Ex-CEO of failed bank pleads guilty after losing $47M in crypto scheme

BRENDAN SMIALOWSKI/Photographer: BRENDAN SMIALOWSKI

Shan Hanes, the former CEO of failed Heartland Tri-State Bank, pleaded guilty in U.S. District Court to a charge of stealing millions of dollars from the Elkhart, Kansas-based lender.

Hanes, 52, admitted on May 23 to embezzling the funds from the $139 million-asset Heartland Tri-State and its customers. He now faces up to 30 years in prison.

From May to July 2023, Hanes initiated a series of 10 outgoing wire transfers totaling $47.1 million of Heartland's funds to a cryptocurrency wallet. The money was then transferred to multiple cryptocurrency accounts controlled by unidentified third parties, according to the U.S. Attorney's Office for the District of Kansas.

"Even as he was squandering away tens of millions of dollars in cryptocurrency, Hanes orchestrated schemes to cover his tracks concerning the losses at the bank," U.S. Attorney Kate Brubacher said in a statement.

Hanes, who could not be reached for comment, admitted in court to embezzling bank funds, causing the bank to fail and losing investors' equity. Prosecutors said Hanes took money from multiple customer accounts, including one held by a local church.

The transfers ultimately resulted in failed investments and steep losses for the bank that led to its demise, prosecutors argued.

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

Heartland Tri-State was the first community bank failure of 2023. The FDIC said it caused a $54.2 million hit to its Deposit Insurance Fund.

There were five failures overall last year, including the $66 million-asset Citizens Bank in Sac City, Iowa. The others were large regional banks that struggled under the weight of high interest rates and deposit runs.

There were no bank failures in 2022 or the year before. But four banks failed in each of 2019 and 2020, according to FDIC data. The $6 billion-asset Republic First Bank in Philadelphia is the only bank to be taken over by regulators this year. 

Hanes, a former chair of the Kansas Bankers Association, is scheduled to be sentenced on Aug. 8. He was charged in February. A federal district court judge will determine the sentence.

Failures

Republic First fails; Fulton Bank acquires assets, branches

April 26, 2024 8:30 PM

Kansas Banking Commissioner David Herndon told American Banker last year that Heartland Tri-State "fell victim to a scam." Herndon also said the bank's downfall was a "very sudden" event and was unrelated to the failures of the much larger Silicon Valley Bank, Signature Bank and First Republic Bank earlier in 2023.

Herndon said that Heartland Tri-State, prior to the crypto transfers, had not attracted any special regulatory scrutiny. The bank had reported steady deposit levels to the FDIC, and it had no major credit issues or securities losses.

Prosecutors and federal investigators said that, while the scam was ongoing, Hanes lied to the bank's board, investors and employees about the wire transfers. Federal authorities estimated that shareholders lost between $9.3 million and $13.4 million.

Hanes "exploited his position as a bank executive to commit fraud and embezzle funds that ultimately led to Tri-State Bank's failure," Jon Ellwanger, special agent in charge for the western region of the Federal Reserve System and Consumer Financial Protection Bureau, said in a statement.