Oh My Fraud

Legend has it that when asked why he robbed banks, the infamous 20th century bank robber Willie Sutton said, “Because that’s where the money is.” In the 21st century, banks still have the money, but the approach to robbing has changed considerably. Caleb and Greg discuss one such case that features astonishingly deceitful methods.


  • (00:00) - A Bank Robbery in Elkhart
  • (01:06) - Meet Your Hosts: Caleb and Greg
  • (02:04) - Listener Reviews: The Good, The Bad, and The Ugly
  • (04:24) - Greg's Major Work Screw-Up
  • (12:19) - Welcome to Elkhart Kansas
  • (18:28) - The Rise and Fall of Heartland Tri-State Bank
  • (25:52) - Unveiling the Pig Butchering Scam
  • (26:47) - What is Pig Butchering?
  • (33:29) - The Bank CEO's Desperate Gamble
  • (41:39) - The Aftermath and Investigation
  • (51:32) - Shan Hanes Charged
  • (54:45) - Lessons Learned and Final Thoughts

HOW TO EARN FREE CPE

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CONNECT WITH THE HOSTS

Greg Kyte, CPA
Twitter: https://twitter.com/gregkyte
LinkedIn: https://www.linkedin.com/in/gregkyte/

Caleb Newquist
Twitter: https://twitter.com/cnewquist
LinkedIn: https://www.linkedin.com/in/calebnewquist/

Email us at ohmyfraud@earmarkcpe.com

Sources:

Creators & Guests

Host
Caleb Newquist
Writer l Content at @GustoHQ | Co-host @ohmyfraud | Founding editor @going_concern | Former @CCDedu prof | @JeffSymphony board member | Trying to pay attention.
Host
Greg Kyte, CPA
Mega-pastor of @comedychurch and the de facto worlds greatest accounting cartoonist.

What is Oh My Fraud?

"Oh My Fraud" is an irreverent podcast from CPA/comedian Greg Kyte and blogger/former CPA Caleb Newquist.

The two come together to unpack their favorite frauds and explore the circumstances, psychology, and interpersonal dynamics involved. They also fully indulge in victim-blaming the defrauded widows, orphans, infirm and feeble-minded—because who can resist?

If you fancy yourself a trusted advisor—or prefer your true crime with spreadsheets instead of corpses—listen to this show to learn what to watch out for to keep your clients, your firm, and even yourself safe.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Caleb Newquist: According to a column from the Kansas Reflector, a bank robbery hit the First National Bank in Elkhart, Kansas, on July 14th, 1932. An Associated Press report from the time said that there were three robbers and they escaped in a green coupe, but at least one of them was wounded by two vigilantes who had nearby businesses and tried to stop them. A dollar bill smeared with blood was found on the road headed toward Oklahoma. Bank officials said that $853 [00:00:30] had been stolen. It would be nearly a hundred years before another bank robbery made news in Elkhart.

Earmark CPE: If you'd like to earn CPE credit for listening to this episode, visit earmark Cpcomm. Download the app. Take a short quiz and get your CPE certificate. Continuing education has never been so easy. And now on [00:01:00] to the episode.

Caleb Newquist: This is Omar Fraud, a true crime podcast where our victims only get butchered figuratively. I'm Caleb Newquist and.

Greg Kyte: I'm Greg Kyte.

Caleb Newquist: Greg, good to be with you.

Greg Kyte: We're back again.

Caleb Newquist: If I'm not mistaken, you are recovering from yet another surgery.

Greg Kyte: Yes.This is I've had this surgery number two out of three for 2024. Oh. So, uh, right [00:01:30] here, two thirds of the way there. Yeah. Okay. Well, I'm thinking halfway so far because I'm still in this sling, so I'm, uh. I mean, I'm supposed to be in the sling. I'm being a very disobedient patient these days, but. Yeah. Uh, right. Hip replacement check. Right shoulder, uh, rotator cuff surgery and bone spur check. Now, I just have to have left shoulder. Same thing. Rotator cuff and bone spur. And then I'm a I'm a new man. Yeah. You're like 20. You're gonna be.

Caleb Newquist: Like the the the the [00:02:00] bionic Greg.

Greg Kyte: Exactly, exactly. Unstoppable.

Caleb Newquist: All right, well, if you're new around here, this is what happens next. If you're not new around here, you know you know what's coming. We're going to read a review. Yeah. Don't even.

Greg Kyte: Ask me. Just do it. Yeah, I'm.

Caleb Newquist: Just gonna do it. This one comes from Mel, who's writing on the earmark app, and he writes, I believe in giving the good with the bad, the rose and the thorns, if you will. So here goes. I love you guys in your pod. You have made CPE possible [00:02:30] for me again and I really mean that. I previously got fined civilly, civilly, civilly civilly by the state of Florida for not completing my CPE on time because I hated it so much. However, your liberal ideologies make me physically ill. I actually threw up in my mouth a little bit when Greg laid out his fantasy about Michelle Obama as president. I recommend that you do some deep soul searching and correct the errors of your ways. Now, having said that, keep up the good work. And I'm actually listening to another episode right [00:03:00] now while I write this. Uh, that was a three star review.

Greg Kyte: Yeah, that sounds like where it should have been. If it wasn't three stars, that would have been a little confusing. Yeah, yeah.

Caleb Newquist: Um, and I don't know about you, Greg, but if this guy hates our politics but loves our podcast, have we transcended politics? I mean, is is is oh my fraud the solution to the division in this country?

