BULLETIN: Attorney Pleads Guilty In $47 Million ‘Bond’ Ponzi Scheme That Caused Arkansas Bank To Collapse; ‘Fraud, Whether Of This Magnitude Or Not, Cannot Be Tolerated,’ U.S. Attorney Christopher R. Thyer Says

BULLETIN: An Arkansas attorney and businessman caused a bank to collapse with his $47 million Ponzi scheme involving the sale of fraudulent bonds, federal prosecutors said.

Kevin Harold Lewis, 43, of Little Rock, pleaded guilty to a federal charge of bank fraud after waiving indictment, prosecutors said.

First Southern Bank, an FDIC-insured institution, collapsed after learning it had purchased $23 million in fraudulent bonds from Lewis, prosecutors said. At least seven other banks provided loans to Lewis that were collateralized with Lewis’ bogus bonds: Centennial Bank, Citizens, Liberty Bank, First Community, Allied, Simmons and Regions Bank.

Two banks continue to hold bogus bonds from the Lewis scheme: Centennial Bank and Bank of Augusta, prosecutors said.

The Lewis scheme caused losses of $47 million, and Lewis borrowed $4.6 million from First State Bank in Lonoke to gain a controlling interest in First Southern, collateralizing the First State loan with stock from First Southern, the very bank he was defrauding, prosecutors said.

“This case demonstrates that the actions of one individual can have far-reaching, detrimental effects, including the collapse of a financial institution,” said U.S. Attorney Christopher R. Thyer of the Eastern District of Arkansas. “The amount of fraud loss in this case is one of the highest in the history of our office. Fraud, whether of this magnitude or not, cannot be tolerated, and the Department of Justice will aggressively investigate and prosecute such schemes.”

A veteran FBI agent described the Lewis scheme as a brazen one that put multiple institutions in the line of financially injurious fire laid down by a con man.

“With each creation of a fraudulent bond, Mr. Lewis added to his house of cards that ultimately collapsed,” saidValerie Parlave, special agent in charge of the FBI’s Little Rock Field Office.

As the scheme grew, Lewis increased his ownership stake in First Southern to 64.9 percent, but the stake was built virtually entirely on the instruments of deceit, according to prosecutors. To up his stake in the bank from 53 percent to nearly 65 percent, Lewis used proceeds from the sale of fraudulent bonds he sold to First Southern, effectively imperiling the bank further by opening a second fraud front that destabilized the institution.

Based in Batesville, First Southern collapsed in December 2010. The cost to the FDIC insurance fund was estimated at $22.8 million.

At its collapse, First Southern became the 156th bank to fail in the United States in 2010. Only three banks failed in 2007.

Sixty one banks have failed this year in the United States, including three on July 29.

Lewis faces a maximum sentence of 30 years in federal prison. prosecutors said he upped his stake in First Southern through an entity known as PA Alliance Trust.

 

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