Downtown Elkhart, Kansas, retains much of its original charm from the Great Depression era. The buildings that stood during that time still exist today, serving as a reminder of the town’s rich history.
New details are coming to light, shedding light on the profound impact felt by the historic and tightly-knit community of Elkhart following the collapse of a local bank eight months ago.
The story revolves around the theft of $47 million, with allegations suggesting that the bank’s CEO used the funds to offset losses incurred in an online cryptocurrency scam. However, at its core, this narrative delves into the delicate dynamics of trust and money and the repercussions that arise when an institution, which we often rely on without question, crumbles.
Brian Mitchell, a third-generation resident and one of the targets of the scheme, emphasized the importance of informing the public about what took place. According to him, there was a crucial moment when the victim turned into the thief.
Shan Hanes, the CEO of Heartland Tri-State Bank, is currently facing charges in federal district court for embezzling $47.1 million between May and July of last year. The funds were allegedly used to purchase cryptocurrency. If found guilty, Hanes could potentially face a maximum prison sentence of up to 30 years.
Hanes, 52, is currently facing 29 felony counts in Morton County District Court for his involvement in the same scheme. These acts, which officials claim he committed between January and July 2023, have resulted in a range of state charges. The amended complaint, filed last week, outlines these charges and includes allegations of misappropriating millions from the bank, embezzling $20,000 from an investment club he was a part of with longtime friends, and stealing $40,000 from his own church. Additionally, Hanes is accused of engaging in unlawful acts involving a computer and making false statements about the bank’s liability coverage in order to gain access to more funds.
“It was without a doubt a devastating blow to the community,” shared county prosecutor David A. Thompson. “I strongly believe it was a well-planned scheme, and it appears to align with the characteristics of a pig butchering operation.”
Hanes, represented by his attorney John Stang of Wichita, has declined to grant an interview. Neither Hanes nor his attorney has provided any comments on the matter. Following his release from custody on a $25,000 bond for the federal case and a $50,000 bond for the Morton County charges, Hanes is currently under house arrest and is required to wear an electronically monitored ankle bracelet.
During the arraignment on the federal charge, Hanes entered a plea of not guilty on February 28th.
The federal charge against Hanes is embezzlement by a bank officer. If convicted, Hanes could face imprisonment and a monetary judgement equal to the alleged embezzlement. The U.S. Attorney’s Office in Wichita declined to comment on the case, suggesting that recovering the money might be challenging as federal judgments do not apply to organized crime rings in Southeast Asia.
According to the interim county attorney, Thompson, no financial restitution is being pursued in the state case. The charges stem from an inquiry conducted by the local sheriff’s office. Thompson, who practices law in Creede, Colorado, approximately six hours away by car, is currently serving as the interim county attorney. Although the position of Morton County attorney will be up for election in November, no candidates have submitted their candidacy as of yet, as per the county clerk’s office.
In late July, the Heartland Tri-State Bank of Elkhart faced failure due to what a state regulator described as a “massive scam.” The FDIC intervened and facilitated an agreement with Dream First for the acquisition of the bank, as seen in this photograph from September 2023.
According to a report released on February 7 by the Office of the Inspector General of the Federal Reserve, the failure of Heartland Bank can be attributed to a scheme involving illegal activities known as “pig butchering.” It is alleged that Hanes, leveraging his significant influence within the bank and the community, engaged in illegal wire transfers and other criminal activities for an extended period of time.
The report states that there were significant internal control breakdowns and the CEO’s dominant role as a management official created the perfect opportunity for a series of fraudulent wire transfers to be initiated and processed. These wire transfers had a major impact on Heartland’s capital and liquidity, ultimately leading to the bank becoming insolvent.
According to the report, Hanes, who was considered an influential figure in Elkhart and held leadership positions in local organizations, had previously served in state and national trade associations. Initially, he started trading cryptocurrencies using his own funds. However, he later accessed other accounts, including those of the church and the investment club, and is now facing allegations of embezzlement from the bank. The report highlights that the trust placed in Hanes by bank employees led them to bypass wire policy and limits, as directed by him.
Heartland previously had a transaction limit of $5 million per wire before June 2023, which reduced to $3 million afterwards. However, certain transfers made to cryptocurrency accounts surpassed these limits by several million dollars. Notably, two transfers made on June 14 and June 23 amounted to $10 million each.
Hanes requested a meeting with Brian Mitchell at the bank on July 5th.
The bank operated in the vicinity of the town’s imposing grain elevator, which was fitting considering its predominant focus on agricultural affairs. Hanes, one of the bank’s principal shareholders, spearheaded a consortium of investors back in 2011 to successfully acquire the National Bank of Elkhart.