Greg Kyte: I think I think possibly because if you remember, Caleb, we started this endeavor back in 2022 [00:03:30] with the belief that our smart ass, white collar true crime podcast would heal America. So here we are. Mission accomplished. This is the final episode of Oh My Fraud! Uh, because we did what we set out to do. Yeah. Uh, if you love. Oh, my fraud. But wish Caleb and I would see the error of our ways. Please rate the show and leave us a review. And also remember, if you're physically ill and need us to either keynote, speak at an event, [00:04:00] or do some in-house training on either fraud or ethics, and that's the only way you can feel better. Please send us an email at omai. Fraud at earmarks. Com and we will send you our pricing and availability because, uh, you know, it's basically, uh, it's basically Dramamine for the soul.

Caleb Newquist: Okay. Greg, got a question for you.

Greg Kyte: Yes.

Caleb Newquist: Have you ever had a big screw up at work?

Greg Kyte: Uh, yes, I Well, [00:04:30] I've had, I've had. I don't know, it seems like I've had, uh, many screw ups at work. I know how you feel, but there is one that's that's recent enough to still, uh, smart. And it was also big enough that it might never stop smarting. Okay? Just always be one of those things where you remember it and you just go, oh, that was not a good, uh, moment in my professional life. Uh, so for my day job, [00:05:00] uh, and I say this whenever anyone asks me what my day job is, I say that I'm the in-house CPA for a group of medical office buildings in Provo, Utah. Which is not false, but probably a more comprehensive job title for me is Building Manager, because I don't just do the books I do, I really manage the buildings, manage the team. I'm kind of the I'm the quarterback for the entire team. So building managers a better a better title. Uh, back in 2013, uh, we needed some help. We had some vacant space, [00:05:30] had been sitting there. We needed some help to move it. So we retained the help of a commercial real estate agent. And, uh, we signed his typical listing agreement, which was like, regardless of whether he sold the space or leased the space, he got a 6% commission. And he was he, he he did the job, he leased the space, got some guys in there, got him in on a ten year lease, which was which is great to get people in for that long.

Greg Kyte: But also on a ten year lease, you're paying a pretty hefty commission because it's 6% [00:06:00] of the entire stream of revenue that you will get from these people for their entire lease. So these guys, they moved in, uh, they were tenants about five years later. Those guys, they were like, hey, we like being here. We don't like renting. We'd rather be owners rather than lessees. So they purchased the suite that they were in. They actually purchased their suite and an adjacent space. Uh, that was, that was actually still in like shell condition, so had never been built out before. So that was great for the building that they do that. And uh, one of the interesting things about our ownership [00:06:30] and business structure at my job is that every owner occupied space. We still need those people to execute a lease with the building. It's it's it's long and involved. Why that's necessary. But, yeah, even if you own the space, you still have to have a lease executed between yourself and the building. And because they're owners, we just have them be ridiculous. So it was a 20 year.

Caleb Newquist: Just super long. Yeah.

Greg Kyte: Super long because because basically what happens if you sell it then part of the part of the documents that we create [00:07:00] with the with the transaction for selling is a lease termination agreement. And the length of the lease is just there. So we don't have to every year, you know, pay more money to our lawyer to draft more leases, blah, blah, blah. So they rented for five years, then they bought four years. After they bought, they decided that they wanted to sell the space. So this is about nine years after their initial, uh, they initially occupied that space and they did. They sold it to another party. But coincidentally, the people who purchased the space from them, uh, used [00:07:30] the exact same real estate agent that these guys had used when they first came in and leased the space from us. Yep. And, uh, that agent at the end of that transaction, uh, just kind of out of the blue, sent us a bill for $65,000. Damn. Uh, is what he sent us, and here's and and so and and here's how I screwed up. This was this was my screw up. Either I did not read it, [00:08:00] uh, or I did not read it thoroughly, or I skimmed it, or I did not retain the boiler plate in this guy's listing agreement. But there was a clause in his listing agreement that said that he was entitled to a 6% commission if these guys ever executed any other real estate transactions, ever, with the building.

Greg Kyte: So it's like I brought these guys in. So the only reason that you have a [00:08:30] relationship is because of me and because of all my hard work. So if they ever do anything with you again in the future, I still get 6% of that as well. Yeah. Um, and that's and we're talking purchases. We're talking leases, we're talking lease extensions, anything forever. And here's how I got really screwed, because I was ready to fight this guy. I was ready to to go to court. I was pretty sure that I could win and I was even, like going, well, even if I lost, you know, he's asking for $65,000, [00:09:00] so if I lose, it'll be $65,000 and maybe some legal fees kind of thing. But I was pretty sure that I could win. But then I thought back through our ownership structure, because the $65,000 was just the 6% commission on their purchase of the space, it did not include any of the commission that from the 20 year lease that we required require all these owners to have, which made me think this guy probably didn't know because [00:09:30] it's a pretty unique part of the ownership structure. So he probably didn't even know that there was a 20 year lease that these guys had to sign with the building. But if he. But if I took him to court, uh, guess what? He.

Caleb Newquist: Absolutely, absolutely find out.

Greg Kyte: Yeah. With discovery, there's no question that he would know it. So as soon as I found that out, I was, like, going, oh, damn it. So I because like, yeah, I had all the, I had, I had several things that I thought could blow him out of the water for the, for the purchase, but [00:10:00] um, but even the lease. Yeah. I was like going chances are that that was my weakest case was if I could get out of the lease, didn't even know about it. So at that point I just had to raise the white flag. We wrote him a check. We wrote him a check for $65,000, but also because I was so worried about him finding out about this lease, I had our lawyer draft up the most comprehensive, airtight, like, uh, release, basically what was what it was. So it's like, it's like, sure, I'm going to pay [00:10:30] you your $65,000. But this came out of the blue. This is ridiculous. This is not fair. So the only way I'm going to hand this check to you is if you sign this document that says that you will never, ever come after us, ever, for any more money. Even if you were to find out that there was a 20 year lease that we signed with these people, even with that, you couldn't come after us and get any more money from us, you son of a bitch.

