A rainy Monday witnesses the final chapter in a notorious Kansas bank fraud

WICHITA — It’s raining outside, but in room 238 of the federal courthouse it’s as dry as a lawbook. Except for my feet. My old boots have lost their weatherproofing, and water from splashing across the intersection of Third and Market to the courthouse has dampened my socks.

The wet socks are a minor annoyance, but one that turns my mind to rain as a metaphor for money.

It’s the afternoon of Monday, Nov. 4, and the hearing to determine restitution in the case of the United States of America v. Shan Hanes is 30 minutes late getting started.

This is the $55 million cryptocurrency bank fraud case that last year caused the failure of the Heartland Tri-State Bank of Elkhart. In this very courtroom, three months ago, Judge John W. Broomes sentenced Hanes to 24 years in prison for a single count of felony embezzlement by a bank officer.

Hanes pleaded guilty to using wire transfers from May to July 2023 to embezzle $47 million in what authorities called an online “pig butchering” scheme originating in Asia. The collapse of the bank, which went into FDIC receivership, resulted in the loss of an additional $8 million to the bank’s shareholders.

Hanes, whose first name is pronounced “Shane,” was a community leader in Elkhart, a town of just a couple thousand people 270 miles away from Wichita in the extreme southwest corner of the state. People in Elkhart didn’t just like Hanes, they trusted him. Many of them — his friends and co-workers — had loved him. He was a rainmaker, somebody with a reputation of knowing how to make money. Many of them said as much at his sentencing hearing in August, describing their shock and betrayal over the loss of their investments and retirements.

The judge delayed the second half of the sentencing, the restitution phase, until today. The judge had already ordered the seizure of Hanes’ assets, including his home, which had been sold. But that had amounted to only $40,000. Early expectations for recovering any money from the crypto scam were low, but there was one Tether account the feds seized that still had some money in it.

“While most of the funds were dissipated or transferred beyond the control of investigating agencies,” according to a memorandum submitted to the court by federal prosecutors, “the named account at Tether Limited had contents seized before completely dissipated.”

The amount recovered was $8,071,038.

That any money was recovered was recent news to the shareholders in the case, who said they were alerted to the possibility of meaningful restitution by either a phone call from a reporter, who had been following docket filings in the case, or by the federal victims’ advocate.

The issue to be decided in the restitution hearing was not if the $8 million would be turned over to victims, but rather who had greater claim to the money. There was, of course, the FDIC — the Federal Deposit Insurance Corporation, the agency that insures deposits and manages receiverships when banks fail — which had assumed the $47 million embezzlement loss. Although the FDIC is a government entity, it had asked to be considered as entitled to restitution as a victim, consistent with a 2007 agreement with the Department of Justice in determining criminal restitution in multi-victim cases.

Then there were the employees and investors of Heartland Tri-State Bank.

These included 33 individuals and couples who had lost $4.4 million in investments and $3.9 million in retirement accounts, according to court documents. The biggest investment loss was that of Bill and Sue Tucker, who had $669,197 worth of shares in the bank, about 15% of the total. The hardest-hit retirement account was that of Dian Boaldin, who lost $730,000 in an IRA.

The smallest investor was Charles Tucker, who had 31 shares worth $3,173. The lowest retirement account, at $16,804, was lost by Aaron and Brenda Cromer.

If the $8 million was divided proportionally by loss, as the prosecution suggested, the FDIC would receive 85% — nearly $7 million. The shareholders and employees would get on average less than 15 cents on the dollar.

In the courtroom, about 30 Elkhart residents have gathered to witness the hearing. As they wait for the hearing to begin, they chat among themselves in low tones. U.S. attorney Kate Brubacher sits with them, talking with those near her, answering questions and sometimes using her hands to emphasize a point. In a corner of the courtroom, a white-haired bailiff stands so still in his dark blue uniform as the minutes tick away that he might have been asleep.

Bored, I look upward to see the rosettes and the wheat stalks inlayed in the ceiling and ponder how many cases had been held in the courtroom. How often had justice been served, I wonder. And what was the nature of justice? Was it fairness, following the letter of the law, or something else?

Then the attorneys enter the courtroom — prosecutor Aaron Smith and defense attorney John Stang — and, at 2:05 p.m., the command is issued to rise. Judge Broomes enters the courtroom and takes his seat behind the bench. He wears, as he did when last I was in this courtroom, a yellow bow tie bobbing over the collar of his black robe.

Shan Hanes, the 53-year-old defendant in the case, is not present.

He’s at the federal penitentiary at Leavenworth, according to the U.S. Bureau of Prisons, having done 77 days of a sentence with an official release date of June 1, 2045. Stang, his attorney, tells the judge that it is his client’s wish that the shareholders be given priority.

