Bank CEO-turned-felon sentenced to 24 years in prison

BRENDAN SMIALOWSKI/Photographer: BRENDAN SMIALOWSKI

A federal judge sentenced the ex-CEO of the failed Heartland Tri-State Bank in Elkhart, Kansas, to more than two decades in prison for his role in a cryptocurrency scheme that caused steep losses for the bank and its investors.

Shan Hanes, who admitted earlier this year to embezzling $47.1 million from the $139 million-asset bank, was sentenced on Monday in U.S. District Court in Wichita to 293 months in prison — or more than 24 years.

Hanes pleaded guilty to one count of embezzlement by a bank officer after prosecutors alleged that, from May to July 2023, he initiated several illegal wire transfers of Heartland's funds to a cryptocurrency wallet. The money was then transferred to multiple crypto accounts controlled by unidentified third parties.

"These wire transfers significantly impaired Heartland's capital and liquidity, causing the bank to become insolvent," the U.S. Office of the Inspector General said in a report.

Prosecutors said the scheme hastened the bank's failure last year. They said Hanes lied to the bank's board, investors and employees about the wire transfers.

Hanes "trespassed his professional obligations, his personal relationships, and federal law. Not only did Shan Hanes betray" the bank "and its investors, but his illegal schemes also jeopardized confidence in financial institutions," Kate Brubacher, U.S. Attorney for the District of Kansas, said in a statement. 

Brubacher's office noted that a federal judge ordered that restitution be finalized at a separate hearing within the next 90 days. 

Hanes, 53, was not available to comment. He was charged in February and pleaded guilty in May. He had faced up to 30 years in prison.

The Kansas Office of the State Bank Commissioner closed Heartland Tri-State and the Federal Deposit Insurance Corp. seized the bank on July 28 of last year. Dream First Bank of Syracuse, Kansas, assumed all of its deposits.

The FDIC said the agreement caused a $54.2 million hit to its Deposit Insurance Fund. Federal authorities estimated that shareholders lost about $9 million.

The Wichita Eagle reported that, during the sentencing on Monday, several victims of the scheme spoke to a crowded federal courtroom. "Seventy percent of my retirement, after 30 years of working, is gone because of your dishonesty," Marla Houtz read from a statement written by her husband, Moe Houtz, and addressed to Hanes, the Eagle reported. Moe Houtz worked with Hanes and is a shareholder of the bank.

Heartland Tri-State's downfall was among five bank failures overall last year — the most of any year so far this decade.

Kansas Banking Commissioner David Herndon told American Banker after Heartland Tri-State's demise that it was shuttered following a "very sudden" event unrelated to the failures of the much larger Silicon Valley Bank, Signature Bank and First Republic Bank last year. He said Heartland had historically been a financially sound bank and was not previously in state regulators' crosshairs.

The $66 million-asset Citizens Bank in Sac City, Iowa, was the fifth bank to fail last year. It had faced heavy loan losses. Citizens' assets were purchased by the Iowa Trust and Savings Bank in Emmetsburg. 

To date in 2024, there has been only one bank failure. Philadelphia-based Republic First Bank in April was closed by its state regulator and taken over by the FDIC. The bank had struggled to maintain adequate capital and faced proxy challenges from investor groups. Fulton Bank in Lancaster, Pennsylvania, assumed substantially all of Republic First's $6 billion of assets.

The Heartland Tri-State case was investigated by the FDIC, the Federal Reserve Board and the Federal Housing Finance Agency — under the umbrella of the U.S. Office of the Inspector General — as well as the Federal Bureau of Investigation.

"As the CEO, the defendant had a duty to conduct business honestly but instead abused that trust and committed insider fraud, contributing to the failure of a bank and causing catastrophic losses," said Korey Brinkman, special-agent-in-charge for the Federal Housing Finance Agency.