Greg Kyte: And, uh, that's, uh, that. And he signed it. He signed it, he signed it, and I got it. It's framed on [00:11:00] my wall, and he's. And I took a picture of him. I put a picture of him on the front doors of the building saying, uh, this person is not welcome on these premises, uh, ever. And, uh, yeah, that was that was the, uh, the, the biggest and and and the thing is too, I mean, I learned from it because, uh, when we signed the original listing agreement, I, I'm confident I read it. I'm it wasn't that long, but I also am confident that at that time when I read it, I was just reading it going, blah. Blah blah blah. I get [00:11:30] it. 6%. We have to sign this to get the space lease. It's just all this is just a formality. But dude, now I negotiate every listing agreement with every realtor who who we ever work with at all to make sure that they won't have their claws in us, uh, in perpetuity.

Caleb Newquist: Right? Right. Yeah, that's a good one, Greg.

Greg Kyte: It was a huge dude. It was $65,000.

Caleb Newquist: Uh, that's a yeah, that's a that's a pretty major league screw up, man. Yeah. [00:12:00] All right. Well, the reason any of this matters at all is because at the heart of today's story, somebody had a massive screw up at work. Our story today takes place on the High Plains in Elkhart, Kansas, population 1888 as of the 2020 census. [00:12:30] Founded in 1913, Elkhart sits in southwest Kansas, about a 15 minute drive directly west of the Colorado border, and it literally borders Oklahoma on the south side. I'm not even kidding. Google maps shows a road that runs east and west along the border called. And this is true State Line.

Greg Kyte: Road that that's such a such a creative name for for.

Caleb Newquist: Absolutely, absolutely novel. Yeah. [00:13:00] Elkhart is home to several points along the Santa Fe Trail, mostly a large portion of the Cimarron National Grassland.

Greg Kyte: No shit. The Cimarron National Grassland.

Caleb Newquist: Yeah. So if you're one of those, if you're one of those, uh, interior nerds like me, that is that is something maybe of interest to you.

Greg Kyte: Or if you're a retired erstwhile accountant who's trying to visit all the National Grassland grasslands, you've got to go check out Cimarron.

Caleb Newquist: Man, I love, I love a prairie. [00:13:30] I love a grassland.

Greg Kyte: You did well. You grew up in Nebraska. Yeah.

Caleb Newquist: Makes sense. Yeah, it makes me a little nostalgic. Yeah, yeah. All right, all right. At this point, you've heard High Plains, southwest Kansas, a National Grassland, and you might be asking what's going on in Elkhart?

Greg Kyte: I'm asking that what is going on in Elkhart, Caleb?

Caleb Newquist: Not much. Lots of farming.

Greg Kyte: Right. That that makes sense. I mean, again, grasslands, Kansas, I'm assuming I'm assuming we got some soybeans and some, uh, some [00:14:00] wheat, some corn.

Caleb Newquist: Yes, yes. Still many rural communities are resilient, and Elkhart is one of those. It survived the Great Depression. Not every town did. Uh, and this is actually my favorite part. It was one of the towns hit hardest by the dust bowls in the 1930s, the Library of Congress. It's in the show notes. There's a photograph from the Library of Congress that shows one of the dust dust [00:14:30] storms that hit that hit Elkhart in May 1937. And it's like looming over the town. And it is terrifying. Yeah. And I looked.

Greg Kyte: I.

Caleb Newquist: Did you look at it.

Greg Kyte: Not only did it check out that picture, I actually just googled images of dust dust storm Elkhart, Kansas, May 1936. And there's several pictures. Yeah, and all of them look, uh, like, horrible, right.

Caleb Newquist: If you there's another link in the show notes to a map of, uh, the [00:15:00] kind of the the area of where the dust bowls were kind of concentrated. Okay. And where Elkhart is, it's in Morton County, Kansas, and it's right in the southwest corner of the state, and it is right in the center of the place that had that, the places that were getting hit the worst.

Greg Kyte: This is like ground zero. This is epicenter, ground zero of ground.

Caleb Newquist: Zero for those dust.

Greg Kyte: This is the this is the original grape of wrath, is what? You got it, man. You got it? Yep. Yeah.

Caleb Newquist: All right. Shan Heinz believed [00:15:30] in this community, and he believed in community banking. In 2021, as a leader of a community bank, he testified before the Kansas legislature and shared advice he'd once been given by a small town mayor. Quote, for any rural community to stay alive, they must have a grocery store, a school and a bank.

Greg Kyte: And a liquor store.

Caleb Newquist: Yeah, he left that out.

Greg Kyte: He did. Maybe he assumed that was in the grocery store.

Caleb Newquist: Yeah, yeah, I mean, that mayor, that mayor was on to something, but he did leave out [00:16:00] liquor store. Anyway, Heinz got his start in banking in 1993 as an agricultural loan officer and IT officer at the First National Bank of Elkhart.

Greg Kyte: Oh, so he was doing computer stuff as well as, uh, as well as just banking. Sounds like it. Yeah. Nice. Cool. That's that's especially in 1993. I mean, that's that's pretty early on in the internet age and the computer age. So I would say so probably a valuable person. Okay. Yeah.

Caleb Newquist: Yeah, yeah. And the bank wasn't that [00:16:30] old. It was founded in 1985. Okay. Um, and then so he started in 93, and he became the president and CEO in 2008. In 2011, Haynes led a group of investors that bought the bank in order to keep it locally owned. Okay. Yeah. With the change in ownership, the bank became a state chartered bank. Because, remember, it was a national bank, right? First National Bank of Elkhart. And Haynes remained its president and CEO. It [00:17:00] also got a new name, heartland Tri-State Bank.

