecution, “illustrate a common pattern” in pig-butchering scams.
Prosecutors stated that in order to protect or guarantee those monies, another transaction must come after the original “investment.” “More ‘investments’ may be made, but they would always need additional funding to ensure or unfreeze the previous payments. The defendant’s theft blatantly demonstrates this trend.
Mitchell told CNBC that he received a call from Hanes around 7:40 a.m. on July 5, 2023, confirming what he had said.
Mitchell recalled, “He said, ‘Brian, I need your help, and you’re the only guy who can help me.'”
Mitchell, who had recovered from prostate cancer twenty years prior, claimed he believed Hanes was phoning to inform him that he too was afflicted with the same kind of disease.
However, the CEO told Mitchell something quite different and unfamiliar when he arrived to Heartland Tri-State to see Hanes earlier that morning, before the bank had been opened to the public.
“I need to borrow $12 million for 10 days, and I’ll give you $1 million for loaning it to me,” he says to me,'” Mitchell remembered. “As I was sitting there, I thought to myself, am I in an alley with a loan shark in Chicago, or am I in a bank in Elkhart, Kansas?”
Mitchell added that Hanes “pulls out his phone and acts like he’s logging in and he shows me this account that has $40 million, $42 million” when he was asked why he needed the money. “He said to Brian, ‘I need $12 million to help verify the funds. I have this money in cryptocurrency.’
Then, Hanes told Mitchell that he had been in contact with “Jim,” a banker in Denver, and “another guy in Oklahoma.” Together, they had generated significant profits from their cryptocurrency investments, which were kept in Coinbase accounts.
“Dude, you’re in a scam,” I warned him. “You’re part of a fraud,” Mitchell remarked. “I asked him, ‘Is this bank money you’re playing with?'” I stopped him. He said, “No, Brian.”
Mitchell testified that Hanes had repeatedly told him he needed the $12 million in order to “activate” the money he had previously deposited to the cryptocurrency account, which he claimed was located in Hong Kong.
According to Mitchell, “I told you to get on a plane, fly to Hong Kong, get an interpreter, and go get a bank check” for the money purportedly kept there. “I told you then that I would not be lending you the money. “You are in a scam; leave now,” I said.
However, Hanes had bank staff transfer $8 million to the con artists’ accounts later that day after Mitchell rejected his pleas, according to prosecutors in a court document.
Hanes had staff members send the con artists an additional $4.4 million two days later.
Mitchell, who was not aware of such transactions at the time, stated that he was concerned that Hanes would obtain access to bank deposits made by consumers and transfer the $12 million he had requested after meeting with the CEO.
Mitchell remarked, “We continued to monitor our credit lines.”
“One of the staff members caught me the following week when I was in the bank; she just looked so stressed out,” Mitchell recalled. He was informed by the woman that Hanes had transferred funds from the bank.
“I told them not to talk to me for another minute. I have to speak with a board member,” Mitchell recalled.
Mitchell added, “And I talked to a board member that night, and he went to talk to an attorney that night.”
Hanes was let go a few days later.
Two weeks later, on July 28, 2023, the Federal Deposit Insurance Corp. took over Heartland Tri-State after it was closed by the Kansas Office of the State Bank Commissioner.
While investors lost everything, depositors were spared as Dream First Bank, National Association, of Syracuse, Kansas, took over all of the deposits.
As of the previous March, Heartland Tri-State had around $140 million in total assets and $130 million in total deposits.
Soon, rumors circulated that the bank had failed due to a swindle.
However, Hanes stayed out of trouble until February of last year, when federal prosecutors accused him of embezzlement. The county attorney filed a 28-count case against him in state court in Morton County, Kansas, alleging that he had looted the bank.
Hanes was placed under house arrest before to this week’s federal court sentencing.
Mitchell recalled speaking with him last month while he was outside cutting his lawn.
Hanes informed Mitchell that he thought there had been a chance to retrieve the money up until the moment he was detained. Hanes had even flown to Perth, Australia while being conned to try to reclaim the dollars he deposited.
Mitchell remembered, “He said, ‘If I just had another two months, I could get the money back.'”
Judge Broomes questioned Hanes about his behavior at his sentence, according to Mitchell, but “he didn’t really have any good answers.”
Later, after glancing at the victims in the gallery of the courtroom, Broomes announced Hanes’ punishment.
“I want you to forgive Shan,” he continued. I want you to go on and find happiness in your life even if I know that he has damaged you. “Let me correct him,” Mitchell recollected.
In addition, Mitchell recalled that Broomes informed Hanes that while the previous CEO’s intelligence had been acknowledged by many, “If you were that intelligent you would have stopped this.”
John Stang, Hanes’ attorney, stated in a sentencing statement that his client “made some very bad choices after being caught up in an extremely well-run cryptocurrency scam.” Stang did not reply to a request for comment.
Stang writes, “He was the pig that was butchered.” “Mr. Hanes sincerely apologizes for the harm he caused to the bank and the loss he caused to the stockholders due to his susceptibility to the Pig Butcher scheme.”
Hanes’ greed had no boundaries, according to a statement from Kansas U.S. Attorney Kate Brubacher. He violated federal law, his relationships with others, and his professional responsibilities.
Brubacher said that Shan Hanes’s illicit operations “not only jeopardized confidence in financial institutions, but also betrayed Heartland Bank and its investors.”
