Banks caught up in massive bank fraud begin to show temporary losses
Six banks and savings and loans who loaned money due to false financial statements reported losses in 4th quarter
Construction liens of nearly $1 million have been filed against this 4,800-square-foot east Lincoln home, at 11700 Van Dorn St., that was being built by deceased businessman Aaron Marshbanks. This picture was taken a year ago. The acreage includes a barndominium with an indoor basketball court, a swimming pool and a guest cottage. (Courtesy of the Lancaster County Assessors Office)
LINCOLN — Millions of dollars of fraudulent loans obtained by Lincoln businessman Aaron Marshbanks are starting to show up in the bottom line of Nebraska banks and savings and loans.
Six financial institutions that provided loans to Marshbanks reported net losses during the fourth quarter of 2022, according to figures obtained by the Nebraska Examiner.
And two of those institutions, Western National Bank, based in Chester, and I3 Bank, based in Bennington, reported net losses for the entire year.
Nebraska banks ‘incredibly strong’
Kelly Lammers, director of the Nebraska Department of Banking and Finance, said Friday that he could not comment on individual banks but said he stands by earlier comments that despite more than $50 million in estimated fraudulent loans obtained by Marshbanks, Nebraska financial institutions are well capitalized to withstand such losses.
“Generally, as an industry, Nebraska banking is incredibly strong,” Lammers said. “Banks are specifically organized, both in law and through their board of directors, to withstand occasional interruptions.”
“Interruptions” is a milder term than given by some of the victims to describe the activities associated with Marshbanks, who was found dead inside a downtown Lincoln parking garage on Nov. 2 along with a suspected suicide note.
Charter West Bank, in a recent lawsuit, alleges that his Marshbanks “enterprise” was formed for the sole purpose of defrauding banks. That lawsuit names not only Marshbansk’ estate but also his financial adviser, Jesse Hill of Hickman, and Heavy Ventures Inc., one of the many corporate entities created by Marshbanks.
Others have termed it a “pretty sophisticated fraud” that “blindsided” lenders.
Financial statements fabricated
The Charter West Bank was among several who stated they issued loans to Marshbanks only because he presented financial statements that showed he had more than $6 million in an investment account kept by Hill — statements the banks now allege were fabricated on an account that didn’t exist.
An attorney has been appointed to sort out Marshbanks’ estate and to determine whether assets are available to pay off the more than $50 million in claims made by 30 financial institutions against the estate.
One of Marshbanks’ enterprises was purchasing, rehabilitating and then renting investment properties. But officials have said there appears to be little equity built up in the more than 200 properties he had purchased, primarily in north Omaha and Lincoln, but also in Wyoming and New Orleans.
The state banking department moved in December to freeze the assets of Hill, who, the department claimed, suffered catastrophic investment losses in early 2022 but continued to claim that Marshbanks had millions in investment accounts. Court files indicated that Hill had net capital of less than $10,000 as of Dec. 14.
No new information has been released about the investigation underway by the state and the FBI in recent weeks.
Still awaiting toxicology reports
In addition, Lancaster County Attorney Pat Condon said Friday he is still awaiting toxicology reports to determine the cause of death of Marshbanks, a former Lincoln Christian High School star athlete who had, in the past, served as the school’s treasurer. He also had been involved in a charity vegetable stand and an organization combating human trafficking internationally.
Recent, year-end financial statements indicate that some Nebraska institutions have started writing off the bad loans given to Marshbanks.
The Western National Bank, based in Chester, reported a net income loss of $891,000 for the year 2022, which included a reported loss of $2.5 million in the fourth quarter. The bank filed a $5.4 million claim in November against Marshbanks’ estate for both secured and unsecured loans. Several properties in Omaha and Bellevue were listed as collateral.
I3 Bank, based in Bennington, reported a year-end loss of $506,000, which included $1.4 million net income loss during the fourth quarter. In November, I3 filed a $2.6 million claim for an unsecured loan provided to Marshbanks and one of his limited liability companies, Journey Capital, a year ago.
Officials with the I3 Bank did not respond to messages seeking comment on Friday or Saturday.
But on Monday, Dallen George, the president of the Western National Bank, said that “interruption” rather than “downfall” describes his reaction to having to write off their loan to Marshbanks.
His bank, George said, has sufficient capital and investors to weather the loss, which he described as the largest loan default ever experienced by his bank.
Richard Baier, president and CEO of the Nebraska Bankers Association, echoed the comments of others that financial institutions in the state have “exceptionally high levels of capital and loan loss reserves” to withstand losses associated with the Marshbanks case. He added that the required reserves to cover loan losses were increased following the 2007-08 financial crisis.
Six institutions had losses in fourth quarter
The I3 and Western National banks were among four Nebraska financial institutions reporting net income losses for the year, but they were the only two wrapped up in the Marshbanks affair.
Both banks reported plenty of assets to handle the loan losses, with I3 listing $193 million in assets at the end of 2022 and Western National, $249 million.
Twelve Nebraska financial institutions reported losses during the fourth quarter of 2022, including six that have filed claims in the Marshbanks case, including I3 and Western National.
The four other banks posting net losses in the fourth quarter were Western Nebraska Bank of Curtis (a $357,000 loss), State Nebraska Bank & Trust of Wayne ($545,000), Home Federal Savings & Loan of Grand Island ($863,000), and Charter West Bank of West Point ($1.7 million). Each of those four institutions, however, were in the black for the entirety of 2022.
It was unclear whether all the institutions that made bad loans to Marshbanks have yet declared their losses. While banks have insurance against internal fraud committed by employees, they do not carry insurance against bad consumer loans.
Father made a recent claim
Among the most recent claims against Marshbanks estate was one made by his father, Dennis, who said he had interests of 15% and 12%, respectively, in two LLCs managed by his son.
Another business associate, Brandon Dallmann of Lincoln, filed a claim for an undisclosed amount for his part interest in seven business ventures of Marshbanks, including one called “Nebraska Christmas Light Show LLC.”
The University of Nebraska Medical Center also made a claim against the estate for $19,389 for an unpaid medical bill.
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