Ex-bank CEO gets 24 years after falling for crypto scam, causing bank collapse

Another real life example of this, but with an employee:

https://en.m.wikipedia.org/wiki/Owning_Mahowny

"Journalists" now love to use a sequence of events and then present them like a causal narrative, ignoring the real reason the final event happened. I'm so freaking sick of it.

The headline “CEO of very small bank gets 24 years for embezzlement” would get a lot less clicks, and almost certainly would not have ended up on the front page of Hacker News.

The fact that he was fooled into pouring it all into a crypto scam is kinda the interesting part of the story.

> Like, putting money in treasuries is basically 100% safe.

Until interest rates rise.

The scam is relevant because that was what motivated him to do the illegal things. If the payoff was only treasury level interest, he (hopefully) wouldn't have been motivated to risk being caught for embezzlement.

He used his authority at the bank to induce bank employees under him to break the banks own rules and policies. I do wonder if some of them suspected but decided to give their idiot boss enough rope to hang himself with...

This concept fascinates me: 'a spell of insanity and committing various crimes'

Do enough crime, buffer overflow. Must be insane! Just playing around, know no additional context

"Crypto scam" is typical mantra of those who are afraid of alternative monetary system that cannot be regulated.

>He appears to have been under a spell of insanity and committing various crimes.

My close relative committed similar crimes in similar circumstances but at a much smaller scale. “Appears under the spell” describes what I saw very well. I think people who get into such situations are ill and do not control their actions, like a drug addict, alcoholic or a pathological gambler.

25 year sentence does some justice but it won’t stop these people because they are not capable of understanding what they do and what consequences they cause.

I think the losses by people who deposited money in the bank are covered but when the bank collapsed the bank investors lost a further 9m$, the investors are not covered by FDIC insurance

The victims are the shareholders who were wiped out when the bank went under. The FDIC made the depositors whole, but not the other parts of the bank's capital structure.

Fdic only covers $250k per person. If you had more than that in your account, you're out of luck.

The deposits were assumed by Dream First Bank of Syracuse, Kansas, according to this article:

https://www.nbcnews.com/business/business-news/cryptocurrenc...

There were other victims who were not insured by the FDIC because he stole from their non-bank funds: “After blowing through his own funds seeking promised profits, Hanes stole tens of thousands from a local church, then a local investor club, and finally his daughter's college fund, NBC News reported.”

To quote Nicolas Cage in Gone in 60 seconds:

[in a Ferrari dealership]

Roger the Car Salesman: My name's Roger, sir. May I be of some help?

Memphis: That's funny, my name's Roger... Two Rogers don't make a right. [laughs]

Memphis: Roger, I have a problem...

Roger the Car Salesman: Yes?

Memphis: I've been in L.A. for three months now. I have money, I have taste. But I'm not on anybody's "A" list, and Saturday night is the loneliest night for the week for me.

Roger the Car Salesman: Well, a Ferrari would certainly change that.

Memphis: Perhaps, mmm. But, you know, this is the one. Yes, yes yes... I saw three of these parked outside the local Starbucks this morning, which tells me only one thing. There's too many self-Indulgent wieners in this city with too much bloody money! Now, if I was driving a 1967 275 GTB four-cam...

Roger the Car Salesman: You would not be a self-indulgent wiener, sir... You'd be a connoisseur.

Memphis: Precisely. Champagne would fall from the heavens. Doors would open. Velvet ropes would part.

I think this person and its neighbors are just living in a different world. A world where a million is similar to what us is a grant or something.

> Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.

https://www.fdic.gov/resources/deposit-insurance/faq

Insurance is always up to a certain amount. In the Netherlands the government-provided insurance insures up to €100k per account holder.

People would have a problem if they already have €120k tied up in a contract, such as a house purchase.

It would be a big problem if the lost money was intended for their pension.

The FDIC insures deposit accounts (savings, checking, money market deposit accounts, and certificates of deposit) only and there’s a cap of $250K at any single institution. I’ve no idea what accounts this bank offered, but anything in excess of that cap or held in, for example, mutual funds, stocks, etc are uninsured losses. Those people the article mentioned specifically called out retirement savings, so they very well may not have been in insured deposit accounts.

FDIC ensures certain deposits, within limits. If the bank fails, which is my superficial understanding here, FDIC will make you whole if you had a secured deposit within those limits, although not instantly, but it doesn't cover deposits either beyond those limits or which were never guaranteed. A typical high street bank account is always covered, but maybe you've put the $1.5M Grandma left you in there, that's too much, or maybe instead of the normal bank account you obtained some weird investment vehicle that's not technically a bank account but, you know, it's from a bank - well, the paperwork did say "Not FDIC insured" and sure enough it isn't FDIC insured so if the bank fails too bad.

In most bank failures a large fraction of the money is eventually recovered but it takes ages. Maybe you had $1M with a bank, the bank fails on Monday, $250k is FDIC insured, on Monday you can't get your money, this can be very disruptive. Can't make car payment, can't pay tuition, whatever. But hey by first thing Wednesday FDIC gives you access to $250k.

Six months later the people cleaning up the mess maybe give you $607 283 from selling the bulk of the bank's assets, and then six years later, when you've almost forgotten this disaster, you get a letter with a further $114 384.10 as the last bits and pieces were settled, and it turns out one of the hard to unwind bank investments was actually quite profitable, although it was supposed to pay much earlier. Congratulations, the vast majority of your money was "recovered". Not all of it, and not quickly, but bank failures generally do not mean there's an empty vault.

Apparently, it takes some time until the money is paid out.

From the article:

> Right now, it's unclear how or when victims will be repaid for losses. Broomes ordered "that restitution be finalized at a separate hearing within the next 90 days," the US Attorney's Office said.

I replied elsewhere but he didn’t just steal from the bank: “ After blowing through his own funds seeking promised profits, Hanes stole tens of thousands from a local church, then a local investor club, and finally his daughter's college fund, NBC News reported.”

The CNBC article is much better, too.

The Ars article seems to be confusing HN readers about the role the bank played in the town as an investment.

Indeed, yet these scam gangs (often whole office buildings filled) are popping up like weeds, and there's nothing here about trying to catch the scam gang. Is it even illegal, it must be fraud, at least.

"falling for a cryptocurrency scam that he believed would make him wildly rich"

Greed is a powerful force

When something sounds so outrageous, you have to wonder what the full story is. It can't be as simple as the article suggests.

A bank CEO would have a solid understanding of debt and interest. I suspect he must have seen a legitimate opportunity but he didn't account for the human side of the equation that the crypto would be a rug pull.

Assuming you control a bank to such extent, you could potentially keep up a scheme going forever provided that you leave enough safety margins for interest rate increases.

I bet there are people running such schemes and getting away with them as we speak.

For example, you can loan money to someone you trust to buy crypto assets, if you and your friends hold most of the coins, you can achieve essentially any market cap you want... For example, you can spend $1000 a day to buy 1000 coins per day from your friend... You can move those newly purchased tokens back and forth 1000 times between different accounts so that your trading volume hits like $1 million per day. If you have 1 billion coins in circulation, your crypto's market cap is now $1 billion dollar... Becoming a billionaire on paper is easy!

It's basically the same thing that happens with stock markets except that the stock market involves more participants.

If you don't believe that this can work, consider that this is exactly how the banking system at large operates. It keeps borrowing new, increasing amounts of money into existence to pay back the old debts, using the inflating nominal value of collateral to justify the increasing size of the new loans. Literally the only difference is that in that case, it involves many real people moving money in a circle instead of one person moving money in a circle.