Greg Kyte: Gotcha. So, wait, so he was the he was the president, CEO and a significant owner in this bank? Yes. Okay.

Caleb Newquist: Yeah. And we'll get we'll get to that in a little bit. But in his testimony before the Kansas. Well, I think we're going to get to this now. In his testimony before the Kansas Legislature, Heinz said that in 2017, he approached his fellow investors in heartland [00:17:30] to acquire two more banks that were the only banks in their respective communities. He testified that, quote, the desire to grow our bank, as well as keep a bank in rural communities, motivated us to purchase the banks. Haines held numerous different leadership positions in both Kansas and national banking associations, and beyond his leadership in banking, he was a member of the local school board, and he even occasionally preached at his church and officiated [00:18:00] funerals. Ah, that's.

Greg Kyte: The that's that's the thing pastors look forward to the most. Yeah, forget forget baptisms and weddings. It's the funerals is what I'm going to write about in my memoir. Right?

Caleb Newquist: Right. At a congressional hearing where Haynes was testifying before the House Subcommittee on Commodity Exchanges, Energy and Credit, then Kansas Representative Roger Marshall, he's the senator from Kansas now. He called Shan Haynes the pride.

Greg Kyte: Of.

Caleb Newquist: Elkhart. Yes. [00:18:30] Shan Haynes lived and breathed the wholesome, tried and true life of a rural businessman and community leader. You couldn't ask for a better guy to be leading your local bank.

Greg Kyte: On Friday, July 28th, 2023, a press release from the FDIC announced that heartland Tri-State Bank had been closed by the Kansas office of the state Bank Commissioner and [00:19:00] had appointed the FDIC as the receiver. The FDIC press release stated that it had arranged with the dream first Bank of Syracuse, Kansas to assume all of Heartland's deposits. Uh. The four branches of heartland reopened the following Monday, July 31st as Dream First branches operating normal business hours. Which, by the way, uh, just quick side note, Dream First Bank, uh, is the second worst [00:19:30] bank name, uh, behind Fifth Third Bank. Uh, just just if anyone keeping score at home. Yeah. Uh, that's a shitty name for a bank. Yeah, but there's but there's worse.

Caleb Newquist: That's a no. That's a no. My fried deep cut right there.

Greg Kyte: Very deep.

Caleb Newquist: Cut. Yeah.

Greg Kyte: That's if you know what we're talking about. God bless you. Yeah. Um, the the press release continued, it said, uh, this evening and over the weekend, depositors of heartland Tri-State Bank can access their money by writing checks or using [00:20:00] ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual. It went on to say that customers do not need to change their banking relationship in order to retain their deposit insurance coverage. Heartland tri states $139 million in assets and $130 million in deposits were being assumed by Dream First Bank, who also, quote, agreed to [00:20:30] purchase essentially all of the failed bank's banks assets. In other words, the bank kept operating as if nothing happened. The only difference was that the four heartland Tri-State Bank branches now had a big sign on the front of them that said dream. Well, probably not a big sign, probably like a just a banner or some sort of butcher paper banner with like with, like, uh, poster paint used on it that said dream first branches, probably with hearts and stars, because a bank name like dream first [00:21:00] you. I think you gotta have hearts and stars.

Caleb Newquist: Without a.

Greg Kyte: Doubt. Unquestionably. But oddly, the press release did not say a word about why heartland Tri-State Bank was closed. Heartland president and CEO and the pride of Elkhart, Sean Haynes, wasn't mentioned in the press release either.

Caleb Newquist: On August 11th, 2023, two [00:21:30] weeks after the bank's failure, The Kansas Reflector reported a quote from the Kansas Banking Commissioner, David Herndon that heartland was closed after it became insolvent, quote, apparently the victim of a huge scam. So that's not good. No. Herndon didn't know what the scam was, but he was sure that no other Kansas banks were affected. Quote. It was a terribly unfortunate event, but [00:22:00] 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.

Greg Kyte: Which is that's FDIC working the way FDIC is supposed to. Got it man.

Caleb Newquist: Nice. Absolutely. Yep. It was this reflector article. It's in the show notes. That was the first one that mentioned Shan Heinz, the bank's CEO. But he didn't respond to the reporter's request for comment. About a month later, an op [00:22:30] ed in The Reflector reported that no one in Elkhart really knew anything about what happened, although one woman said that there was a, quote, stink in the air. Shann Haynes didn't respond to requests for comment on that article, either. But what started to become clear in that op ed, almost two months after the bank's demise, is that many people suspected that it had been a victim of an emerging investment scam known as pig [00:23:00] butchering, which.

Greg Kyte: People in rural Kansas should know all about butchering, I would assume.

Caleb Newquist: There's got to be some. There's got to be some hogs. I gotta.

Greg Kyte: Say. There's some. Yeah, some hog farms out there. Definitely, yeah.

Caleb Newquist: The Kansas State banking commissioner pointed the reflector journalist to a financial crimes enforcement network, also known as FinCEN. He pointed him to a FinCEN alert that warned of this type of scam pig butchering. The alert states, [00:23:30] quote, resembles the practice of fattening a hog before slaughter. And if you've ever given more than a passing thought to how you get your bacon, then you know how gruesome this is about to get.

Greg Kyte: Here's an overview of pig butchering from the September 2023 FinCEN alert. It says the victims in this situation are referred to as pigs by the scammers who [00:24:00] leverage fictitious identities, the guise of potential relationships, and elaborate story lines to, quote, fatten up the victims into believing that they are in trusted partnerships. The scammers then refer to butchering or slaughtering the victim after the victim. The victim's assets are stolen, causing the victim's financial and emotional harm. In many cases, the butchering phase involves convincing victims to invest in virtual currency [00:24:30] or in some cases over the counter foreign exchange schemes, all with the intent of defrauding them of their investment. Pig butchering scams are largely perpetrated by criminal organizations based in Southeast Asia, who used victims of labor trafficking to conduct outreach to millions of unsuspecting individuals around the world.

