This year’s number of new lawsuits surrounding the controversial business affairs of the late Layton “Scooter” Stuart indicates the rancor is only growing.
The battle over assets seized by the federal government recently escalated with the U.S. Treasury asserting a claim for up to $51.9 million.
The number represents a treble damage claim on $17.3 million that flowed to Little Rock’s One Bank & Trust through the Treasury’s Capital Purchase Program.
As the controlling executive at the bank, Stuart allegedly diverted $6.6 million of the CPP funds to non-capital uses.
About $2.2 million of that allegedly was used by Stuart to “repay” the bank for money he improperly obtained for personal taxes and expenses.
Although $10 million of the CPP funds flowed to One Bank’s capital, Treasury is making its more expansive claim under the False Claims Act.
That Aug. 7 filing in the forfeiture action against Stuart in Little Rock U.S. District Court joins a string of 2014 lawsuits in federal and state court involving his estate.
Stuart was ousted as chairman, president and CEO of One Bank by the Office of the Comptroller of the Currency on Sept. 28, 2012.
He died on March 26, 2013, as federal investigators were building a case of rampant self-dealing by Stuart and others at the bank.
Allegations of criminal conduct extend beyond Stuart to other bank officers as well. The battle over money is the focal point of the various civil actions.
During the past few months, One Bank & Trust opened new fronts in Pulaski County Circuit Court with cases against Stuart’s estate, several of his ventures, the bank’s former chief financial officer, Tom Whitehead, and one of Whitehead’s ventures.
As part of the litigation, One Bank even sued its parent company: OneFinancial Corp., which Stuart allegedly used to aid his self-dealing. The holding company owns the bank, and Stuart owned 99.9 percent of OneFinancial.
In one of the state court cases, One Bank is suing to take title of a west Little Rock branch that it claims was bought from Stuart in 1994 but wasn’t formerly transferred to the bank.
Richard Torti, executor of Stuart’s estate and trustee of the Stuart Family Trust, added a new federal lawsuit to the mix. Torti sued Debra Hoag, who is a former trustee of the Stuart Family Trust, and John Hancock Life Insurance Co. of Boston, for which Hoag was an agent.
“This thing has got a lot of moving parts, and everyone is jockeying for position,” Torti said. “I feel like I’m in the middle of a tornado, and as long as I don’t move too far I’ll be okay.”
The July 28 complaint alleges that Hoag and John Hancock mishandled the family trust’s prime asset: a $20 million life insurance policy on Stuart. Also named in the suit is Gentry Partners, where Hoag is president.
The suit claims that Hoag as trustee wrongly borrowed $1.7 million against the policy in June 2011 and implies the debt was incurred at the request of Stuart, although he didn’t have legal authority to do so.
According to the complaint, the check was made payable to the Stuart Family Trust, which was set up for the benefit of Stuart’s wife, Tommye, and their two grown children.
The $1.7 million check from John Hancock was sent by federal express to Scooter Stuart. He didn’t deposit the money in the trust and instead endorsed the check and used the funds for purposes outside the trust.
John Hancock shouldn’t have made payment on the check because Stuart didn’t have the authority to endorse it, the lawsuit claims.
In the eye of the legal storm is $14.7 million remaining from the payout of that policy following Stuart’s death. That money is the biggest single asset that the government has seized.
Increased litigation count notwithstanding, Stuart’s OCC-approved replacement at One Bank believes a resolution isn’t far down the road.
“I do think there will be a global settlement by the end of the year,” said Jerry Pavlas, CEO of the bank since Oct. 25, 2012.
The $375 million-asset lender got its first good financial news in a long while. One Bank recorded a $1.2 million year-to-date profit on its June 30 call report, the first black ink in two years.
However, the move from out of the red and into the black wasn’t accomplished solely by ongoing bank operations.
A $3 million extraordinary item erased a first-quarter loss of $1.1 million and pushed the bank’s equity capital to nearly $16.8 million. The money was released from seized assets held by the government.
The cash reimbursed One Bank for premiums paid on Stuart’s life insurance policy. The bank and Torti are still haggling in state court over whether an additional $472,520 is owed to the bank for premiums, although the federal government sided with Torti when the dispute was in federal court.
“It looks like we should break even or make a little money in the third quarter,” Pavlas said.
Another extraordinary item will be making that fiscal feat possible.
One Bank reached a settlement of $1 million or so in mid-August with Travelers Indemnity Co., an affiliate of St. Paul Mercury Insurance Co.
Earlier this year, the bank sued the Minnesota company to collect $2 million on its financial institution bond for coverage that included “dishonesty of employees.”
As part of its financial settlement with One Bank, Travelers Indemnity relinquished any claims to the forfeiture assets seized by the government.
All but one of the seven loss claims submitted by the bank was linked with Stuart or Whitehead. That lone claim was tied to Matthew Sweet, former vice president and controller, who allegedly diverted $114,264 from One Bank for his personal benefit and was terminated in February 2012.
Sweet reportedly repaid the money, however, it was allegedly diverted by Stuart for non-bank uses.
Late last year, Sweet was charged with 30 counts of bank fraud and 30 counts of money laundering in connection with his misdeeds.
He is scheduled for trial before U.S. District Judge Leon Holmes starting Jan. 15, 2015.
Gary Rickenbach, former executive vice president at One Bank, was indicted in April on one count of conspiracy to commit bank fraud, misapplication of bank monies, making false entries to deceive the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., obstructing an OCC examination and money laundering in connection with alleged financial shenanigans at the bank. Federal prosecutors have sought a delay in his trial, scheduled for October.
No criminal charges have been filed against Whitehead or another insider whose name crops up in the One Bank narrative: Michael Heald, former executive vice president and chief operating officer at One Bank and a former trustee of the Stuart Family Trust.