Former Bank CEO Admits Loan Scam

Allison Tussey —  September 7, 2011 — 1 Comment

S. Pope Cleghorn, Jr., 39, Villa Rica, Georgia, pleaded guilty in federal district court to fraudulently handling loans on behalf of Hometown Bank, Villa Rica, while he was the bank’s President and Chief Executive Officer.

Russell T. Long, 52, Destin, Florida, previously pleaded guilty to conspiring with Cleghorn to defraud the bank.

According to the charges and other information presented in court: After becoming the President and Chief Executive Officer of Hometown Bank in 2002, Cleghorn defrauded the bank by issuing multiple loans to Long and then misappropriating the funds from those loans, all without the knowledge or authorization of Hometown Bank‘s loan committee.  As part of his scheme, Cleghorn directed that the minutes of loan committee meetings be falsified to indicate that loans to Long had been approved when in fact the committee had not approved, and was not even aware of, the loans.  From 2003 through 2006, Long paid Cleghorn over $130,000 in cash kickbacks for making the loans.

The bank fraud charges involve two loans Cleghorn approved for Long.  The first was a $1 million development loan issued in February 2005 for Long to develop a subdivision in Wetumpka, Alabama.  The loan required Long to submit invoices, or draw requests, showing that costs were to be incurred for work on the subdivision, specifying the work that was to be done, and stating the amount of money needed for the work. 

At Cleghorn‘s direction, Long submitted fraudulent draw requests to Hometown Bank, falsely claiming that he needed money for streets, storm drains, lights, and other projects that were never constructed at the Wetumpka subdivision.  Cleghorn and Long instead drew money from the loan for purposes other than the subdivision and used the money to pay off other loans Long held at Hometown Bank.  Cleghorn also drew money from the loan to pay off a personal credit card.  Although the false draw requests were dated 2005, they were actually prepared and submitted to Cleghorn in 2007 when the FDIC was at Hometown Bank performing a bank examination.  Cleghorn asked Long to create the phony draw requests to add to the file during the examination.

The second loan was a $1.8 million residential loan Cleghorn approved for Long to build a personal residence in Destin, Florida.  Long later obtained a second mortgage on the residence through another bank.  Without the knowledge of Hometown Bank‘s loan committee, Cleghorn signed and filed a “Subordination of Mortgage” with the county clerk in Florida subordinating Hometown Bank‘s loan to the other banks.  That filing caused Hometown Bank to lose its priority position in the event of foreclosure.  Cleghorn did not place a copy of the subordination document in Hometown Bank‘s files, and later tried to hide it from Hometown Bank and the FDIC during the January 2007 FDIC examination, by claiming that the fax machine was not working when FDIC officials tried to fax a copy of it to the bank during the examination.  Cleghorn instructed his assistant to destroy the document when it came through on the fax, but then told the examiners that it never came through.

Cleghorn was charged in a Criminal Information in June 2011 with bank fraud.  He pleaded guilty to that charge and could receive a maximum sentence of 30 years in prison and a fine of up to $1 million.  In determining the actual sentence, the Court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders. 

Sentencing for Cleghorn is scheduled for November 18, 2011, at 10 a.m., before United States District Judge Timothy C. Batten, Sr.  Sentencing for Long is scheduled for December 15, 2011, at 10 a.m., before Judge Batten.  

This case is being investigated by Special Agents of the Federal Deposit Insurance Corporation-Office of Inspector General.

United States Attorney Sally Quillian Yates said of the case, “Corrupt bank insiders jeopardize their customers’ deposits, the banks they serve, and ultimately the economic health of the country.  This defendant, the President and CEO of a local bank, used his customers’ deposits to make fraudulent loans to a borrower who in turned paid him cash kickbacks for the special treatment.  Once their scheme started to unravel, the defendant tried to cover it up with lies and phony documents he provided to the FDIC during a bank examination.”

Jon T. Rymer, the Inspector General of the Federal Deposit Insurance Corporation, said, “The Federal Deposit Insurance Corporation Office of Inspector General is pleased to join the U.S. Attorney’s Office for the Northern District of Georgia in announcing this guilty plea.  We are particularly concerned when senior bank officials, who are in positions of trust within their institutions, are involved in criminal activity.  Prosecutions of individuals and entities involved in criminal misconduct help maintain the safety and soundness of the Nation’s financial institutions.”

Assistant United States Attorney Stephen H. McClain is prosecuting the case.

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Allison Tussey

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One response to Former Bank CEO Admits Loan Scam

  1. Luckily I found a great Securitization audit company that found many fraudulent things in my mortgage loan. Definitely a report every homeowner should get.

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