Caleb Newquist: That's that's that sounds like a nasty bit of business, Greg.

Greg Kyte: The victim, just abruptly ceases communication. [00:25:00] Uh, and their whatever, whatever money is quote unquote invested with them, obviously. Poof. It's gone. Never to be heard of again. So here's how pig butchering works. Four easy steps. Step one initial contact with the victim A scammer contacts a mark through text messages, social media DMs, that sort of thing. The perp then establishes [00:25:30] a relationship with this new friend and builds a relationship. So Caleb, I received one of these recently and I took a screenshot of the entire interaction and I sent it to you. Yes. And we're just going to reenact this as a brief play. Uh, will you will you be.

Caleb Newquist: Do I get to play you or are you playing you?

Greg Kyte: How about I play me and you play the pig butcher?

Caleb Newquist: Oh, okay.

Greg Kyte: Okay.

Caleb Newquist: Hi. Is this Mr. Kite?

Greg Kyte: Yes.

Caleb Newquist: Hi, my name is Wang Lin. Maybe you don't [00:26:00] remember me. We met Orem a few years ago. Gregory Kite. How are you doing?

Greg Kyte: Oh, yes. Dot dot dot. I remember you quite well. Fire emoji. Fire emoji. Fire emoji.

Caleb Newquist: It's okay. We haven't seen each other for a long time. It's human nature for you to forget me at that time. After I exchanged contact information with you at the business reception, I said I would contact you later, but because I was too busy with work, I forgot. If I hadn't checked my address book today, [00:26:30] I wouldn't have suddenly thought of you.

Greg Kyte: I think that was the first time either of us did any of that sexy stuff. It was amazing. But I forgot to pay you. I feel so bad. Just send me your bank account number and routing number. I need to withdraw a nominal amount just $9,000 USD to make sure your bank info is legit. And then I'll deposit all the money that I owe you. And that was the end of the text chain, because clearly, uh, the, uh, Wang Lin finally started reading what I [00:27:00] was, uh, replying uh, with and was like, oh shit, this is not going the way I wanted to. So they bounced out.

Caleb Newquist: Yeah. That's, uh, that's that that was a fantastic, uh, example of step one. Greg. Yeah.

Greg Kyte: Step two is the investment sales pitch. After trust is established, the perp introduces the victim to a supposedly lucrative investment opportunity in virtual currency. And there's a currency investment website or an app that's that's [00:27:30] designed to appear totally legit, but that in reality are completely fraudulent and ultimately are controlled or manipulated by the scammer or by the organization that the scammer is working for. Um, and it gets even weirder. A scammer, uh, may also request remote access to a victim's computer or their device in order to register accounts with the virtual currency service providers on the victim's behalf, or they might instruct their victims [00:28:00] to take screenshots of their device so that the scammers can help them by walking them through the process of purchasing the virtual currency. Because anyone over 50 can't do that. And according to the FBI, many victims also report being directed to make wire transfers, to oversee accounts, or to purchase large sums of prepaid cards to purchase virtual currency. That's where I would 100% tap out. If you're telling me to buy a bunch of iTunes cards to be able to invest [00:28:30] in something, I go, wait a second, this is where it's clearly bullshit and I'm out. Yeah. Um. And once a victim acquires the virtual currency, the scammer then directs them to, quote unquote, invest the funds through the investment websites or apps. Although the funds, like we said, are funneled to virtual currency addresses and accounts that are controlled by the scammers or by their coconspirators.

Greg Kyte: Step three is the promise of greater returns. The scammer shows [00:29:00] that the victim's investment is amazing and the returns are kick ass. And they're just making money, money, money. Sometimes they'll even let the victim withdraw some of that, uh, quote, uh, purportedly earned money, but then entice them to invest even more. Uh, victims have been known to liquidate holdings in tax advantaged investment accounts or take out home equity lines of credit or second mortgages on their homes [00:29:30] in order to simply increase their quote unquote investments. Step four is the point of no return. When the victim's pace of investment slows or stops, the scammer will use even more aggressive tactics to extract any last money that could possibly be squeezed out of these people. The scammer may present the victim with a supposed losses on the investment, and encourage them to make up the difference through additional deposits. If the victim attempts to withdraw [00:30:00] their investment, the scammer might demand that the victim pay purported taxes or early withdrawal fees. Those bastards. And once the victim is unable or unwilling to pay more into the scam, the scammer just ghosts them. They abruptly cease all communication with the victim and the victim's entire investment, uh is gone. Poof disappears.

Caleb Newquist: According [00:30:30] to a report in Bloomberg on July 5th, 2023. Shann Haynes met with one of his wealthy farming customers with a request. He needed a loan of $12 million. Why did a banker, the CEO of a bank, no less, need a loan? Because, um, you're a bank.

Greg Kyte: Ridiculous.

Caleb Newquist: That's that's where the money is. Yeah.

Greg Kyte: I have some close relationships with some bankers. Yeah, because of work. If any of them came to me [00:31:00] and asked me for a loan, I'd be like, the hell are you, Todd? Something, something, something. Is something wrong?

Caleb Newquist: Not not right. Yeah. Haynes told his customer that he would repay the loan in ten days and pay him interest of $1 million. Wait.

Greg Kyte: Come again?

Caleb Newquist: I would be happy to repeat that. Haynes told his customer that he would repay the loan in ten days and pay him interest of $1 million. So for those.

Greg Kyte: Ten [00:31:30] days.

Caleb Newquist: Yes. So to call that amount of interest, uh, usurious or is it usurious? Uh, yeah. Yeah.

