Bank Struggling After "Reckless" Practices; Loan Officer Faulted

FRANKFORT, KY -- A central Kentucky bank with powerful political connections is struggling to upright itself after what regulators say were reckless practices and a lack of proper supervision, reports the Lexington Herald-Leader in its Sunday edition.

For six years, the bosses at American Founders Bank praised loan officer James B. Tate for his aggressive lending across Central Kentucky, reports the Herald-Leader.

The sums Tate lent were ”extraordinary“ and ”far exceeded expectations,“ they raved. As his portfolio swelled by tens of millions of dollars, Tate climbed in the ranks to become executive vice president and senior loan officer, reports the newspaper.

His salary more than doubled to $165,000 a year, plus $134,000 in performance bonuses. Both Frankfort branches were placed under his command; cardboard cutouts of a grinning Tate adorned their lobbies.

But now borrowers allege that Tate's rise – which helped put the new, locally owned bank on the map – was fueled by fraud, the newspaper reports.

A growing stack of counter-claims by debtors say that, at Tate's direction, forged signatures shifted debt onto unsuspecting victims; schemes rolled bad loans around to keep them off the books; new loans went to hastily founded dummy corporations to pay off old loans; and Tate used loans to build himself a sprawling new Frankfort home, hiding his actions behind a ”straw man“ who ended up with the house and the debt, the Herald Leader reports.

Everything crashed last year. Federal and state regulators examined American Founders and uncovered enough serious problems – particularly bad loans and inaccurate records – to hit the bank with a ”cease-and-desist order,“ which put it on probation and warned it to clean up its act.

After the investigation, Tate was ordered to resign. So was his supervisor, bank President Tim Wesley. The board of directors – which includes former Gov. Brereton Jones and former state Democratic Party Chairman Tracy Farmer – was sharply criticized by regulators for inadequate supervision that allowed the mess to happen.

This year, American Founders is struggling to right itself. It is losing money, its capitalization is shrinking and 8 percent of its loans are at least 90 days past due, which is six times worse than its peer group, reports the Lexington Herald-Leader.

Copyright-The Lexington Herald-Leader

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