In his testimony before a Kansas Senate committee, Mitchell portrayed himself as a “third-generation dirt farmer from southwest Kansas” who has an insatiable passion for movie theaters. With a collection of 15 theaters spread across seven states, including the historic Doric Theatre in downtown Elkhart, which was constructed back in 1918 and recently underwent renovations, Mitchell’s love for the cinematic experience is evident.
Mitchell and Hanes had been acquainted since the 1990s. Mitchell vividly remembered Hanes’ active involvement in the community, serving on the school board and participating in various civic groups. Additionally, they were both part of the long-standing Santa Fe Trail Investment Club. However, as Mitchell sat in Hanes’ office that morning, he couldn’t help but sense that something was amiss.
“It wasn’t your typical conversation,” Mitchell observed. “There was something on his mind. He would be engaged for a moment, then his gaze would wander towards the lobby before returning to me.”
Mitchell stated that Hanes requested a sum of $12 million from him.
Mitchell recounted a conversation where the individual informed him about a wire transfer issue originating from a Hong Kong bank. The person showcased an application on their phone, displaying a balance of approximately 40 million dollars in their account. However, an additional 12 million dollars was required to gain access to the funds.
Mitchell, a former certified public accountant, rejected his offer.
“I told him, ‘I believe you’re involved in a scam.'”
According to the report’s timeline, on the same day, Hanes executed an $8 million wire transfer using bank funds. It is believed that at this point, Hanes was already in debt by approximately $30 million.
The bank’s chief financial officer took action on July 21, informing regulators about the suspicious activity.
Heartland’s capital had plunged into a negative $35 million within just six days, as stated in the report. As a result, the Kansas Office of State Bank Commissioner acted swiftly and closed Heartland on July 28, designating the FDIC as the receiver. The failure of Heartland was estimated to cost around $54 million. Fortunately, depositors were shielded from any loss thanks to the FDIC’s protection. Subsequently, Dream First Bank of Syracuse, Kansas acquired Heartland.
Last year saw a total of five bank failures across the nation, with the fourth one occurring.
Railroad tracks lead towards the distant horizon in the northeast of Elkhart, located in far southwest Kansas.
“In January 2023, Shan took up crypto trading,” Mitchell explained. “He exhausted his personal savings, even dipping into his children’s college funds, and then resorted to embezzling funds.”
According to the state charges, one of the organizations he allegedly stole from was the Elkhart Church of Christ. Hanes not only belonged to the congregation but also occasionally presided over funerals. Although a third party covered the financial loss, the church eventually closed. The scandal proved challenging for the small congregation to overcome.
The Santa Fe Trail Investment Club has also disbanded.
“We made the decision to dissolve the club,” Mitchell explained. “In the end, everyone received their fair share and no one was left at a disadvantage.”
Mitchell mentioned that although the FDIC provided protection for depositors, the repercussions of the Heartland bank crisis were devastating for certain employees and shareholders. In certain instances, this led to the loss of investments and pensions, placing them in potentially dire circumstances.
Hanes has chosen not to proceed with a preliminary trial for the state charges and the case is scheduled to go to trial on May 6.
Magistrate Judge Ethan Harder denied Hanes’ request to travel to Florida to attend his daughter’s swim meet and take the family to Disney World on a “mini vacation.”
Mitchell has spent considerable time reflecting on technology since the bank failure. He strongly believes that the surge in digital document usage during the pandemic has created an opportune environment for fraudulent activities.
Elkhart, a community known for its resilience, according to Mitchell, has a remarkable ability to come together and celebrate during good times, as well as support one another during times of adversity. With a population of less than 2,000, Elkhart was established in 1913 and endured the harshest impact of the Dust Bowl in that region.
Mitchell expressed deep concern for the hardworking individuals who were severely impacted by the Heartland bank failure. He emphasized that these individuals, who have been wronged, are genuinely good-hearted people.
Mitchell emphasized the importance of open and honest discussions rooted in factual information as a crucial step towards the town’s healing process.
Prosecutor Thompson organized a meeting in Elkhart on Tuesday for the victims who fell prey to the scam. Approximately 30 individuals, including former members of the Santa Fe Trail Investment Club, attended the gathering. The attendees felt a profound sense of betrayal. One specific matter that sparked concern was the revelation that Hanes had allegedly deceived the bank’s board shortly before the scheme unraveled. According to Mitchell, the CEO falsely claimed that the institution had $100 million in liability insurance, whereas the actual amount seemed to be a mere $2 million.
During the discussion, Thompson inquired about the participants’ opinions on the suitable sentence for Hanes. Mitchell recalled one response, which suggested that if Hanes were to be released just a day before his death, it would still be considered too lenient of a sentence.
Max McCoy, an acclaimed author and journalist, lends his expertise and talent to the Kansas Reflector. This esteemed publication is dedicated to giving a platform to those impacted by public policies and often left out of important discussions. If you’re interested in sharing your own thoughts and opinions, you can find all the necessary information right here.
