Two days after regulators forced the late Layton Stuart out of his position as chief executive officer at One Bank & Trust in Little Rock, the bank’s former chief lending officer said in a memorandum to the bank’s board of directors that he expected to be questioned by regulators about his involvement in the handling of three loans.
“My lapse in judgment with respect to these transactions has or will cause [federal regulators] to question my integrity and honesty,” Gary Rickenbach, also a member of the bank board, said in a document obtained by the Arkansas Democrat-Gazette.
Rickenbach said, however, that the three transactions “were entered into with a desire to help the bank with troubled situations.” Rickenbach said his deals “need to be disclosed to [federal regulators] as part of their current ongoing investigation.”
“None of the transactions involves diverting assets for my personal use,” Rickenbach said in the memorandum.
Rickenbach declined to comment for this article.
The internal memorandum was dated Sept. 30, 2012, two days after the Office of the Comptroller of the Currency, the federal regulator for the bank, filed the third sanction in two years against One Bank and ordered Stuart dismissed as chairman, chief executive and president of the bank. Stuart also was ordered to relinquish all of his bank property.
Stuart died March 26 at the age of 62 from cardiovascular disease.
On July 12, the federal government filed a lawsuit in U.S. District Court for the Eastern District of Arkansas indicating it had seized almost $160,000 from Stuart’s bank accounts and almost $17.7 million in death benefits from a John Hancock Life Insurance policy.
In the September memorandum, Rickenbach outlined for the board three loans the bank made that had become problems. In each case, Rickenbach said he devised inappropriate accounting methods to correct the problems, but ultimately none of the plans worked.
“I am embarrassed to have to admit to the failings and lack of judgment described herein,” Rickenbach said. “There is no doubt that my actions in all of these situations has been devious and misleading, but at no time were any of the actions or funds diverted to my own personal use. I understand and anticipate that disciplinary actions should and will result. I apologize profusely to the remaining board members.”
On the three loans, two for less than $100,000 and one for $1.5 million, Rickenbach:
Ordered a second mortgage issued to cover the interest on a first mortgage taken out by a bank employee on a Little Rock home, violating bank policy.
Returned $25,000 of profit the bank made on a sale to a borrower to help the borrower stabilize a mobile home project.
Utilized a “very complicated series of transactions” to try to prevent the bank from recognizing a loss on a $1.5 million loan.
The bank ultimately took a loss on the loan despite the complicated transactions to fix it, but Rickenbach argued that the loss was less than it would have been “had this path not been chosen.”
“But this doesn’t mean the end justifies the means,” Rickenbach’s memorandum said.
Rickenbach’s admission is among several purported schemes involving bank officials, including the government’s accusations in the July lawsuit against Stuart’s estate, claiming he violated federal law.
In a recent motion, Richard Torti Sr., the executor of Stuart’s estate and the trustee of his 1997 trust that includes Stuart’s life insurance policy, asked the court to dismiss the case.
Torti, through his lawyers Christopher Parker and Jeff Rosenzweig of Little Rock, argued that the government provides no facts in the complaint that any portion of the$17.7 million life insurance policy was involved in “unstated illegal activity” that would give the government a right to seize the money.
Stuart told the Democrat-Gazette in an October interview that he suspected that three of his top executives at the bank, including Rickenbach, were involved in a plan to extend the payment dates on high-dollar insurance policies the bank had with wealthy clients, which Stuart said violated banking regulations.
The executives, including Rickenbach, were fired by the bank in 2011 and 2012.
In another document obtained by the Democrat-Gazette, Stuart sent a message to his attorney only two days before his death.
“I have been couped up in CCU hospital for last 5 days with heart issues,” Stuart wrote. “A lot came to mind on [his son] Hunter’s case I want to put on record for your files, just in case something happens to me. I am feeling terrible and scared.”
His son had no involvement with Layton Stuart’s plans to purchase a home for Hunter and renovate it, Layton Stuart said.
Among numerous charges by the federal government, including various schemes to defraud the bank, Layton Stuart was accused of using bank funds to make more than $1 million in renovations to a home he bought for Hunter Stuart.
He also outlined his perspective on the $1.5 million loan Rickenbach admitted mishandling.
“It was a maze of a loan that [his top executives] refused to explain,” Stuart said. “They had complete control of the bank and the general ledger.”
When Stuart became ill around 2006, he allowed his top executives, including Rickenbach, to run the bank, Torti said in an interview.
“He trusted them completely but later found out his trust had been misplaced,” Torti said.
Business, Pages 23 on 08/27/2013