Greg Kyte: No one actually says the word out loud. They just read it. No they don't. Yeah.

Caleb Newquist: No, no, no, but but whatever the word is, however it's pronounced, it really doesn't do that justice, right? Also, I mean, you're talking about a million bucks.

Greg Kyte: Is it usury? If you're the one who's offering to pay that amount of interest, right.

Caleb Newquist: Maybe. Probably not actually. Right. But we you're [00:32:00] talking about $1 million on a loan of 12 million. Yeah, for just ten days. So, Greg, you're good with numbers. Yeah. Can you figure out what that interest rate is?

Greg Kyte: I did you gave me this math problem before the episode, and I punched it into my one of the apps I have for work for calculating exactly this kind of thing. And it came back at a little over 304% interest on an annual basis.

Caleb Newquist: Yeah, that's a loan shark. That's a.

Greg Kyte: That's ridiculous. Yeah. [00:32:30] I mean, if, if, if, if a bad mortgage loan is 6% right now, you're paying 50 times that amount of interest. That's a that's a desperate that's not just I mean, again, if a bank CEO and president is coming to you asking for a $12 million loan where they'll happily pay you 304% interest, something the world, the world has ended, something completely wrong is going on.

Caleb Newquist: Haynes told his customer [00:33:00] that he needed the $12 million to get some money out of a cryptocurrency investment. Apparently, there was a problem with the wire transfers, and Haynes said that he needed to put more money in in order to get his money out. Haynes assured his client that the money was not the banks.

Greg Kyte: Which which again, is that a weird thing to say? I mean, yeah, it's like, hey, hey, there's a bunch of money invested in this cryptocurrency thing, and I need to get back. It's not [00:33:30] it's not the bank's money. It's my money. It's like, why did you. I didn't think it was the bank's money. Now I think it's the bank's money. So. Yeah. Ultimately. Heinz, he's he's desperate.

Caleb Newquist: Well, we'll get to it. We'll get to that in a second. Ultimately, the farmer declined to help and told Haines that he thought it was a crypto scam. If he, Haines wanted the money, he'd have to go to Hong Kong to get it. About a [00:34:00] week later, this client learned that Chan Haines had wired over $12 million to Hong Kong. This person then promptly told one of the bank's board directors that director went to banking regulators, and on July 28th, 2023, heartland Tri-State Bank was declared insolvent and shut down. As we mentioned earlier, the depositors of heartland were protected. Their money ended up at Dream First Bank, but the investors in [00:34:30] heartland weren't so lucky and weren't included in the FDIC receivership. Investors included, quote, families that own local businesses, teachers, retirees and ranchers. Sean Haynes himself and some of his family were some of the largest investors in the bank. Haynes stake alone was reportedly 7%.

Greg Kyte: In addition to the press release it put out on July 28th, 2023, the FDIC put heartland [00:35:00] Tri-State Bank on its failed bank list. It also provided guidance for depositors, borrowers, creditors and shareholders, and included information about Dream First Bank and an FAQ page. Besides the FDIC coming in and taking things over, another thing that happens when a bank fails is that the Office of Inspector General for the Board of Governors of the Federal Reserve System and the Consumer Financial Protection Bureau completes what's [00:35:30] known as a material loss review.

Caleb Newquist: That's a mouthful.

Greg Kyte: It is. That's a huge mouthful. These reports are mandated by law. Caleb. Uh, section 38 K of the Federal Deposit Insurance Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, to be precise. Uh, well, uh, we could we could try to continue being coy about this, but we'll just get right into it, because the report does, uh, on page two [00:36:00] of the first paragraph under the heading finding the report gives us the goods. It says heartland Tri-State Bank failed because of alleged fraudulent activity conducted by the bank's chief executive officer, who initiated a series of wire transfers totaling about. Wait for it $47.1 million of Heartland's funds, among other suspicious activities, as part of an apparent [00:36:30] cryptocurrency scheme referred to as pig butchering. There you go.

Greg Kyte: Ah.

Greg Kyte: Government. Retort. Uh, a government report seldom get clearer than that, Caleb.

Caleb Newquist: That I.

Greg Kyte: Just. Indeed. That's indeed that's not the executive summary. That's the report. So, uh, yeah, it it goes on to say, uh, significant internal control breakdowns. Uh, what? And the influence of the CEO as a dominant management official [00:37:00] created an opportunity for the series of apparently fraudulent wire transfers to be initiated and processed. These wire transfers significantly impaired Heartland's capital and liquidity, causing the bank to become insolvent. The report then lays out what happened. You can look into it for yourself. We link to it in the show notes. Uh, there's a figure one on page ten if you're wondering of the report, uh, but I'll just briefly explain what's on there. Uh, from May [00:37:30] 30th, 2023 to July 7th of that same year, just 39 days, Shann Haynes made ten outgoing wire transfers totaling $47.1 million to a cryptocurrency wallet in his name, the smallest of those wire transfers, $1.5 million. The largest of those wire transfers $10.3 million. Very subtle, very hard to catch transactions of those small sizes. [00:38:00] But you think about, I mean, a tiny town. You the town had a population of less than 2000 in 2020. So my guess is that most small town banks like that don't have multi-million transactions just every few days going through.

Greg Kyte: And the last two transfers on the list, if you look at it, total just over $12 million. Why were they $12 million? Because that was the $12 million that that wealthy farmer customer refused to [00:38:30] loan to Sean Hayes. And that was the wealthy farmer who, like we said, ultimately ratted out Sean to the banks directors. And like I said just a second ago. Um, the size and frequency of the transfers were nuts. Uh, highly unusual for heartland Tri-State Bank. Uh, as part of the analysis, the investigators looked at at the bank's wire transfers, uh, in April of 2022 and found that there were only 16 transfers for the [00:39:00] entire month, and the smallest one was 500 bucks and the largest one was 2.6 million. Uh, so that's 30 days, 16 wires. And the biggest one was $2.6 million. But, uh, when Shay Shan did it, it was 39 days, ten wires, just his. Not to mention the other wires. That obviously must have happened during that same 39 day period. And like we said, they ranged from 1.5 million to [00:39:30] 10.3 million. So way out of whack with typical, uh, bank business.

