Posted 12/23/2013 12:00 am
Updated 7 months ago
The Federal Deposit Insurance Corp. is blaming BKD LLP, the Springfield, Mo., accounting firm with a large Little Rock office, for allowing Kevin Lewis’ fraud to go undetected long enough to destroy First Southern Bank of Batesville.
Had BKD done its job, the FDIC alleged in a civil case filed in federal court in Little Rock, Lewis could have been exposed as a criminal in mid-2009, almost a year and a half before he was. The FDIC was the receiver for First Southern Bank, which state bank regulators closed on Dec. 17, 2010.
It was FDIC examiners who found, during a routine examination in the fall of 2010, that all of the improvement district bonds that the bank had bought from Lewis since 2008 — $23.3 million worth — were fake. Lewis, of course, stung other banks in Arkansas to the tune of about $50 million in what is considered the biggest fraud ever prosecuted in Arkansas.
The FDIC claims in the lawsuit that BKD violated auditing and other professional standards when it audited the bank in 2009.
BKD said in a statement to us that it intends to “vigorously defend ourselves against this meritless claim.”
“BKD is surprised that the government is seeking to blame the bank’s auditors for the criminal fraud of Kevin Lewis,” said General Counsel Bob Lawson Jr. “BKD’s work complied with professional standards.”
In the lawsuit, the FDIC alleged that BKD failed to discover that Lewis was behind a trust that acquired a majority interest in the bank in January 2009. And BKD, the FDIC said, should have known that Lewis was involved in so many bonds held by the bank.
Those two facts should have prompted BKD to ask more questions, but the firm didn’t, the lawsuit said.
Had BKD poked around adequately, it would have discovered that the documentation supporting Lewis’ bonds was “nominal,” the lawsuit said. “BKD would then have been obligated to investigate further, and discovered that the Bonds were a sham and fraudulent.”
That discovery would have prevented the bank from buying more bonds from Lewis after June 9, 2009, allowing it to avoid $17 million in losses. The FDIC said BKD also fumbled the case by failing to hire an expert to determine a value of the bonds, as it did for other securities held by the bank.
Had an expert been hired, the FDIC alleged, “that expert would have conducted the proper inquiry and determined that the Bonds were fraudulent.”
The FDIC is suing BKD for professional and gross negligence and breach of contract.
Lewis, 45, is in federal prison in Memphis, where he’s serving a 10-year sentence in connection with the fake bonds. He is scheduled to be released in January 2021.