Source/Bloomberg
Compile/Ning
Shan-Hanes felt desperate at the moment.
On the early morning of July 5, Hanes, the head of a small bank in Elkhart, Kansas, was meeting with one of his wealthiest depositors in his office. At this time, he made a slightly strange request.
The CEO of Heartland Tri-State Bank asked clients if they would lend him $12 million because he wanted to cash out a cryptocurrency investment. For this transaction, Hanes promised to repay the money after 10 days and provide high interest of US$1 million to reward the customer.
Hanes said that he has been connected to a person who helped him invest in cryptocurrency, but there was a problem with the wire transfer, so more investment is now needed, and part of the money has been transferred to an entity in Hong Kong.
The client, a local farmer, asked if the money was the bank's own funds. The reply was that it was guaranteed to be non-bank funds, but personal funds, but he still felt doubtful, even though he had no reason not to believe him. Friend: Hanes, 52, is a well-respected and well-known figure in Airhart, a city of about 1,800 people in southwestern Kansas. Not only is he a school board member, occasionally preaching at a local church and sometimes mowing neighbors' lawns on the weekends, but last year he was elected to head the Kansas Bankers Association.
Still, the unnamed client turned down the seemingly tempting loan, not trusting the deal at a time when bank failures across the country were under scrutiny. He told Hanes that the investment looked like a cryptocurrency scam. The farmer told Hanes that if he wanted his money back, he should immediately leave for Hong Kong to retrieve it.
About a week later, after the customer learned from a bank employee that Hanes had remitted US$12 million, he immediately found a member of the Heartland board of directors and informed the director that he had an affair with Hanes. In the context of the meeting, ask the bank whether there may be a liquidation risk. Bank representatives subsequently contacted regulators, and on July 28, the Kansas Bank Commissioner's Office declared Heartland bankrupt and officially closed.
Heartland Bank appearance, source: Bloomberg
The Federal Deposit Insurance Corporation, which was designated as the bank's receiver, said in a statement that it expected its insurance fund to spend $54 million to protect the interests of depositors, with the maximum payout for a single depositor reaching $500,000. This also proves the seriousness of the matter from the side - Heartland Bank's total assets are only US$139 million, but now the institution is required to pay nearly half of its assets for compensation. It can be seen that the actual amount of the deficit cannot be underestimated. Days later, state Banking Commissioner David Herndon told the Financial Times that Heartland was declared bankrupt because of a crypto scam; Herndon said in an email that after the FDIC Once a receiver is appointed, the agency's involvement is over.
The Federal Deposit Insurance Corporation (FDIC), which is reviewing all failed U.S. banks, declined to comment. Hanes has not been accused of wrongdoing, but he did not answer detailed questions. This report is based on interviews with three people familiar with the events leading up to the bank's closure, all of whom spoke on condition of anonymity due to the sensitivity of the matter.
Elkhart is a two-hour drive from Dodge City along Route 56. It is located in the southwest corner of Kansas and is the junction of Kansas, Colorado and Oklahoma. In the city center of such a city, an elk statue greets visitors and symbolizes the resilience and unity of residents.
In the words of one local resident, this close-knit community has been able to raise $10,000 for those in need just by selling chicken and noodles. And as one of only two banks in town, Heartland plays an important role in the community - from sponsoring the annual county fair dinner to providing a "Friendship Fund" for those in need of medical expenses. Hanes' bank specializes in providing loans to agricultural producers and is the soul of the community. But now, the building where the bank is located has a new sign: Dream First Bank, the name of the institution that acquired the assets of Heartland Bank at the end of July.
Elkhart is a small city, and strangers may wave at you as they drive by, but they are also curious about who you are and what you do, which means gossip still travels fast in a small town. . After the bank collapsed, vehicles from other states surrounded the bank and there was endless discussion. In recent weeks, FBI agents have brought community leaders with ties to the bank to local courts for questioning. Elkhart residents knew each other so well they could tell who was being interrogated by the cars parked outside. (An FBI spokesman said the agency could neither confirm nor deny the existence of the investigation.)