Caleb Newquist: Activity.

Greg Kyte: Activity. Uh, also, the investigation found that as of March 31st, 2023, the bank had so right. This was right before his his stuff happened starting at the end of May. So this is the end of March same year. The bank had zero borrowings on its books, but as of the last week of July 2023, [00:40:00] uh, the week that the bank failed, it had used $24 million of its lines of credit. So it went from not not having no no debt on the books to $24 million on the books from, uh, April, May, June.

Caleb Newquist: Four months.

Greg Kyte: July. Yeah. Four months. Uh, and on top of that, Heartfield also, our heartland also borrowed $21 million from a federal home loan bank. Uh, it hadn't borrowed, uh, from [00:40:30] a home loan bank, uh, for three years prior to this going down. Suspicious? Yep. Suspicious. Suspicious. Suspicious. Just riding on it. But. But the other crazy thing. This happened so quickly that likely. I mean, one of our big questions is always where are the auditors? They they were. Oh, this was between audits. They. Yes. Yeah. The bank failed so quickly and went from no debt to lots of debt and all that that I, I, the auditors got [00:41:00] there getting a pass on this one. Caleb. Yeah. From me. Um, so how did it happen? Uh, you won't be surprised, uh, that there are big sections in the report with titles like, uh, internal control breakdowns, of course. Uh, heartland employees circumvented the bank's wire policy and limits. Uh, heartland employees did not comply with the bank's Bank Secrecy Act and anti-money laundering policies. Uh, and another title that says influence of a Dominant official. So yeah, the report [00:41:30] outlined all the ways that internal controls were dog shit and or at least were completely ignored.

Greg Kyte: But that's that I mean, we talk about that. I mean, if you're if you're an accounting professional, you're completely familiar with, with management override of controls. And that's exactly what happened here. You had a president, a CEO, a major shareholder in the bank, all those things. And he just had the ability because of his dominant position, to do basically whatever he wanted to do. [00:42:00] And by the way, you might be wondering what CEO Shanahan's had to say about everything that he did. The report states that the Federal Reserve Bank Kansas City staff interviewed Shannon Haynes twice, uh, during the week of the bank's failure to get an understanding of what happened. And the report explained that, uh, quote, the CEO provided reserve Bank staff screenshots of messages and [00:42:30] supposed cryptocurrency account statements. Reserve Bank staff found the CEO's explanations for his activities to be unreliable and inaccurate, because the CEO's explanations for the transactions did not make sense and were difficult to follow.

Caleb Newquist: That material last review was dated February 7th, 2024. On February 12th, 2024, [00:43:00] Shann Haynes was charged with one count of bank embezzlement. Of course, one count doesn't sound all that bad, but it does sound pretty bad when you consider that that embezzlement was $47.1 million, right?

Greg Kyte: Right. Because you can have a lot of little embezzlement counts. Or you could have just just just get it to pull the Band-Aid off with one with one tug.

Caleb Newquist: He was also charged with 29 counts in Morton County District Court. That document is in the show notes as well, if you care to look at that. In those charges, [00:43:30] we see that Haynes was accused of taking $40,000 from his own church and another 20,000 from an investment club he had with some friends. Uh.

Greg Kyte: I hate all of that.

Caleb Newquist: Who?

Caleb Newquist: In May 2024.

Caleb Newquist: Haynes.

Caleb Newquist: Pleaded guilty to one charge of embezzlement by a bank officer. As of this recording in June 2024. He is scheduled to be sentenced in August. He faces a maximum sentence of 30 years in prison.

Greg Kyte: So [00:44:00] Caleb did. Did we learn anything from today's case?

Caleb Newquist: You turning the tables.

Greg Kyte: On me, Greg, I am, I want to know.

Caleb Newquist: Yeah, yeah. Um, look, uh, we learned a lot. I think about pig butchering. Yeah, pig butchering scams, cause we did a lot. Did some more research into this. Pig butchering scams caused losses of more than $2 billion in 2022, in the US alone. That's an increase of 183% from 2021. There's an excellent Last [00:44:30] Week Tonight episode on pig butchering from February of this year, explaining how they work in detail, including the very convincing crypto trading platforms that are completely fake. Yeah, um, there are several stories where people have lost hundreds of thousand dollars. It's pretty gut wrenching, actually. Yeah. To watch those. Yeah. Um, we mentioned this earlier, but, uh, the criminal syndicates in Asia that run these scams, they force, uh, human trafficking victims to scam Americans, mostly. Um, there are reports [00:45:00] that state that tens of thousands, possibly hundreds of thousands of human trafficking victims have been tricked into these jobs and forced to do them. So as tempting as it may be to reply to a strange text or DM with, uh, an all caps fuck you or eggplant emoji, you know, just think twice before you do that, because the person probably sending you that message is probably also in a very bad situation, [00:45:30] right?

Greg Kyte: But maybe they'll forward it to their boss. I mean, if their boss is looking over their shoulder, the guy knows that. It's like, hey, this is they don't they're talking to you. Really meant for.

Caleb Newquist: You. This is meant for you, pal.

Greg Kyte: So much.

