A former president, CEO and chairman of Valley Bank, Moline, was sentenced Tuesday to nine months in prison and to pay $4.5 million in restitution.
In the U. S. District Court for the Southern District of Iowa, Larry Charles Henson was ordered to serve a term of nine months, with a five-year term of supervised release to follow, at FMC Rochester, which is an administrative security federal medical center in Rochester, Minn. U.S . District Court Judge Stephanie M. Rose also ordered him to pay restitution of $4,528,191.26, court documents say.
A lawsuit accuses Henson of conspiring with employees of Vital Financial Services and other employees of Valley Bank to commit wire fraud.
The scheme was run by the officers and employees of Vital, a Clive, Iowa-based originator and packager of Small Business Administration loans, and Valley Bank officers and employees who lent the money, documents say.
The scheme involved fraudulently obtaining guarantees for loans the SBA otherwise would not have guaranteed, documents say.
To induce the SBA into providing guarantees Henson, in consultation with others, instructed other people to log in to Valley Bank’s system and fraudulently change loan histories to remove payment delinquencies.
The SBA approved the loans based on the fraudulent misrepresentations, documents say.
If the loans defaulted, the SBA would suffer a loss, court records say. Vital made its money on fees for each origination, on feels for selling the loans on the secondary market to investors, and on fees for servicing the same loans.
Valley Bank’s goal was to shift loan losses to the SBA.
The scheme caused the SBA a loss of $4,528,191.26, court records say.
Henson, who has no prior criminal history, was accused of conspiring with others to shift millions of dollars in potential losses from Valley Bank to the SBA, according to court documents.
Earlier: Former executives named as defendants
Three former executives of Valley Bank, a defunct financial institution based in Moline, and the president of Vital Financial Services (Vital Financial), a lending service provider, have pleaded guilty to scheming to defraud the Small Business Administration (SBA) in connection with its programs to guarantee loans made to small businesses, according to a Justice Department news release.
According to court documents from November 2021, the defendants — Michael Slater, then 65, of Clive, Iowa, former president and founder of Vital Financial; Larry Henson, then 70, of Davenport, former President and Chairman of Valley Bank; Andrew Erpelding, then 43, also of Davenport, former Vice President and Regional Manager of Valley Bank; and Susan McLaughlin, then 68, of Bettendorf, former Vice President for Credit Administration of Valley Bank — conspired to and fraudulently obtained loan guarantees from the SBA on behalf of Valley Bank borrowers, knowing the loans did not meet SBA’s guidelines and requirements for the guarantees, according to a Justice Department release.
They did so by, among other things, altering loan payment histories, renaming businesses, and hiding the fact that borrowers had previously defaulted on loans. When the fraudulently guaranteed loans defaulted, the defendants caused the submission of reimbursement requests to the SBA to purchase the defaulted loans from investors and lending institutions, thereby shifting the majority of losses on the ineligible loans to the SBA, the U.S. Department of Justice said.
In all, the defendants attempted to obtain guarantees on more than $14 million in loans, were successful in obtaining guarantees on more than $9 million in loans, and caused the SBA losses of more than $4.5 million, according to the news release.
All four defendants pleaded guilty to conspiracy to commit wire fraud affecting a financial institution. McLaughlin pleaded guilty on Sept. 20; Erpelding on Sept. 21; Henson on Nov. 9; and Slater on Nov. 18, the release says..
Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division; U.S. Attorney Richard D. Westphal for the Southern District of Iowa; Inspector General Jay N. Lerner of the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG); Inspector General Mark Bialek of the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau (FRB/CFPB-OIG); Inspector General Hannibal “Mike” Ware of the SBA Office of Inspector General (SBA-OIG), Acting Assistant Director Jay Greenberg of the FBI’s Criminal Investigative Division, and Acting Inspector General Phyllis K. Fong of the Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) made the November announcement.
