Before a bank in the United States collapsed, its CEO was involved in a "Ponzi scheme" and embezzled $47.1 million by withdrawing $21 million from FHLB.
It is understood that the Federal Home Loan Bank System (FHLB), which faced closure due to bank runs, had also provided support to three banks, including SVB Financial, that experienced financial collapse. This bankruptcy event has once again put the system in the spotlight.
According to a regulatory review, a bank in Kansas that went bankrupt in July last year withdrew $21 million from the Federal Home Loan Bank System (FHLB) shortly before its collapse. The bank's CEO was accused of misappropriating funds to purchase cryptocurrency before the bank's bankruptcy. At the same time, the former CEO of the bank, Shan Hanes, has been charged by the US Department of Justice with embezzling $47.1 million from the bank to pay for a Ponzi scheme.
According to the regulatory investigation, shortly before the closure of Heartland Tri-State Bank in Kansas last July, the bank's CEO was accused of withdrawing $21 million from the Federal Home Loan Bank System to purchase cryptocurrency. Investigators from the Federal Reserve and the Consumer Financial Protection Bureau found in a report earlier this month that the bank's sudden use of FHLB financing in the final weeks before its closure was a sudden shift, as the company had not borrowed any funds from FHLB in the previous three years.
The report found that Heartland Tri-State Bank had almost exhausted its sources of cash and had also withdrawn $24 million from a credit line with another bank for improper wire transfers. This month, the Department of Justice charged the bank's former CEO, Shan Hanes, with embezzling $47.1 million of company funds to participate in a Ponzi scheme.
The sudden collapse of Heartland Tri-State Bank has shaken the Elkhart community in southwest Kansas, leading to a series of bank closures in the region and once again damaging the insurance fund of the Federal Deposit Insurance Corporation (FDIC). In July last year, the FDIC estimated that the collapse of Heartland Tri-State Bank could result in a $54 million loss to the FDIC insurance fund. The former CEO of Heartland has not responded to requests for comment on the criminal case.
At the same time, the Federal Home Loan Bank System has also come under scrutiny. Data shows that the system holds $1.3 trillion in funds and has previously provided support to Signature Bank, Silicon Valley Bank, and First Republic Bank. However, these banks have all experienced failures for various reasons, leading to discussions about the mission of FHLB in Washington. Supporters of FHLB argue that in addition to supporting the mortgage market, FHLB also provides stability for banks during economic difficulties.
Currently, the reports from the Federal Reserve and the Consumer Financial Protection Bureau do not specifically indicate which housing loan bank provided financing to Heartland Tri-State Bank before it was taken over, nor do they blame the Federal Home Loan Bank System. According to a separate government list, Heartland Tri-State Bank is a member of the Topeka FHLB in Kansas.
Representatives from FHLB did not immediately respond to this matter. Banks typically provide mortgage loans and other collateral to obtain their "prepayments," ensuring that FHLBs are repaid. In November of last year, the Federal Housing Finance Agency, which oversees the housing loan banks, proposed a series of reform measures to refocus FHLBs on addressing America's housing needs. Analysts believe that these measures may require years of effort from legislators and regulators to implement and are already facing intense lobbying.