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What took down this Kansas bank? It’s a secret, but what saved depositors isn’t.

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What took down this Kansas bank? It’s a secret, but what saved depositors isn’t.

Sep 24, 2023 | 4:33 am ET
By Max McCoy
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What took down this Kansas bank? It’s a secret, but what saved depositors isn’t.
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In late July, the Heartland Tri-State Bank of Elkhart failed because of what a state regulator called a "huge scam." The FDIC brokered a deal with Dream First for the bank, shown here in September 2023. (Max McCoy/Kansas Reflector)

ELKHART — The last time a bank robbery here made headlines was 1932.

It was the depth of the Great Depression and Elkhart, a farming town nestled in the far southwest corner of Kansas, was struggling. Elkhart and its neighbors in Colorado and the Oklahoma Panhandle were the center of the Dust Bowl, caused by prolonged drought and poor soil conservation. The storms had begun in 1930, great clouds of choking dust rolling over the landscape, and would peak in 1935. Plagues of jackrabbits would also come, chewing the bark from the trees, and would be clubbed to death in massive drives.

On July 14, 1932 — about the time Bonnie and Clyde got serious about robbing banks — Elkhart became a statistic in a national crime wave when gunmen hit the First National Bank downtown.

A bank customer, J.T. Kivell, who was hard of hearing, failed to raise his hands when commanded and was grazed by a shot fired by one of the bandits. Kivell’s scalp wound was not serious, but he fell and broke his hip. Once outside, the robbers were fired upon by one Reed Garton, manager of the electric light company across the street, who had heard the shot from inside the bank and armed himself. Don Welch, the owner of a local hardware store, grabbed a deer rifle and joined in.

The three outlaws escaped in a green coupe, according to an Associated Press report in the Wichita Eagle, and at least one of them was believed to be badly wounded by shots fired by vigilantes Garton and Welch. A dollar bill “smeared with blood” was found on the road south toward the panhandle.

The amount of loot taken, according to bank officials, was $853, minus the bloody dollar.

 

A dust storm approaches Elkhart
A dust storm approaches Elkhart in this 1937 Farm Security Administration photo. (Library of Congress)

Fast forward 91 years

The Heartland Tri-State Bank of Elkhart failed this July 28. While the bank wasn’t targeted by gunmen who terrorized customers and then fled amid a hail of bullets, what happened appears to have been no less of a crime. According to a state bank regulator, the institution fell victim to a “huge scam” that resulted in its failure.

Heartland was the fourth bank to fail in the U.S. in 2023, following Silicon Valley Bank in California; Signature in New York; and First Republic, also in California. Silicon Valley and Signature were the two of largest bank failures in history, and both folded because they relied on risky funding to support rapid growth, according to the Government Accountability Office. Together, these banks had more than $300 billion in assets.

Heartland was the smallest failure of the year, with only $139 million in assets.

After state regulators closed the bank, the FDIC stepped in and brokered a deal to sell Heartland and its three branch locations to Dream First Bank of Syracuse, another regional institution in western Kansas. Customers of Heartland were automatically transferred to Dream First and nobody lost their deposits. The cost of the closure was estimated by the FDIC to be $54 million and would be borne by the Deposit Insurance Fund, which was created by Congress in 1933.

Heartland, according to a news release from the Office of State Bank Commissioner, “became insolvent due to an isolated event. Overall, the Kansas banking industry is unaffected by this event and Kansas banks remain strong.”

While bank robberies were a national epidemic in 1932, they are currently near an all-time low. There were 1,546 robberies in the U.S. in 2021, according to the most recent data from the FBI. The most frequent M.O. was a demand note, according to the FBI, and in most cases a weapon or a threat of a weapon was used. The FBI’s Bank Crime Statistics report doesn’t have a category for fraud, online scams or “isolated events.”

 

A guitar-playing Elvis mannequin
A guitar-playing Elvis mannequin decorates the window of a shop in downtown Elkhart in September 2023. (Max McCoy/Kansas Reflector)

‘A stink in the air’

On a recent Thursday, everything seemed normal in Elkhart except for the weather, which has been unusually rainy. Elkhart, population 1,884, is the farthest city from Topeka in the state, at 393 highway miles. The former Heartland bank building, in the shadow of the grain elevator, was open for business and a new sign proclaimed it a “Dream First” location. It was a slow day downtown, and the shopkeepers I talked to agreed the closing of Heartland had been a shock, but no real information about what caused the failure had been released.

None wanted to be quoted, however.

A woman serving tables at a cafe said there were lots of conspiracy theories swirling in the days after the bank’s closing, but she didn’t think any of her customers had any inside knowledge. What she did know, she said, is that a “stink in the air” lingered.

David Herndon, the Kansas bank commissioner, told me he couldn’t comment on what pushed Heartland into insolvency because he didn’t know. He suggested contacting the FDIC for an update. An FDIC spokesman said the agency “will conduct a review any time a bank fails” and “defers to law enforcement on investigations.” The spokesman suggested I contact the Federal Reserve Board, the federal regulatory agency for banks. A request for comment from the Federal Reserve was not returned.

