Ex-CEO of failed Kansas bank charged with embezzling $47 million

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Shan Hanes, the former CEO of failed Heartland Tri-State Bank, was indicted in U.S. District Court on charges of embezzling $47.1 million from the Elkhart, Kansas-based lender before its collapse in July. Federal prosecutors allege that he took money from a local church and a local investment club and funneled it into cryptocurrency investments for his "personal benefit."

Beginning around May 30 and continuing through at least July 7, prosecutors said in court documents, Hanes embezzled funds from the $139 million-asset Heartland Tri-State and its customers "by causing at least 11 wire transfer financial transactions" from the bank. He "did not have authority to make the wire transfers or to use Heartland Tri-State Bank funds to purchase cryptocurrency."

The transfers ultimately resulted in investments that flopped and, by extension, in losses for the bank that "caused" its failure, prosecutors with the U.S. attorney's office in Wichita, Kansas, alleged.

Hanes couldn't be reached for comment Thursday.

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 the agreement 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.

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.

Hanes, a former chair of the Kansas Bankers Association, could face up to 30 years in prison if convicted. 

In the spring of 2023, Hanes had expressed confidence in his institution's financial health. "This year most likely won't be as good as 2022, but we're open for business and generally positive," he told American Banker at the time.

The charges against Hanes were widely anticipated. In August, Kansas Banking Commissioner David Herndon told American Banker that a federal investigation was underway and that Heartland Tri-State "fell victim to a scam." Herndon also said the failure was a "very sudden" event and unrelated to the failures of the much larger Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year.

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Herndon said Heartland Tri-State had historically been a financially solid bank and was not previously under regulatory scrutiny. The bank noted it had steady deposit levels in a report with the FDIC, covering the first quarter of last year. That report, the most recent ahead of the failure, also showed no major credit issues or outsize securities losses.

The downfalls of the larger regional banks last year were caused in part by deposit runs. 

"This wasn't about a loan failure or unrealized losses," Herndon said last summer. "There was no run on deposits."

Were it not for the alleged criminal actions by its ex-CEO, Heartland Tri-State's demise may have garnered little attention. The bank's hit to the FDIC's deposit insurance fund paled in comparison to the regional bank failures that preceded it last year. The Silicon Valley Bank and Signature failures represented an estimated $15.8 billion loss to the insurance fund, while First Republic's sale to JPMorgan Chase resulted in a $13 billion loss.