A local real estate developer is seeking millions of dollars in damages against Wilson Bank & Trust over allegations that a former Rutherford County bank president fraudulently modified loans and forged documents to the detriment of two companies.
Ken Howell is suing Wilson Bank for more than $15 million on the grounds it failed to prevent, and subsequently resolve, financial issues that arose from the alleged fraud and forgery by Stan Hayes, who served as president of the Murfreesboro branch from 2004 until he abruptly left in June 2008.
In the lawsuit, Howell claims Stones River Homes Inc. and Richmond’s Retreat LLC, which was jointly owned by Bryan Burns and Brian Krabousanos, were forced to dissolve after Wilson Bank foreclosed on loans that were directly affected by the unlawful activity.
As such, Howell is also seeking an unspecified amount of money for compensatory damages relating to the loss of income and property as a result of the foreclosures.
“In hindsight, I wish I had never heard of Wilson Bank,” Howell said, while testifying Wednesday during the fourth day of jury trial before Chancellor Robert Corlew III in Rutherford County Chancery Court.
“There was a certain level of trust with the bankers because Wilson Bank is a local company too,” he said. “I considered (Hayes) an advisor, honestly.”
His testimony comes only a few days after Hayes, who is not facing any criminal charges in connection with the case, invoked his Fifth Amendment rights to avoid testifying against himself in court.
Defense attorney Rob Dodson, who represents Wilson Bank, is contending Hayes is solely to blame for the fraudulent activity because he acted as a rogue employee and concealed his actions from fellow executives.
“We are not here to defend what he did,” Dodson said, adding if Hayes had ever shown back up to work after his colleagues found out about the manipulation, “he would have been fired.”
In addition, the defense has spent much of the trial presenting evidence that suggests Howell mismanaged his companies and would have likely been in default on the loans, regardless of the allegations, due to the Great Recession.
“Much of your financial situation was of your own making,” Dodson said, adding Howell had initially agreed not to cry foul in regard to Hayes, as long as Wilson Bank financed another $1 million loan to keep Stones River Homes afloat.
When that did not materialize, Howell filed suit without considering the totality of the circumstances, he said.
Given the situation, Dodson said Wilson Bank should not be held responsible for the collapse of the businesses.
The trial, which is expected to last through much of this week, is being held nearly four years after Corlew awarded Howell a $23.7 million judgment because Wilson Bank reportedly did not answer to the lawsuit when it was originally filed in Chancery Court.
Shortly after the ruling, however, Corlew set aside the judgment based on the fact that he believed a lawsuit of this magnitude should go to court and be decided by a jury.
According to the lawsuit, the fraudulent activity began roughly a year after Stones River Homes, which was solely owned by Howell, established an $888,000 line of credit with Wilson Bank in December 2005 to finance construction of three residential properties in Mount Juliet.
In December 2006, Howell and his partners purchased a 60-acre tract of land to develop Richmond’s Retreat for $1 million, of which Wilson Bank financed nearly $880,000 through a loan.
Thirty days after the property was purchased, the group sought a $1.8 million development loan for Richmond’s Retreat through the bank in a deal overseen by Hayes.
In his testimony Thursday, Burns said Hayes told him there was no need to sign any additional paperwork for the development loan.
“We never talked about signing papers,” Burns said. “Hayes said that he modified the original loan and signatures were not needed. … I thought this was the normal operating procedure because the loans were related to the same project.”
Even though it is now obvious something was amiss, Burns said, once Richmond’s Retreat starting receiving monies, he “saw no need to question it.”
Unbeknownst to the business partners, Hayes allegedly began drawing funds from the Stones River Homes credit line to pay for the Richmond’s Retreat development loan, which in reality, was never authorized by the bank.
“I had no idea money was being taken from Stones River Homes to pay for the Richmond’s Retreat development,” Burns said, adding he was in no way associated with Stones River Homes.
Meanwhile, Howell said he believed he had paid off the Stones River Homes credit line through profits he made on the homes sold in the Mount Juliet subdivision.
Unaware of the situation in April 2007, Burns said the group, which also operated as BDH LLC, was in the process of completing a project in Davidson County. In order to satisfy various regulations, Hayes agreed to let them take a lien against Richmond’s Retreat through Pinnacle Bank as collateral for the project.
For nearly a year, Hayes allegedly pulled more than $760,000 from Stones River Homes to back the fake Richmond’s Retreat development loan – meaning Pinnacle Bank financed the Davidson County project without a legitimate source of collateral.
As a result, the banks halted activity on the accounts, and ultimately, did not rework the loans. Without the needed liquidity to continue paying on various debts, the businesses collapsed.
It is for this reason, Howell said, Wilson Bank should be held accountable for the fraudulent incidents.
“I believe with the extent of damages that this bank has done to me, the jury will see who is the liar,” he said. “I cannot blame the bank for the recession, but I can blame it for killing my company.”