Dive Brief:
- The former president of Ericson State Bank in Nebraska was sentenced last week to 18 months in prison for his involvement in a fraud scheme that led to the bank’s 2020 failure.
- Jack Poulsen, 71, was also ordered Thursday to pay $815,000 in restitution – the loss amount tied to the loans he issued a family member, according to a news release from the U.S. Attorney’s Office for the District of Nebraska.
- Poulsen pleaded guilty in May to bank fraud. Investigators said he spent years involved in the issuance of loans to one of his relatives, advancing that person more money than had been approved, and keeping information from the bank’s board.
Dive Insight:
Poulsen was president of Ericson State Bank from June 2010 to September 2019, and was also a member of the bank’s board. The small rural bank, which had a single location and $110.9 million in assets as of the end of 2019, failed in February 2020. At the time, state banking regulators attributed the failure, in part, to “poor management practices.”
During an April 2019 examination, regulators discovered the bank’s condition had “significantly deteriorated” since a 2017 exam “due in large part to [ESB] being operated without regard for laws, regulations, prudent banking policies, and practices,” according to Thursday’s release.
A subsequent investigation revealed “significant” violations of state lending limits, and that Poulsen himself had made or was responsible for loans, lines of credit and cover-ups of overdrafts that were not only in violation of the law, but were compromising the bank’s safety and soundness, regulators said.
Moreover, “a substantial number of the violations involved accounts and loans held by a relative of Poulsen’s and the relative’s business-related entities,” the U.S. attorney’s office said.
Bank examiners discovered a particular loan to Poulsen’s relative had continuously exceeded the statutory lending limit since November 2017 – about one month after the bank’s 2017 exam.
Beginning in May 2019, Poulsen provided the relative with multiple advances and charged off a portion of the borrowings without filling out corresponding paperwork or obtaining approval from the board or loan committee, the regulators found.
As Poulsen doled out larger lines of credit or additional advances or paid off overdrafts, state bank examiners determined by August 2019 that loan maturity dates had been extended multiple times without documentation; financial information on borrowers was inadequate; loan collateral was “either non-existent or poorly documented and managed,” and deposit accounts, including Poulsen’s relative’s account, were overdrawn “frequently and substantially,” the office said.
Poulsen maintained his scheme until September 2019, when he was ousted from his roles at the bank and had his license revoked. After Ericson State Bank failed about five months later, Farmers and Merchants Bank of Milford, Nebraska, assumed all of its $95.2 million in deposits.
Investigators charged Poulsen with abusing his position as a bank executive and board member to conceal loan details from coworkers and the board, which fueled the bank’s downfall.
“Not only did Jack Poulsen’s financial scheme of insider-related loans lead to his sentence to federal prison, it also led to the collapse of a bank that had served rural Nebraska for 60 years,” Eugene Kowel, special agent in charge of the FBI’s Omaha field office, said in the release.
U.S. District Judge Susan M. Bazis also sentenced Poulsen to five years of supervised release following his prison time.
It’s at least the second sentencing this year of a former bank executive in the wake of a bank’s failure. Former Heartland Tri-State Bank CEO Shan Hanes pleaded guilty to embezzlement in May after stealing $47.1 million from the bank, which led to its collapse.
