A forensic accountant testified Wednesday a local real estate developer actually benefited financially when Wilson Bank & Trust foreclosed on loans that were adversely affected by a former Rutherford County bank president accused of forgery and fraud.
“If the bank had extended a development loan, Stones River (Homes Inc.) would have been in more debt, and it would have created a worse financial situation for (Ken) Howell,” said forensic accountant David Wood, a partner of Lattimore Black Morgan & Cain PC, which is based in Nashville.
“I am not trying to throw stones at the Howells,” Wood said, while testifying before Chancellor Robert Corlew III in Rutherford County Chancery Court. “But, the fact that Wilson Bank did not renew the loan, in my opinion, could be considered a good thing. …The foreclosure was beneficial to Howell in terms of his financial situation at the time.”
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.
Hayes, who joined CB&S Bank within days of his departure, has invoked his Fifth Amendment rights to avoid testifying against himself.
In the lawsuit, Howell claims Stones River Homes 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 Richmond’s Retreat development loan, which in reality, was never authorized by the bank.
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 the trial, which is expected to conclude this week, defense attorneys have argued Howell mismanaged his companies and was not in a position to be accumulating more debt, regardless of the circumstances.
As part of that strategy, Nashville attorney Rob Dodson, of Adams and Reese LLP, spent much of the afternoon hoping testimony by Woods, who is a paid witness on behalf of the defense, could help chip away at claims that Wilson Bank was solely responsible for the collapse of profitable companies.
The tactics could also influence how much money the jury awards Howell if he prevails in the lawsuit.
Even though Woods said he believes the foreclosures did not cause financial harm to either company, he acknowledged real estate developers often operate on a line of credit until a project is complete, and without the needed cash flow, it can be hard to stay afloat.
However, Woods said generalities should not discount the fact that it would have been extremely tough for Howell to survive the economic downturn.
“Companies survived the Great Recession by increasing assets and reducing debt,” Woods said, adding Howell did not have the “financial wherewithal” to adjust to the new housing market.
With that said, Woods noted he could not explain why Hayes would approve a development loan for the Richmond’s Retreat project. He adamantly maintained, however, that loans are approved for a variety of reasons.
Although it is unclear whether the defense successfully persuaded the jury in its favor, the somewhat harsh attacks against Howell seemed to be an attempt to redirect attention away from the testimony of Ken Dill, a senior vice president of Wilson Bank.
On Tuesday, Dill testified he became aware that Hayes was accused of authorizing loans under questionable circumstances in February 2007, only a few weeks after Howell and his partners sought a development loan for Richmond’s Retreat.
Dill said he learned about the “alleged improprieties” when it was discovered that a March 2006 loan to Douglas Taylor, of Lascassas, had been altered.
When asked about the discrepancies, Hayes reportedly told Dill that Tommy Taylor, a grandson of Douglas Taylor, possibly altered the loan documents – an allegation that the family strongly denies.
In his testimony last week, Tommy Taylor said Hayes did not have an explanation for the mysterious signature during a March 2007 meeting that included Dill and another bank executive.
“He sat there with his head in his lap, hunkered down like a guilty man,” Tommy Taylor said. “Those are the actions of a guilty man, hoping for the storm to blow over. I am an innocent man who has been trying to tell anyone who would listen what happened.”
And while he promised Tommy Taylor that he would investigate the matter, Dill admitted to dropping the issue after bank personnel denied forging the signature.
“I believed them,” he said.
Despite receiving similar customer complaints for more than a year, Dill said senior management did not fire Hayes, though his lending authority was suspended in response to the incident concerning Douglas Taylor.
Since that time, Dill said Wilson Bank has not filed criminal charges against Hayes but insisted executives have notified the “appropriate authorities” regarding the suspicious activity.