Shan Hanes, the former president and CEO of Heartland, also did not respond to calls or emails.

 

Elkhart was founded in 1913,
Elkhart was founded in 1913, the same year this stone was placed in the facade of what was one of the town’s first banks. (Max McCoy/Kansas Reflector)

‘Cash lying in the seat’

Hanes was recently president of the Kansas Bankers Association and testified before Congress a few years ago in an effort to roll back bank regulation passed after the 2008 financial crisis. In his remarks, he stressed to a subcommittee on small business the trusting nature of people in Elkhart and relatively low-risk lifestyle.

“I have been very proud be an Ag banker in a rural community for 20-plus years,” Hanes said. “There are days we can still get in our unlocked pickup truck to go to work in the morning and have cash lying in the seat. We simply take it to work as it is a payment from a customer who will call us eventually and tell us which of their loans to apply it to.”

One of the bank’s customers, he said, won a “multi-million” dollar lottery but didn’t feel safe holding it over the weekend, so the customer took it to his loan officer.

“He did not want us to put it in the vault,” Hanes said. “He just wanted (the loan officer) to hold the lottery ticket for him over the weekend. That is community banking. That is what it means to be a community rural banker.”

He went on to plead for relief from “overburdensome” regulations in the Dodd-Frank Act that cost additional time and money and had hampered Heartland’s ability to compete with larger banks.

“The lending decision should be made locally to customers by their community bank,” Hanes told the subcommittee, “not by rules and regulations from Washington, D.C., that does not understand my business or my customers.”

Now, apparently, few understand what business Heartland was engaged in. I certainly would like to understand it, but was blocked by state and federal officials. They seemed to treat the Heartland scam as a matter of national security.

And it just might be.

 

Downtown Elkhart, Kansas,
Downtown Elkhart still has many of the buildings it did during the Great Depression. In 1932, the First National Bank here was robbed by the Ray Majors gang. (Max McCoy/Kansas Reflector)

‘Pig butchering’

Herndon, the state bank commissioner, said he couldn’t comment on the reasons for the bank failure. But he suggested I take a look at a recent FinCEN alert about an online scam called “pig butchering.”

FinCEN (for Financial Crimes Enforcement Network) is a bureau of the Treasury Department. Its mission is to safeguard the financial system by keeping tabs on transactions, disseminating data to law enforcement, and building cooperation with counterparts around the globe. The alert Herndon directed me to, dated Sept. 8, described an international scheme often using cryptocurrency to steal billions of dollars from unsuspecting victims in the U.S.

It’s called “pig butchering,” according to the alert, because it resembles the practice of fattening a hog before slaughter. The “pigs” are the victims manipulated by online scammers who use fictitious identities with elaborate storylines to gain trust and fatten the stakes. The bait for the victim is easy profit through investment in virtual or foreign currencies. The schemes are often run from Southeast Asia, the alert says, managed by organized crime, and typically exploit those who are victims of human trafficking to initiate the scam through texts and direct messaging on social media.

A ProPublica piece last year examined the use of human trafficking in the scheme.

Now, I don’t know if the “huge scam” that took down the Heartland bank was this kind of scam or not, but it certainly seems a contender. I had never heard of “pig butchering” before the Heartland failure, and it’s such a depressing scam I almost wish I didn’t know about it now. All confidence schemes exploit trust — and greed, of course — but it seems worse to me that a bank in Elkhart, which weathered the Great Depression and the Dust Bowl, may have fallen victim.

Thank God for the 1933 Banking Act that created the FDIC and the fund used to cover the millions lost in the Heartland failure. That no customers lost a dime of their savings seems to me the best argument for bank regulation one could make.

The Great Depression — its tribulations and the banking and other reforms that came after — continues to be relevant in Elkhart and every other city in America. It’s been nearly a century since those hard times, but our appetite for economic growth should be tempered with the lessons of what greed and a little bad luck can do — and the realization that regulations like Dodd-Frank are necessary to protect consumers and institutions alike.

What happened to our bandits who robbed the First National Bank in 1932?

Two of them were captured on a farm southwest of Coffeyville about three weeks after the robbery, according to the Weekly Kansas City Star. Four others, including a former Sedgwick County deputy sheriff, had previously been arrested on a variety of charges in connection with the robbery. The gunman wounded by the vigilante barrage in Elkhart, Ray Majors, the leader of the gang and a supposedly “reformed” bank robber, was in an Oklahoma hospital with chest wounds. Another bandit, Fred Langley, had lost most of his right calf by an accidental discharge from a shotgun held by Majors during their flight from Elkhart.

Majors, after being convicted for his part in the robbery, died in prison.

I wish the same fate on whoever perpetrated the scam on the Heartland bank.

What took down this Kansas bank? It’s a secret, but what saved depositors isn’t.
Railroad tracks run toward a seemingly infinite horizon northeast of Elkhart, in far southwest Kansas. (Max McCoy/Kansas Reflector)

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.