First Southern Bank of Batesville Fears It Bought $22 Million Worth of Fake Bonds

by Arkansas Business Staff  on Monday, Dec. 6, 2010 12:00 am  

(Update: The latest on Lewis' relationship to First Southern Bank here.)

First Southern Bank of Batesville bought $22 million worth of rural improvement district bonds that may be fraudulent. It is now looking to merge with another bank because of the potential loss.

Other Arkansas banks also may have bought fake bonds, leaving a total debt of between $30 million and $40 million in a story that is still developing.

Bank officials, the Federal Deposit Insurance Corp. and possibly the FBI have been scrutinizing the bonds sold to First Southern between December 2008 and September of this year. First Southern discovered something was wrong with the bonds about a month ago but still has several unanswered questions.

"The purpose of the investigation is to determine whether or not these bonds - or any part of them - are fraudulent," a bank official told Whispers last week.

In the meantime, officials would love to chat with attorney Kevin Lewis, who sold the bonds to First Southern. But he can't be located. The phones at his Searcy law firm and his home in west Little Rock have been disconnected, and his wife didn't return a message left on her cell phone.

The First Southern official didn't say what banks might be potential merger partners, but Whispers understands that one possibility might be First Community Bank of Batesville.

"We still are a viable bank," the First Southern official said. "Our doors have not been shut."

Still, "for this community, it is devastating," he said. "I don't think there's any dispute that what happened here more than severely crippled our capitalization." 

As of Sept. 30, the bank's total equity capital was $19.2 million.

Before this blow, First Southern, which was established in 2005, was showing signs of modest but improved profitability. Through Sept. 30, it had net income of $510,000, up from $123,000 during the same period in 2009.

Lewis Connection

First Southern Bank is already trying to track down Lewis' assets, which would help the bank recapitalize, the bank source said.

One of those assets is a 6,724-SF home in the Chenal Valley neighborhood he bought for $1.2 million in 2007.

In October 2008, Lewis took out a three-year, $2.5 million mortgage on the home. Also used as collateral on the loan from Capital Bank of Little Rock were two bonds identified as "Emerald Hill POID #1" in Lonoke County.

Your Whispers staff doesn't know much about Lewis, except what's available from legal websites like Lawyers.com and Martindale.com: He earned his undergraduate degree at State University of New York at Albany and law degree from the University of Arkansas. He received his law license in 1993 and hasn't had any disciplinary actions. His areas of practice include municipal financial, real estate finance and commercial real estate, the website said.

Stay tuned.

 

 

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