Jurors will resume deliberations this week in the trial of a local real estate developer who is seeking millions of dollars against Wilson Bank & Trust over fraud and forgery allegations involving a former Rutherford County bank president.
The jury began deliberating Thursday afternoon but did not reach a decision before Rutherford County Chancery Court adjourned at 4 p.m. The court is scheduled to remain in recess until Tuesday at 8:15 a.m. when they return.
For more than three weeks, jurors have listened to a slew of testimony that has raised questions as to how Wilson Bank managed lending when it first entered the Rutherford County market and whether some business owners turned a blind eye to questionable practices until it personally affected their finances.
Developer Ken Howell is suing Wilson Bank for $15 million on the grounds it failed to prevent, and subsequently resolve, financial issues that arose from the alleged fraud and forgery by Hayes, who served as president of the Murfreesboro branch from 2004 until he abruptly left in June 2008.
“In hindsight, I wish I had never heard of Wilson Bank,” Howell said, while testifying before Chancellor Robert Corlew III during the first portion of the trial. “There was a certain level of trust with the bankers because Wilson Bank is a local company too. I considered (Hayes) an adviser, honestly.”
Hayes, who has not been charged criminally in connection with the case, has invoked his Fifth Amendment rights to avoid testifying against himself during the proceedings.
Though he has not provided an explanation in response to the allegations, Murfreesboro attorney Rodney Scott, who is representing Howell, has argued Hayes took advantage of unsuspecting clients in order to pump up profit margins and inflate bank deposits – all as part of a larger effort to make the bank appear stronger than its competitors.
“Wilson Bank (executives) put him in a position to do whatever he wanted because he was making them money,” Scott said during the trial.
If that were not true, he said, bank executives would have prevented Hayes from continuing “to deal with bank customers and have them rely on his misrepresentations,” even in the face of his “known and ongoing violations” of policies and procedures.
“Hayes embarked on an ongoing campaign of fraud, forgery, deceit and deception against not only the plaintiffs in this lawsuit, but other bank customers, in an effort to make new loans and by keeping existing loans on the books,” Scott said, adding the scheme was designed to increase bank profits through interest payments pertaining to loans issued through the branch.
According to an article published in October 2007 by The Murfreesboro Post, Hayes touted the fact that Wilson Bank had grown into a major Rutherford County contender seemingly overnight.
At the time, Wilson Bank saw the largest percentage increase of deposits in Rutherford County, with deposits growing from $18.3 million to $100.3 million in one year, an astounding 446.8 percent increase.
When asked about the figures, Hayes told The Post an “aggressive branch-building program and aggressive pricing” for customer relationships, both in loans and deposits, accounted for the extraordinary expansion.
But it was this unusual growth that Scott has said should have prompted executives to institute further oversight over Hayes, who at this point had already been accused of altering a loan involving Tommy Taylor and his grandfather Douglas Taylor, of Lascassas.
Other customers with similar stories have also testified on behalf of the plaintiffs, including Mary Baughman, who has alleged that Hayes forged a bank note after she took out a five-year loan in December 2004.
According to an affidavit submitted into evidence, Baughman expressed concern over “questionable business practices” when Wilson Bank sent a letter claiming she owed more than $223,000 on a three-year loan and would foreclose on her Lascassas Pike property, which was used as collateral, if she did not pay the note.
When her attorney threatened litigation, Wilson Bank reportedly backed down and forgave the entire note soon after Hayes left the bank.
In the lawsuit currently under consideration, 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 Hayes altered without his permission.
According to court documents, Hayes approved a $1.8 million development loan in January 2007 shortly after Howell and his partners borrowed $880,000 to purchase a 60-acre tract of land in Christiana to build Richmond’s Retreat.
Unbeknownst to the business partners, Hayes allegedly began drawing funds from the Stones River Homes credit line to pay for the development loan, which in reality, was never authorized by the bank.
In his testimony, Burns has 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."
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.”
“I had no idea money was being taken from Stones River Homes to pay for the Richmond’s Retreat development,” Burns said.
Meanwhile, Howell said he believed he had paid off the Stones River Homes credit line through profits he made on the homes sold in a Mount Juliet subdivision.
A few months later, 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.
It was not until May 2008 did they learn that Hayes had pulled more than $760,000 from the Stones River Homes account to back the fake Richmond’s Retreat development loan – meaning Pinnacle Bank financed the Davidson County project without a legitimate source of collateral.
Consequently, the banks halted activity on the accounts, and ultimately, did not rework the loans. Without the needed liquidity, the businesses collapsed.
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.
Throughout much of the trial, Nashville defense attorney Rob Dodson, of Adams and Reese LLP, has insisted 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.”
The defense has also argued Howell mismanaged his companies and was not in a position to be accumulating more debt, regardless of the circumstances. The tactic is designed to reduce any monetary damages the bank would have to pay if Howell prevails in the lawsuit.
“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.