A former banker and a real estate developer now face charges of bank fraud after a federal grand jury indicted Shaun Hayes and Michael Litz for their roles in a scheme that allegedly lead to the loss of $4 million of taxpayer money.
According to the Office of the Special Inspector General for the Troubled Asset Relief Program, Hayes, who had ownership in and other associations with a number of banks in the St. Louis area, and Litz, who owned several major real estate businesses in the area, face charges that they conspired to defraud the government out of nearly $5 million that was supposed to prop up Excel Bank, a bank that regulators subsequently closed in 2012.
According to SIGTARP, one of Litz’s businesses, Eighteen Investments, was facing serious financial difficulties in 2009.
During that period, Hayes was the majority shareholder of the holding company through which Excel Bank operated.
According to SIGTARP, Hayes directed Excel Bank to open up a loan production office in Clayton, which Hayes controlled.
Hayes and Litz were also co-owners of McKnight Man, through which they were attempting to develop property in St. Louis County.
According to SIGTARP, Eighteen Investments and McKnight Man were delinquent on loans at Centrue Bank, which sued Eighteen Investments and Litz in June 2009. Centrue Bank also threatened to sue Hayes and Litz as guarantors on a delinquent McKnight Man loan.
Those loans totaled over $4 million, which was also the amount the Excel Bank received from the Troubled Asset Relief Program.
The federal indictment alleges that Hayes used his status as an insider at Excel Bank to cause Excel Bank to buy the pool of delinquent Eighteen Investments loans at a discount but hid that purchase from the bank’s board of directors.
According to the indictment, Hayes and Litz then caused Excel Bank to issue a loan of approximately $3.3 million to a straw party only identified as “LS.”
The indictment showed that approximately $2.4 million of the loan proceeds were used to pay Centrue Bank for the pool of Eighteen Investments loans purchased by Excel Bank and $906,000 of the loan proceeds were used to pay off the McKnight Man loan at Centrue Bank.
The indictment charges that federal bank regulators later classified the loans to LS and other straw parties as substandard.
The indictment refers to these as “friends of Shaun” loans that were pushed through the bank due to Hayes’s influence and without adequate underwriting safeguards for the bank.
According to SIGTARP, the loans were additional loans to Eighteen Investments, which was already delinquent on loan payments and real estate taxes on many properties securing the loans.
“Excel Bank lost millions of dollars from Hayes’ alleged crimes, did not repay the taxpayers’ $4 million TARP investment in the bank and did not make 11 dividend payments to Treasury which lost nearly $5 million when the bank failed,” said Special Inspector General Christy Goldsmith Romero of the Troubled Asset Relief Program. “SIGTARP stands united with our law enforcement partners to bring justice to bank officials and their associates who commit bank fraud.”
Hayes and Litz were indicted on one count of bank fraud and one count of misapplication of Excel Bank funds. Hayes was also indicted on the charge of causing false entries to be made in the Excel Bank records relating to the LS loan.
Each count carries a maximum penalty of up to 30 years in prison and fines up to $1 million.
“Insider deals regarding pools of mortgage loans place risk on the housing/mortgage industry and the economy,” said Barry McLaughlin, Special Agent in Charge, Office of Inspector General, Federal Housing Finance Agency Mid-Western Region. “This indictment is proof that matters involving insider deals and fraud concerning mortgage loans are being dealt with seriously.”