Oklahoma City, Oklahoma – Yesterday, a federal grand jury returned a 23-count indictment against JOHN ARNOLD SHELLEY, 66, of Oklahoma City, Oklahoma, in connection with the failure of the Bank of Union, announced Mark A. Yancey, United States Attorney for the Western District of Oklahoma. The counts include conspiracy to commit bank fraud, bank fraud, money laundering, making false statements to a bank, misapplication of bank funds, false bank entries, wire fraud, and making false statements to the Federal Deposit Insurance Corporation (FDIC).
Shelley was the President, Chief Executive Officer, Chairman of the Board, and a loan officer at The Bank of Union (BOU) in El Reno, Oklahoma, from approximately 1997 until his resignation on November 30, 2013. In January 2014, state banking regulators closed BOU due to the bank’s loan losses, and the FDIC was appointed as the bank’s receiver. According to the indictment, the estimated loss amount stemming from BOU’s failure as of December 2016 was in excess of $100,000,000.
The 23-count indictment charges Shelley with defrauding BOU in several ways: (1) by issuing loans with under- or unsecured collateral and falsifying financial statements for several high-dollar bank borrowers; (2) by originating nominee loans to circumvent the bank’s legal lending limit; (3) by concealing the bank’s true financial condition from the Board of Directors (Board); (4) by soliciting a fraudulent investment; and (5) by falsely representing the bank’s true status to the FDIC.
According to the indictment, Shelley conspired with four BOU borrowers from approximately 2009 through November 2013 to defraud BOU by issuing them millions of dollars in BOU loan proceeds secured by collateral that they did not actually have, allowing Shelley to justify his unusually high annual earnings to the BOU Salary Committee. It is alleged that, though these borrowers had already accumulated significant debt that they could not repay, Shelley continued to issue them new loans to cover their outstanding loan balances, and “rolled” or capitalized the principal and accrued interest on their existing loans into the new loans that he authorized. At monthly meetings held by the BOU Board, it is alleged that Shelley failed to disclose the true status of these delinquent loan accounts; instead, he advised the Board that the borrowers were continuing to pay down their loans. The indictment further alleges that in October 2012 and again in 2013, Shelley directed three of the borrowers to prepare inflated cattle inventory reports falsely representing that they had sufficient collateral, in the form of cattle, to repay their loans to the bank. It also alleges that Shelley conspired with these three borrowers to issue loans in one of their names for transfer to the others, thereby avoiding the bank’s legal lending limit. The indictment includes 17 counts of conspiracy, bank fraud, money laundering, and false statements related to this scheme.
The indictment also alleges Shelley issued new loans to these borrowers in order to keep them off of BOU’s monthly overdraft reports. According to the indictment, BOU’s lending policy directed that overdrafts generally should not be granted, particularly where a borrower’s loans were 30 days or more past due. In June 2011 and again in August 2011, Shelley, knowing that two of these borrower accounts were more than 30 consecutive days overdrawn by hundreds of thousands and, at times, millions of dollars, allegedly caused BOU to issue new loans to cover these account overdrafts just before the Board’s monthly meetings at which the reports were reviewed. Shelley is charged with four counts of misapplication of bank funds and false bank entries for his fraudulent overdraft concealment.
Further, the indictment alleges Shelley executed a scheme to defraud a partial owner and investor in BOU in October 2012. According to the indictment, Shelley persuaded the investor to wire $40,000,000.00 to BOU by falsely representing that BOU was growing rapidly and performing well. The indictment alleges that, though Shelley knew that the bank was on the brink of failure and needed an immediate capital infusion to ensure its solvency, he advised the investor that there was “zero” risk that he would lose his $40,000,000.00 investment. The indictment charges Shelley with wire fraud for executing this scheme.
Finally, it is alleged that Shelley falsely represented the bank’s loan status to the FDIC. According to the indictment, between September 2012 and September 2013, Shelley continued to renew several unpaid borrower loans by issuing new loans to cover the outstanding loan balances, then capitalizing the unpaid interest on the previously unpaid loans into the balance of the new loans. Pursuant to an October 2013 FDIC safety and soundness examination, it is alleged that Shelley falsely represented that he had not renewed or extended any loans without full collection of the interest due between that September 2012 to September 2013 time period. He is charged with making a false statement to the FDIC for this conduct.
With regard to the bank fraud, bank fraud conspiracy, false statement, misapplication of funds, and false entry charges of the indictment, Shelley faces up to 30 years in prison and a fine of up to $1,000,000 on each count. He also faces up to 20 years of imprisonment and a $250,000 fine on the wire fraud count, along with up to 10 years in prison and a $250,000 fine as to money laundering. Furthermore, the indictment seeks forfeiture from Shelley in the amount of the proceeds of the fraudulent schemes and in the amount of the property involved in the offenses.
This case is the result of an investigation by the Federal Deposit Insurance Corporation Office of Inspector General and the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Julia E. Barry.
Reference is made to the indictment and other public filings for further information. An indictment is only a charge and is not evidence of guilt. A defendant is presumed innnocent and is entitled to a fair trial at which the government must prove guilt beyond a reasonable doubt.