Hanes began his banking career in 1993 as a farm loan officer at First National Bank of Elkhart, the predecessor to Heartland. He led the acquisition of the bank in 2011 and kept it locally owned, according to testimony he later gave to the Kansas Legislature. Hanes took every opportunity to trek from Earhart to Washington, D.C., where he repeatedly testified before Congress on the importance of community banks. As president of the Kansas Bankers Association, he had a face-to-face meeting with Rohit Chopra, director of the Consumer Financial Protection Bureau. Sen. Roger Marshall, R-Kansas, described Hanes as "the pride of Elkhart" in 2019:
Hanes testified today before the House Agriculture Committee's Commodity Trading, Energy and Credit Subcommittee, laying out the issues of farm credit in rural America from a banking industry perspective. Well done!
https://t.co/kFazSelLZB pic.twitter.com/vviJvFU9i5
— Kansas Bankers Association (@KansasBankers) December 11, 2019
Most people in Elkhart were not affected by the bank failure and had their accounts simply transferred to Dream First Bank. However, shareholders risk losing their entire investment. The bank's stock is owned by holding company Elkhart Financial Corp. and is not subject to conservatorship by the Federal Deposit Insurance Corporation. According to a 2021 Federal Reserve filing, Hanes and his family members were among the bank's largest shareholders; Hanes held about 7% of the shares at the time.
One of the other shareholders, who include families who own local businesses, teachers, retirees and farmers, said on condition of anonymity that she did not believe Hanes had any nefarious intentions. She added that in this situation, there is no reward or feedback even if you are angry about the loss. But numerous farmers who are not shareholders expressed frustration with Hanes and said those facing the prospect of losing their retirement assets were being unfairly targeted and that he had a right to be concerned after the meeting. Two people familiar with the situation said it was actually bank money involved in the cryptocurrency scam.
Heartland Bank was once known as the First National Bank of Elkhart. Its office bears plaques bearing the names of past directors, source Blomberg
Still, the exact details of the scam are unclear. Herndon, the state's banking commissioner, emailed Bloomberg News a link to an alert issued in September by the U.S. Treasury Department's Financial Crimes Enforcement Network, which works to Protect the financial system and issue a warning against so-called "pig-killing" behavior.
This model is no different from the domestic pig-killing plate, except that it occurs in the field of virtual currency investment. Scammers find victims by mining dating apps and social media sites. Scammers will create a fake profile to pose as an incorrect number via social media, WhatsApp, Tinder or other dating sites, or even random text messages. or old acquaintances to contact potential victims, with the goal of engaging in cordial discussions with the victim in an attempt to become their "new friend" or "lover."
After becoming friends with a certain level of trust, they will slowly convince the victim to invest in cryptocurrency, recommending a fake website or app that looks real but is controlled by the scammer. In the early stage of investment, generally victims make a small investment at the beginning, and the scammer will ensure that they receive moderate returns on the investment, and will even provide cash withdrawal operations to prove the compliance of the APP. Once the funds reach a certain amount, the scammers will take away all the funds and disappear, and the anonymity of virtual currency accounts is difficult to trace.
In such an operation, victims are tricked into offering larger and larger sums of money - like fattening pigs for slaughter. Victims of similar tactics and other virtual currency investment fraud have lost billions of dollars in the United States alone, according to law enforcement data cited by the Treasury Department. As for Hanes, it is very likely that he will be tricked because of this.
Hanes understands the role he and his bank play in Elkhart. "Think about what it would do to many rural communities if they didn't have a local bank presence," he told Kansas lawmakers in 2021. "How many high school scoreboards, county fair donations, rec team sponsorships, water bottles for school kids, scholarship donors, civic organization members, Santa Claus Day sponsors and parade floats would disappear without the support of local community banks and their employees not see?"
Dream First Bank is not entirely a local company. The company, which is headquartered 72 miles away in Syracuse, Kansas, said employees' jobs will not be affected by the change. Heartland's collapse follows the collapse of four regional lenders this year, including Silicon Valley Bank and Silvergate.
As for Hanes, he is out of a job. He resigned from the school board and from the Kansas Bankers Association. Elkhart residents said they saw him a few times around town. But according to residents, he can only stay at home most of the time as the investigation continues. His new ranch-style house - American style, with a basketball hoop and a large backyard - is a short drive from the FBI courthouse.
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