Caleb Newquist: Anyway. And, um, that last week, that last Week Tonight episode, uh, it does mention this case. It does mention the case of heartland Tri-State Bank, And, uh, it's it's it's it's a pretty devastating story. My question for you, Greg Kite, is how do do you sympathize [00:46:00] with Sean Heinz or how how do you see him in this ordeal? Because he's he's clearly a victim. Yeah, but he's also a perpetrator. And so I'm just curious how you how you reconcile that.

Greg Kyte: I, I well, I have some I have a story that I've been, uh, that I've been writing in my head to fill in the gaps because there's a lot of gaps, because Shan hasn't, uh, publicly said much about [00:46:30] what happened, why he got into it, how he got tricked, all that sort of stuff. So, uh, in in my mind, what likely happened is that he, he I mean, again, this is this is absolute speculation. Chances are this is largely, if not entirely incorrect. But this is my guess is that Shan was intrigued, you know, just went through the steps, was taken through the steps of pig butchering and that he was like, [00:47:00] hey, I, I'm the I'm the CEO of a bank and I'm one of the owners. I can I can get a loan, I can give myself a loan from my own bank to invest in this. And then he's seeing all these, you know, just like just like we said with the steps, he's seeing this wild returns on what he's supposedly invested with this pig butchering scam. And so he's like, I need to get anything else I can put in here is going to be just gold bat. You know, I think we've all been in situations like that where we see an opportunity [00:47:30] unfolding.

Greg Kyte: We look in our bank account and go, oh, I can only get in on this to a very meager extent. Um, yeah. And so, so likely he did whatever he could to extend stuff, and then he starts seeing the everything's sort of falling, almost like, I mean, I, I guess maybe a more direct answer to your question is, I assume that there's a lot of the same psychology that happened with Shan, that happens with gambling addicts, [00:48:00] where he's like, he he's like going, I can make this right. I screwed like, we started the show off. I screwed up big time with my company. But I can make this right if I just as long as I can get this, all I need is $12 million and I can get all $47 million back. So that's all I need. And I can make it right. And so you keep digging yourself in deeper, not knowing that you're just throwing every single dollar down the toilet and, uh, yeah. And it just gets gets out of hand, snowballs, [00:48:30] uh, gets out of control. You're desperately trying to fix your huge hole in your sinking ship, and you just can't. And everything goes down. It had to have been terrifying.

Caleb Newquist: Oh, absolutely terrifying.

Greg Kyte: Absolutely. And and again, uh, I lost $65,000 of my company's money because I didn't read the fine print on a contract. Right. This which which sucked. I can't I mean, just again, every [00:49:00] time I even think back about that, like, I don't I can't explain the visceral feeling that I feel about fucking up to that extent. Yeah. Uh, and, and and then like, and then it just crushes me when I try to be, uh, empathetic with Shan and just go. That was for $65,000. What if it was 47 million? I can't, I can't even I.

Caleb Newquist: Mean, that's the thing like on on last Week tonight too, they kind of like, [00:49:30] you know you you if, if, if a and this this guy is the CEO of a bank. Yeah. Yeah yeah. And not like a new CEO. Like had been a CEO of a bank for like 15 years. Yeah. And so he obviously at some point and like I imagine this story will come out eventually but like the details of it. But yeah, somehow he got taken in and then it became apparent that [00:50:00] he was on the hook. And you're right, he he's like, wait a minute. I think he in his mind, he thought he could make it right. Right. And it was like but it was the he had already given it up. Right. The game the game was already up. The jig was already up.

Greg Kyte: Just desperate, desperately grasping at straws to try to with false false hopes, you know, hoping against all hope that that somehow things would work out right.

Caleb Newquist: And that's and that's that is I think that is [00:50:30] a feature of these pig butchering scams is like, that's how that's how they keep people on the hook is they give them that, that that sliver of hope that they can somehow figure it out.

Greg Kyte: And I got to think that everything we were talking about like, like step four, where it's like the jig is up, all hope is lost. And they're like going, oh, you want your money back? Oh, guess where they're almost like going, guess what? We're an organized crime ring in South East Asia, bitch. That's who you've been [00:51:00] sending this money to. You want it back? Cool. Send us another $400,000 and we'll send you your money. You know what I mean? Yeah. And you just go. I don't think it's gonna work, but, uh. But, you know, at this point, I've already lost, you know, I mean, maybe with Sean's case, that was the 12 million. It sounds like that was the 12 million. It was like, well, I'm already screwed horrendously already. So what's another 12 million on top of 35 million if it's gonna. If it has any remote possibility of making things right. [00:51:30] Yeah, we'll do it. So. Right. Which is such just such crazy leverage that the scammers have. Can't even believe.

Caleb Newquist: It.

Greg Kyte: Okay, that's it for this episode. And remember, fool me once, shame on you. Fool me ten times and you just made $47.1 million.

Caleb Newquist: And also remember, screwing up at work is fine. Screwing up at work and then trying to cover it up by stealing money. Whew. Wow. Not really. Not okay. [00:52:00]

Greg Kyte: Not not even in the slightest. Uh, if you want to drop us a line, we'd love to hear from you. Send us an email at omnifrog. At earmarks. Com and, Caleb, if you want to get a hold of you, where can they find you?

Caleb Newquist: Linkedin slash Caleb newquist. Greg. Still hanging on?

Greg Kyte: Yeah, I like I was hoping you were just going to say. I said, where can they find you? And I wanted you to say LinkedIn. How about you, Greg? Uh, yep. [00:52:30]

Caleb Newquist: That is how I feel also. Linkedin like a big, big, heavy sigh. Yep, yep. Oh my fraud is written by Greg Kite and myself. Our producer is Zach Franc. Rate review and subscribe to the show wherever you listen to podcasts. If you listen on earmark, you can get CPE for listening. Join us next time for more average swindlers and scams from stories that will make you say.

Caleb Newquist: Oh my.

Greg Kyte: Fraud!