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Monday, May 27, 2024 | Back issues
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RICO Complaint Against a Kansas Bank

KANSAS CITY, Kan. (CN) - Some of Kansas City's "most well-known business people" failed to supervise Bank of Blue Valley officers who embezzled, falsified records and defrauded customers, five plaintiffs claim in Federal Court.

"As part of the scheme to entice individuals and entities to invest in the bank's troubled real estate loan portfolio, the bank, through its officers and directors, were willing to commit state and federal crimes to effectuate the scheme," the complaint states.

Lead plaintiff Bartlett Family Real Estate Fund sued the Bank of Blue Valley, Blue Valley Ban Corp, their CEO Robert Regnier, nine other bank directors, and others, including Zurich American Insurance.

"Between 1993 and 2007, the bank made profits in excess of $75 million, largely from interest and fees generated from the bank's heavy concentrations in real estate loans that the bank pursued as part of its primary business plan," the complaint states.

"Indeed, upon information and belief, the bank paid its only shareholder, Ban Corp., dividends during this period, while real estate in the Kansas City area and elsewhere experienced unprecedented growth."

The plaintiffs - two companies, two individuals and a family trust - claim the bank saw signs of the market collapse at least a year before 2008 downturn-for instance, that the bank's non-accrual loan rate jumped twentyfold, from $1.4 million in 2007 to $29 million in 2008.

"Specifically, in the summer of 2007, the bank began to see the downturn in the real estate market as it witnessed a previously unseen increase in non-accrual loans - loans that were over 90-days past due - in the bank's loan portfolio; these non-accrual loans largely related to real estate bets the bank made by backing people such as [non-director defendant] Paul Robben.

"As set forth elsewhere herein, the bank's loan portfolio would incur $29 million of new non-accrual loans which were over 90 days past due during 2007 and the early part of 2008, thereby indicating that the bank's previously aggressive real estate lending policy was going to cause major financial losses for the bank.

"Rather than inject capital into the bank from previously earned profits when times were good, to offset these losses, many of the same shareholders, officers and directors of Ban Corp. that benefited from the profits and dividends of the bank's successful years, refused to inject capital into the bank to insure the bank was able to meet its obligations to stand behind its agreements with depositors and other customers.

"Indeed, Ted McCarter, one of the founders of the bank, was aggressively trying to sell his stock to get out of the Bank seeing the obvious demise that was coming."

McCarter is not a party to the complaint.

The complaint continues: "Instead of investing back into the bank the exorbitant profits made when times were good to reasonably address the historic risks taken by the bank, Ban Corp. and its shareholders and directors determined to cover these losses, in part, by aggressively pursuing unwitting outside investors to buy into real estate projects related to loans that the bank knew were failing, troubled or in default.

"As part of this strategy, the bank forced its customers, like Paul Robben, to find outside investors that would cover the bank's losses; while maintaining the threat that if its customers would not assist the bank in finding these new investors, the bank would pursue these customers personally and ultimately force them to declare bankruptcy.

"In short, the bank and its shareholders refused to cover the bank's risky investments with their own money, but instead looked to other individuals to mitigate the bank's mistakes; individuals who had no responsibility for the risks taken by BBV or the losses that resulted from those risky decisions.

"All of these actions were direct departures from the bank's written code of conduct and the expectations the bank had for itself, its employees and its customers."

The complaint adds: "In 2008 and 2009, the bank threatened a number of its customers that if the customers did not find outside investors to invest cash into these troubled real estate transactions, that the bank would foreclose on the properties related to the loans and pursue claims on customers' personal guaranties for amounts claimed by the bank.

"The bank's actions in threatening foreclosure and pursuit of deficiencies was all part of a larger scheme by the bank to mitigate the enormous losses the bank was facing on its real estate loan portfolio.

"In fact, the bank's very existence hinged on the success of these efforts to salvage part of the bank's loan portfolio."

The fiasco stemmed from the nationwide real estate crash, according to the complaint: "By 2007, BBV's loan portfolio became excessively concentrated in real estate loans; loans that the bank made over a number of years for risky projects such as the real estate projects at issue in this case.

"The bank made these risky real estate loans with little or no guarantor support for repaying the loan."

The plaintiffs seek actual and punitive damages for violations of the Securities Exchange Act of 1934, the Kansas Uniform Securities Act, the Racketeer Influenced Corrupt Organizations Act, breach of contract, breach of fiduciary duty, fraudulent nondisclosure, fraud, negligent misrepresentation, tortious interference with contracts and business expectancy, breach of the duty of good fair and fair dealing, negligent failure to supervise, reckless failure to supervise, civil conspiracy, joint venture, conversion, violations of the Kansas Real Estate Brokers and Salespersons' Act and fraudulent concealment.

They are represented by John M. Duggan with Duggan, Shadwick, Doerr & Kurlbaum, of Overland Park, Kan.

Bank of Blue Valley is still in business, according to its home web page, checked this morning.

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