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October 19, 2015 Contractor Fraud

Estate of Deceased CEO Settles False Claims Act Lawsuit Over Misuse of Federal TARP Funds

Arkansas-based One Bank & Trust, N.A. recently settled allegations against it for $4 million as the result of an ongoing fraud investigation surrounding misused government funds. Earlier this year, the U.S. Department of Justice filed a complaint stating that One Bank & Trust, under the direction of its late CEO Layton P. Stuart, unlawfully appropriated TARP funds. The complaint further accused Stuart, who passed away in March of this year, of diverting more than $2 million for his private use.

Known as TARP, the federal government’s Troubled Asset Relief Program administers money to “restore liquidity and stability to the financial systems of the United States.” To receive TARP funds, a financial institution must demonstrate imminent financial collapse that would result in significant financial burden for borrowers and/or lenders. The program was originally implemented in 2008 amid the subprime lending/housing crisis and remains in place today to assist truly struggling banks and lenders.

While this case does not involve a relator or whistleblower, it serves as an important example of a lesser-known type of fraud that is actionable under the False Claims Act. If the details of the case seem familiar, be sure to contact a whistleblower attorney to discuss your information right away.

Details of the case against the Estate of Layton P. Stuart, et al.

According to the complaint, which was filed by the United States of America earlier this year, Mr. Stuart submitted false information on behalf of One Bank & Trust in applications to receive $17.3 million from the government’s TARP funds. Of this amount, $2.1 million was allegedly diverted directly to Mr. Stuart individually. Most of this was allocated across a complex family trust network, presumably in an attempt to conceal the misappropriation of federal funds.

Mr. Stuart is alleged to have ignored the terms of several of his family trusts in order to divert funds wired from the U.S. Treasury. Particularly, the trusts only allow a $10,000 payout to beneficiaries (such as Stuart’s spouse or children) in the discretion of the trustee. However, accounting revealed that Stuart used the trust to divert millions of dollars to various personal accounts held by himself and family members.

In addition to the complex network of trusts, the DOJ alleged that Stuart utilized undue influence and unlawful coercion tactics to ensure successor trustees continued to maintain the tenets of his plan in the event of his demise or incapacity.

The DOJ also highlighted several glaring deficiencies and misrepresentations in the original application for TARP funds. For example, Stuart is alleged to have grossly overestimated the assets attributable to One Bank & Trust, as well as falsely certified compliance with all federal banking guidelines at the time of applying for benefits.

The DOJ ultimately accepted a settlement of $4 million from the estate of Mr. Stuart.

Contact Berger Montague today

If you are aware of fraud in the securities or banking sector, a whistleblower lawsuit may be an option under the False Claims Act or the Securities and Exchange Commission’s whistleblower program. For more information, contact Berger Montague today.