BANKS always warns customers about falling victim to scams, but what happens when the bank itself falls for a fraud scheme?
The failure of the Heartland Tri-State Bank in Kansas has become the fourth US bank failure this year, and while the details are a mystery, it has scam written all over it.
The small bank with $139million in assets failed in July.
All of its branches were subsequently closed before the bank was transformed into Dream First Bank, which is the bank that acquired it.
There was some confusion over the failure.
David Herndon, Kansas Banking Commissioner, has said: "Kansas banks are strong and healthy."
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At the time of closing, Heartland had $130million in deposits, the same as it had in its last quarterly report with the Federal Deposit Insurance Corporation in March.
Herndon told the Financial Times Alphaville: "We declared the bank insolvent because of a scam that they fell victim to.
"I can’t speak to the particulars of that. Investigations are ongoing.
"But it had nothing to do with interest rate increases. Nothing to do with balance sheet asset quality. Nothing to do with the Fed.”
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Herndon noted that the transfer of the Heartland Bank to the Dream First Bank did not result in any disruptions to customers, who were protected from risk of loss.
“It was a terribly unfortunate event, but the system did work, and people had no interruption in accessing their accounts,” he said.
“Sometimes businesses fail. This time it was a bank. But the depositors were protected.”
No further details about the scam have been given but in the days following the closure, locals had suspicions.
A woman who works at a cafe in Elkhart told the Kansas Reflector that "a stink in the air" lingered.
Without going into details, Herndon told the news outlet to look into the online scam known as "pig butchering" which was recently featured in a Financial Crimes Enforcement Network alert.
According to the alert, it refers to a "prominent virtual currency investment scam" that "resembles the practice of fattening a hog
before slaughter."
The document notes that scammers will refer to victims as pigs, and they will "leverage fictitious identities, the guise of potential relationships, and elaborate storylines to 'fatten up' the victim into believing they are in trusted partnerships."
It adds: "The scammers then refer to 'butchering' or 'slaughtering' the victim after the victim's assets are stolen, causing the victims financial and emotional harm.
"In many cases, the 'butchering' phase involves convincing victims to invest in virtual currency, or in some cases, over-the-counter foreign
exchange schemes —all with the intent of defrauding them of their investment."
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The U.S. Sun has reached out to the FDIC, Herndon, and Shan Hanes, the former president and CEO of Heartland for comment.
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