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Banned Ex-Banker Hid Cash From Creditors, Bank AllegesLock Icon

6 min read

A former Arkansas banker who received a lifetime ban from the banking industry has been accused of hiding income to avoid paying creditors.

First Service Bank of Greenbrier alleged in U.S. Bankruptcy Court this month that James Barnes of Mountain View used his wife’s checking account to shield income and assets. Barnes filed for bankruptcy on Jan. 17, listing $2.7 million in debts and $344,000 in assets.

First Service Bank wants U.S. Bankruptcy Judge Phyllis Jones to prevent Barnes from discharging all his debts. The goal is to leave him with the liabilities after the bankruptcy process.

The bank is Barnes’ largest creditor. First Service says it is owed $1.1 million tied to a judgment received against Barnes and his companies in 2014 for defaulting on loans from 2010 and 2011.

Barnes placed one of his companies, James Barnes & Associates Inc. of Mountain View, which was in farming and farm sales, in bankruptcy in April 2015, listing $4 million in debts and $3 million in assets. The case was dismissed in June 2017 without the company’s debts being discharged.

After that case was dismissed, Barnes “thereafter began to hide income at an accelerated pace,” First Service said in the suit, which it filed in Barnes’ personal bankruptcy case.

The bank also alleged that Barnes repeatedly lied on his bankruptcy filings and under oath in proceedings. He “failed and refused or otherwise had convenient lapses in memory when asked to testify as to his bank accounts, and would only admit to the existence of an account once the examiner asked specific questions about an account,” the lawsuit said. “It is axiomatic that bankruptcy relief is intended for the honest but unfortunate debtor. Here, however, [Barnes] has been anything but honest.”

Barnes’ attorney, Scott Hunter Jr. of Jonesboro, told Arkansas Business last week that he was uncomfortable discussing the allegations. “But we vehemently deny a lot of what is being said.”

‘Untiring Champion’

In the 1990s, Barnes was in farming and sold insurance before becoming the largest individual shareholder of Ozark Heritage Bank, previously First National Bank of Altheimer and renamed as Stone Bank in 2015. He joined the board of Ozark Heritage in 2009 and was its chairman until May 2013.

Barnes helped the bank grow to $68 million in total deposits, according to a resolution the bank’s board passed to honor him in June 2013.

“Mr. Barnes has been an untiring champion of the bank both in Stone County and Jefferson County,” said the resolution. “Mr. Barnes has been a cherished friend and mentor to so many of us who learned the meaning of persistence and commitment to the bank from his example.”

But the praise wouldn’t last long.

Barnes resigned from the bank in October 2013. It turned out that he “committed reckless, unsafe or unsound practices and breached his fiduciary duties” to the bank, according to a consent order Barnes signed in 2015 with federal bank regulators from the Office of the Comptroller of the Currency. His “actions caused loss to the bank, and he demonstrated personal dishonesty and a willful and continuing disregard for the bank’s safety and soundness.”

The order said Barnes received a loan from the bank in 2011 to buy cattle, which were used to secure the loan. But he sold the cattle without telling the bank or receiving its permission before he repaid the loan. For another loan for Barnes’ business, he “misrepresented his assets and liabilities by omitting debt from another financial institution and by including assets that he no longer owned,” the order said.

In the Barnes & Associates’ bankruptcy filing, Stone Bank was listed as being owed more than $672,000.

In addition to banning Barnes from the banking industry for the rest of his life, the OCC fined him $20,000. Despite agreeing to the order, Barnes had a different view of his time at the bank.

In 2016, he sued Stone Bank and its board, seeking at least $4 million in damages. Barnes alleged fraud and conspiracy, including unfulfilled promises to help him restructure his loans and misrepresenting his business with the bank to the federal regulators.

U.S. District Judge J. Leon Holmes dismissed the case in 2017, ruling that Barnes failed to make his case. Barnes refiled the suit in Pulaski County Circuit Court, again seeking more than $4 million and again claiming he was pushed out of the bank he helped start. He also said he was forced to sell his shares at below-market prices.

The defendants have denied the allegations and the case is pending.

First Service Complaints

Earlier this year, Barnes filed for Chapter 13 personal reorganization, but the case was converted to a Chapter 7 liquidation on Feb. 1.

Hunter, Barnes’ bankruptcy attorney, said Barnes had an office building valued at about $300,000 “that he was going to try and keep” but then decided not to. So there was no reason to stay in a Chapter 13, which allows debtors to keep their property and pay debts, typically over a period of three to five years. But Barnes’ bankruptcy raised concerns for First Service Bank, his biggest creditor.

In the filing, Barnes said he was unemployed and reported earning $22,800 in 2017 and $8,800 in 2018. But when Barnes was quizzed about his 2018 income during a bankruptcy proceeding, he said his filing was incorrect.

Barnes said he earned between $190,000 and $200,000 from insurance commissions in 2018. He also was paid about $55,000 for working for a family friend, according to First Service’s lawsuit. (Hunter told Arkansas Business last week that the $8,800 listed as income last year was a “processing error” and that the filing will be amended.)

Barnes said in the March proceeding that he spent between $30,000 and $32,000 on attorneys and about $22,000 paying credit cards last year.

First Service Bank accused Barnes of concealing his income by using his wife’s bank account. In January 2018, Barnes’ wife, Jennifer Richardson, opened an account at First National Bank of Izard County. Barnes and Richardson “were careful to open the account under her name only,” the suit said. Barnes was added as an agent and authorized signer, the lawsuit said, but “began using her account as his de facto personal checking account and piggy bank.”

Barnes also allegedly had an arrangement with longtime friends Frank and Julia Foll and their company, Foll Homes Inc. of Batesville, a manufactured and mobile homes dealer.

Barnes would help the Folls sell equipment or property and they would split the proceeds, the lawsuit said. In August 2017, the Folls approved Barnes to be an authorized signer on their bank account, which First Service Bank said was part of Barnes’ attempts to hide income.

The bank alleged that once an item sold, the proceeds of the sale would be placed in the Folls’ account.

And even though Richardson never worked for the Folls, Barnes would write his wife a check from the Folls’ account for his share of the sale, the bank said. Barnes would then deposit that check into Richardson’s titular account, the bank said.

“When confronted with three specific examples of checks each in excess of $6,000, written to her from the Folls’ account, Jennifer Richardson could offer no explanation for the checks or what they were for,” the lawsuit said.

The Folls, who are not defendants in the suit, didn’t respond a voice mail message from Arkansas Business.

The bank also said that the Folls bought a $450,000 home in Mountain View in May 2018 that Barnes and his wife moved into. Barnes told the bank during a bankruptcy proceeding that his wife, who earns about $36,000 annually working for Maxim Healthcare Services Inc. of Columbia, Maryland, pays the $3,800 monthly rent.

“When confronted with how his wife could afford to spend more than her monthly take-home pay on rent, [Barnes] falsely testified that his wife pays this exorbitant rent from her savings,” the suit said. “When pressed for details, [Barnes] claimed that he does not know because her money is her business.” First Service said Richardson testified in a bankruptcy proceeding that she was broke.

The bank said that Barnes has acted with “actual intent to hinder, delay and defraud his creditors, including First Service,” the lawsuit said.

As of last week, Barnes hadn’t filed a response to First Security’s lawsuit.

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