A report from the government watchdog for the Federal Reserve said this month that Shan Hanes, the CEO of Heartland Tri-State Bank, had fallen victim to a type of investment fraud known as pig butchering, which led his bank to fail in July.
American Banker reported previously that the bank's failure had been
"Heartland Tri-State Bank failed because of alleged fraudulent activity conducted by the bank's chief executive officer (CEO), who initiated a series of wire transfers totaling about $47.1 million of Heartland's funds, among other suspicious activities, as part of an apparent cryptocurrency scheme referred to as 'pig butchering,'" the report said.
People at the Federal Reserve Bank of Kansas City whom the OIG interviewed said Hanes' wire transfers appeared to be part of the cryptocurrency scam. As early as January 2023, Hanes executed small cryptocurrency transactions through another bank unnamed in the report. Some of those transactions appeared to involve his personal funds and funds potentially belonging to other entities, according to the report.
"In subsequent weeks and months, the CEO began transferring larger dollar amounts including the 10 wire transfers that caused the bank to fail," the report, which does not mention Hanes by name, said. "These transactions to cryptocurrency exchanges that are of increasing amounts over time appear to be consistent with the progression of a pig butchering scam."
Fed staff in Kansas City conducted two interviews with Hanes during the week of the bank's failure to better understand the events that occurred. Hanes provided screenshots of messages and supposed cryptocurrency account statements, but Fed staff found his explanations "unreliable and inaccurate" because they "did not make sense and were difficult to follow," according to the report.
The U.S. Attorney's Office for the District of Kansas
Dream State Bank, which took on Heartland Tri-State's deposits, did not respond to a request for comment. Hanes could not be reached for comment.
Two months after the mysterious failure of the Heartland Tri-State Bank in Elkhart, Kansas, a news article sheds light on its downfall. CEO Shan Hanes was involved in a cryptocurrency hoax involving a $12 million wire payment, according to the Bloomberg Businessweek report.
Some scams work by playing into fear — a scammer convinces the victim their child is being held hostage (when they're not), and they need to send money immediately to ensure their safety. Others play into a sense of longing — many romance scams involve convincing the victim the scammer is in love with them, then one day, the scammer asks for money.
Pig butchering works a bit differently. The scammer offers the victim an investment opportunity — often cryptocurrency-related,
According to the FBI, scammers often make initial contact with victims through social networking and online communications platforms, dating websites, and phone calls and text messages that are meant to appear to have been misdialed. According to FinCEN, The scammer may claim to be an investor or money manager and create a social media profile that showcases wealth and an enviable lifestyle.
Fraudsters in these schemes often ask for a modest investment to start, "to build confidence,"
Pig butchering schemes "usually involve some type of fake claim or falsified dashboard that shows assets exponentially growing, with the intent being to encourage larger and larger investments," according to FINRA. These falsified dashboards may be websites that look like legitimate trading platforms, applications that victims download onto their phones, or malicious smart contracts accessed through cryptocurrency wallet software,
At the end of the scheme, the scammer might represent to the victim that the investment has plummeted in value, perhaps even convincing the victim they now owe money. By that time, or anytime prior, the scammer will rebuff attempts to withdraw supposed earnings.
"If the victim attempts to withdraw their investment, the scammer may demand that the victim pay purported taxes or early withdrawal fees," a FinCEN alert about pig butchering last year said. "Once the victim is unable or unwilling to pay more into the scam, the scammer will abruptly cease communication with the victim, taking the victim's entire investment with them."
Statistics on pig butchering are sparse, but the FBI does track statistics on the broader category of investment fraud.
Investment fraud is not as common as phishing, business email compromise, tech support scams, or other more common forms of internet crime. While more than 300,000 people reported instances of phishing to the FBI last year, 30,529 reported investment fraud.
Yet investment fraud cost victims the largest amount of money of any category in 2022, according to the FBI's
