Texas D.A. Snares Assets from Banks Tied to Scam

By Kuehner-Hebert, Katie | American Banker, June 1, 2000 | Go to article overview

Texas D.A. Snares Assets from Banks Tied to Scam


Kuehner-Hebert, Katie, American Banker


Six banks in Texas may be forced to pay for the sins of a San Antonio man accused of swindling millions from elderly investors, if the Bexar County District Attorney's office has its way. District Attorney Susan Reed is trying to collect $9.2 million of assets that have already been seized from the banks. Ms. Reed plans to distribute the assets, mainly certificates of deposit, to about 90 investors allegedly fleeced by Bradley Farley, a financial planner, in a Ponzi scheme. The banks do not dispute allegations that Mr. Farley used the elderly investors' CDs as collateral for his own personal loans, on which he later defaulted. But they argue that the investors signed documents that gave Mr. Farley control of the CDs. The case is garnering much attention in the Texas banking community. Executives say that if Ms. Reed prevails, other authorities may be more inclined to confiscate deposits that banks use as collateral, which would leave small banks at risk. "The seizure of the loan collateralizations can lead to ... capital writedown, which can lead to bank closures," said John M. Heasley, executive vice president at the Texas Bankers Association. Starting in 1998, Ms. Reed says, Mr. Farley persuaded dozens of investors, most in their 70s and 80s, to hand over large sums of money that he said he would invest in insured certificates of deposit. The district attorney asserts that investors unwittingly turned control of the CDs over to Mr. Farley by signing a document labeled "application for insured deposit" that actually gave Mr. Farley permission to use those CDs as collateral for his for personal loans at branches of Wells Fargo Bank, Bank of America, Clear Lake National Bank, Northwest Bank in Roanoke, Guaranty Federal Bank in Gainesville, and American Bank of Commerce in Lubbock. Mr. Farley promised to pay the investors interest earned on their CDs but only periodically paid them with money received from new investors or from his personal loans, according to the district attorney. When the money stopped flowing, investors complained to the Texas State Securities Board, which then turned the matter over to the district attorney. Police arrested Mr. Farley in February and seized control of his properties, as well as about $9.1 million in cash and CDs from the banks. However, Ms. Reed's office cannot distribute the funds to investors unless a state district court in San Antonio grants permission. …

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Texas D.A. Snares Assets from Banks Tied to Scam
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