The Federal Deposit Insurance Co. (FDIC) has a beef with an insurer.
The governmental agency has filed suit on behalf of the now-defunct New Frontier Bank in Colorado, claiming the former lender was “wrongly denied” insurance coverage by its insurer, Kansas Bankers Surety Co.
According to the FDIC, the suit centers entirely on a cow-leasing scheme and funds the bank loaned to Johnson Dairy, one of the bank’s largest customers. New Frontier’s former Chief Lending Officer Greg Bell engaged in “multi-year criminal fraud” by using the bank’s money to assist the ailing dairy company because he “secretly had his hand in the till,” the complaint said.
“That is, Bell was getting improper personal benefits from the loans, such as cut of Johnson Dairy’s monthly cow lease payments to the bank’s borrowers, or a cash kickback from the loan—money Bell used for things like a new Corvette,” the suit said.
The purpose of the scheme was to get around a regulatory lending limit that prohibited New Frontier from continuing to loan money to Johnson Dairy. Eventually, the diary company filed bankruptcy, resulting in millions in losses for the bank as a result of the scheme—as much as $52 million.
Bell reached a plea deal earlier this year and is currently serving two and a half years in federal prison.
When the bank discovered the scheme, it filed a claim with its insurer, Kansas Surety, but the request was immediately denied. The FDIC—which lost more $650 million as a result of New Frontier’s ultimate collapse—then filed its suit against Kansas Surety.
Read more about this suit on Capital Press.