“He would like to see the people of this community paid back before the FDIC,” Stang says.

“The biggest question here becomes the priority of payment,” the judge says, rocking his chair.

He notes the amount recovered is nearly equal, within a few percent, of the losses incurred by the shareholders and employees. It is his discretion, the judge says, to determine how to prioritize the claims.

“In this case, the evidence is clear this was a local bank operation funded by members of the community,” Broomes says. He says the financial hardships on the Elkhart victims was obvious in the victim statements given during the sentencing hearing in August. “I’m ordering the shareholders in this case be paid restitution before the FDIC recovers anything.”

When the judge says he will read the names and the amounts of the restitution, the prosecutor suggests it’s not necessary, that it would be in the written order. But Broomes wants the list part of the spoken record of the decision.

The judge reads the list, while the Elkhart victims listen intently.

When Broomes is done, he announces the court in recess.

The victims applaud.

“Thank you, judge,” one calls.

Broomes gives no indication he heard and leaves the bench with the same stoicism with which he had arrived.

The Elkhart victims linger in the courtroom, many remarking on how they had never expected anything of substance.

“It was about 70% of my retirement,” Moe Houtz tells me of the $455,226 the judge had ordered restored.

He said he had known Hanes for 30 years, had worked in an adjacent office, but apparently had not known the man.

“What I would really like,” Houtz says, “is in a couple of years to go to Leavenworth and visit with him and just ask him why.”

Jo Johnson, whose mother lost an investment of $118,013, said the restitution would make a real difference to her family. Her mother, Roseanne Panter, is in a care home in Hugoton after they had to sell the family home.

Jim Tucker, the son of major investors Bill and Sue Tucker, had a $144,860 investment himself. He says more important than the any money is the symbolic nature of the decision would have meant to his father, who had been a founder and board chair of the Heartland Tri-State Bank.

“He was so proud of that bank,” Tucker says, tearfully. “It just ate him up what happened.”

Tucker says his 93-year-old father, Bill, was in the Morton County Hospital at Elkhart when he told him that a few million had been recovered from the embezzlement. Bill Tucker was terminally ill and unable to speak, but communicated with nods and an occasional word.

“I got a raised eyebrow,” Tucker says. “Then he kind of shifted in the bed and said, ‘Oh, my.’ ”

He interpreted it as an expression of hope.

Bill Tucker died Oct. 31, four days before the hearing.

“I’m glad I told him,” Tucker says. “It gave him some peace to know his family, his friends, and his neighbors in the community wouldn’t be hurt. This has all been like a dream. It was a nightmare at first, but you’d have to be here to know what it means now.”

Tucker is right.

There is no substitute to witnessing what happens in a courtroom — where hopes and dreams are encouraged or sometimes dashed, where freedom ends for those like Hanes and others are acquitted, where dry statutes are applied to human beings who sweat and bleed and cry.

A dispassionate argument would be that the FDIC deserved the lion’s share of the $8 million recovered, that it was only fair to the taxpayers of the United States. But a greater justice was achieved by restoring the whole of what was recovered to a small community that suffered a significant blow, both financially and emotionally.

The FDIC receives no congressional funding, according to the corporation’s website. It’s an independent agency of the federal government, created in 1933 as a response to the bank failures of the Great Depression, and is funded through insurance premiums to banks and savings associations. Banks failed by the thousands in the 1920s and 1930s, but such failures are rare now. The Heartland Tri-State Bank failure was one of only five in 2023.

So what, exactly, is justice?

That’s the question that has accompanied any discussion of democracy from the very beginning. It is a central theme of Plato’s “Republic.” The conversation continues today, and while it is generally agreed a free society depends on justice, there is no one-size-fits-all definition. Most include the idea that people are treated impartially and fairly. But there is a quality of justice that is elusive, something that transcends statute, and it has to do with discretion. Call it the quality of mercy, I suppose. Democracy is not possible without each of us standing equally before the law — or at least having the ideal that we do. But the measure of a society may be in its discretion to allow, within the bounds of law, sometimes exceptional remedies to particularly egregious wrongs.

Not long ago I said confidently to a friend that I had written my last column about Hanes. But I understand now that I wasn’t really writing about an embezzler or a cryptocurrency scheme, but about a community and the people in it. The bank failure in Elkhart and its aftermath isn’t so much a techno crime story, as the eternal tale of our society grappling with questions of trust and fairness.

To borrow a phrase from the Book of Matthew, rain falls equally on the just and the unjust. Good and sometimes bad things happen to all of us, whether we deserve them or not.

The stories from Elkhart, and elsewhere, will continue, as will the rain.

Max McCoy is an award-winning author and journalist. Through its opinion section, the Kansas Reflector works to amplify the voices of people who are affected by public policies or excluded from public debate. Find information, including how to submit your own commentary, here.