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Former Bank President Sentenced to Prison and Ordered to Pay $137 Million

December 18, 2018 / Source: FDICIG



Monday, December 17, 2018

Former Bank President Sentenced to Prison and Ordered to Pay $137 Million

OKLAHOMA CITY – JOHN ARNOLD SHELLEY, 68, of Oklahoma City, has been sentenced to four years in federal prison for making a false statement to the Federal Deposit Insurance Corporation, announced Robert J. Troester of the U.S. Attorney’s Office.  He has also been ordered to pay over $137 million in restitution.

Shelley was the President, Chief Executive Officer, Chairman of the Board, and a loan officer at The Bank of Union (“BOU”) in El Reno, Oklahoma, from the late 1990s until his resignation on November 30, 2013.  In January 2014, state banking regulators closed BOU because of the bank’s loan losses, and the FDIC was appointed as receiver.

On December 13, 2016, a federal grand jury returned a 23-count indictment against Shelley in connection with the failure of the Bank of Union.  The counts included bank fraud, money laundering, making false statements to a bank, misapplication of bank funds, false bank entries, wire fraud, and making false statements to the FDIC.  According to the indictment, Shelley defrauded BOU in several ways: (1) by issuing loans with insufficient collateral and falsifying financial statements for several high-dollar bank borrowers; (2) by originating nominee loans to circumvent the bank’s legal lending limit; (3) by concealing the bank’s true financial condition from the Board of Directors; (4) by soliciting a fraudulent investment; and (5) by falsely representing the bank’s true status to the FDIC.

According to the indictment, Shelley conspired with certain BOU borrowers from approximately 2009 through November 2013 to defraud BOU by issuing them millions of dollars in BOU loan proceeds secured by collateral that they did not have.  Although these borrowers had already accumulated significant debt that they could not repay, Shelley continued to issue them new loans and capitalized accrued interest.  At monthly BOU Board meetings, he failed to disclose the true status of these delinquent loan accounts; instead, he advised the Board that the borrowers were continuing to pay down their loans.  Shelley also allegedly issued new loans to these borrowers in order to keep them off of BOU’s monthly overdraft reports.

Further, the indictment charged that Shelley executed a scheme to defraud a partial owner and investor in BOU in 2012.  According to the indictment, Shelley persuaded the investor to wire $40 million by falsely representing that BOU was growing rapidly and performing well.  The indictment alleged that, although Shelley knew that the bank was on the brink of failure and needed an immediate capital infusion to ensure its solvency, he advised the partial owner that his money would not be at risk.

Finally, Shelley was charged with falsely representing the bank’s loan status to the FDIC.  Between September 2012 and September 2013, Shelley continued to renew certain unpaid borrower loans by capitalizing unpaid interest.  Pursuant to an October 2013 FDIC safety and soundness examination, he allegedly falsely represented that he had not renewed or extended any loans without full collection of the interest due between September 2012 and September 2013.

On September 18, 2017, Shelley pleaded guilty to making a false statement to the FDIC on July 30, 2013, when he falsely represented in writing that the bank had total equity capital of $36,290,000, when he knew the bank’s equity capital was significantly less.  This offense carries a penalty of up to 30 years in prison and a fine of up to $1,000,000.

On December 14, 2018, after two days of testimony about Shelley’s conduct, U.S. District Judge Timothy D. DeGiusti sentenced Shelley to four years in prison.  He found that Shelley’s crime involved more than $85 million in losses for purposes of federal sentencing law.  He imposed a sentence well below the advisory imprisonment range applicable under the U.S. Sentencing Guidelines because of Shelley’s health, personal history, and other factors.  After release from prison, Shelley will serve two years on supervised release.

The sentence requires Shelley to pay $137,384,291 in restitution.  The partial owner who wired money for the bank’s benefit in late 2012 is due $40 million of the restitution amount.  Shelley owes the remaining $97,384,291 to the FDIC, which lost money when it assumed the bank’s liabilities in January 2014.

This case is the result of an investigation by the Federal Deposit Insurance Corporation–Office of Inspector General and the Federal Bureau of Investigation’s Oklahoma City Division.  It was prosecuted by Assistant U.S. Attorneys Julia E. Barry, William E. Farrior, and Scott E. Williams.

Reference is made to public filings for further information.

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