UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION FRANKFORT V. INDICTMENT NO. * * * * * COUNT 1 18 U.S.C.

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1 UNITED STATES OF AMERICA UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION FRANKFORT V. INDICTMENT NO. LEE C. TEVIS THE GRAND JURY CHARGES: * * * * * COUNT 1 18 U.S.C INTRODUCTION At all times material to the counts of this indictment: 1. American Founders Bank ( AFB ) was a financial institution as defined by Title 18, United States Code, Section 20, with deposits insured by the Federal Deposit Insurance Corporation. 2. LEE C. TEVIS was a builder who owned and/or operated a number of Limited Liability Corporations. TEVIS maintained business and personal accounts at AFB. 3. JAMES B. TATE was a Vice President and loan officer at AFB. In March 2006, TATE became market president of AFB s Frankfort office. As a loan officer, TATE had lending limits set by federal law and bank policies and procedures. 4. Prior to April 24, 2006, JAMES B. TATE s lending limit was $750,000 secured aggregated debt. It was thereafter increased to $1,000,000 secured aggregated debt.

2 TATE could not legally authorize any loan in excess of these amounts. 5. AFB operation policies required that all aggregated debt in excess of $1,000,000 be approved by the AFB Executive Committee. 6. In early 2005, JAMES B. TATE decided to build a house in Frankfort, Kentucky (the TATE House). LEE C. TEVIS agreed to be the builder. TEVIS thereafter established another limited liability company, Lee C. Tevis Custom Homes 101, LLC, to obtain loans from AFB. 7. On June 20, 2005, JAMES B. TATE approved a loan to Lee C. Tevis Custom Homes 101, LLC for $575,000 to construct a contract house. Although it was understood the house was for TATE, no contract was ever signed. 8. Also on June 20, 2005, JAMES B. TATE approved a loan to Edge Custom Homes LLC for $425,000. This loan was to purchase a lot for the construction of the TATE house. 9. LEE C. TEVIS and JAMES B. TATE caused these loans to be issued to Edge Custom Homes LLC and Lee C. Tevis Custom Homes 101, LLC to circumvent Tate s lending limits. 10. Significant changes and cost overruns occurred during the construction of the TATE House. For example, the house expanded from a planned 5,700 square feet to over 11,000 square feet. Changes to the design and the materials to be used occurred. Additionally, LEE C. TEVIS co-mingled funds for the TATE House with other construction projects. As a result, the original loans proved inadequate and additional funds were needed to complete the TATE House. 2

3 THE CONSPIRACY 11. From in or about September 2006, the exact date unknown, continuing through April 2007, in Franklin County, in the Eastern District of Kentucky and elsewhere, LEE C. TEVIS, JAMES B. TATE, and others conspired to commit an offense against the United States, to wit: bank fraud, that is, to knowingly execute a scheme and artifice to defraud a financial institution and to obtain any of the moneys, funds, credits, assets, securities and other property owned by, and under the custody and control of a financial institution, by means of materially false and fraudulent pretenses, representations and promises, in violation of 18 U.S.C THE PURPOSE OF THE CONSPIRACY 12. By the fall of 2006, the allotted construction funds from June 20, 2005, for the TATE House were gone and the house had not been completed. 13. As a result, in September 2006 LEE C. TEVIS and JAMES B. TATE developed a scheme to obtain additional funds for the TATE House. 14. It was the purpose of the conspiracy for LEE C. TEVIS and JAMES B. TATE to conceal the loans being made to TEVIS in many ways, including funding nominee loans to a shell corporation, while the true recipient was LEE C. TEVIS, and extending new loans to cover payment shortfalls. THE WAYS, MANNER AND MEANS OF THE CONSPIRACY 3

4 The ways, manner and means, as well as the overt acts, by which the conspirators sought to accomplish the conspiracy included, but were not limited to, the following: 15. In September 2006, JAMES B. TATE asked LEE C. TEVIS if TEVIS knew anyone they could get to form another limited liability company for the purpose of establishing a nominee borrower. 16. LEE C. TEVIS thereafter directed his construction foreman, R.M., to create Two Amigos L.L.C. TEVIS knew R.M. was in the United States illegally. 17. LEE C. TEVIS directed and assisted R.M. in setting up Two Amigos L.L.C. For example, because R.M. was an illegal alien and did not have a valid social security number, TEVIS helped R.M. to establish Two Amigos L.L.C. by using TEVIS s social security number to obtain an Employer Identification Number for Two Amigos L.L.C. 18. Two Amigos L.L.C. was organized in Kentucky on September 15, In order to fund a loan to Two Amigos L.L.C., JAMES B. TATE needed a valid social security number to run a credit check on R.M. to fund the loan at AFB. TATE could not use LEE C. TEVIS s social security number because TATE did not have the authority to issue any additional loan to TEVIS. TEVIS therefore asked R.M. about R.M. s five year old son, who was born in the United States and had a valid social security number. 20. R.M. provided his minor child s social security number to LEE C. TEVIS and JAMES B. TATE to be used in R.M. s credit application to AFB. 21. On September 15, 2006 the same date Two Amigos L.L.C. was incorporated in Kentucky AFB funded the company with an unsecured note for $100,000. Two Amigos 4

5 L.L.C. had no assets on September 15, The proceeds of this loan were disbursed from the Two Amigos L.L.C. s Demand Deposit Account as follows: Date: Check #: Payee: Memo: Amount: 09/15/2006 Cash R.M. None $10,000 09/15/2006 Counter Check J.O.A. Stone 103 $2,500 09/19/2006 Counter Check Edge Custom Flooring $26,430 Homes/Lee C. Tevis 09/22/ Lee Tevis DDA Tile and backer $15,120 9/29/2006 Transfer J.T. (Lee Tevis relative) board None $5,000 10/01/ Edge Custom Re: B. supplies $29,130 Homes/Lee C. Tevis 11/03/2006 Cash R.M. None $2,700 11/16/2006 Cash R.M. None $1,000 11/1/ Harrod Stone Stone $ /03/ Sherwin Williams Paint $ /07/ S.D. COD M /13/ Harrod Concrete and Stone Co. $143 Stone $ Having spent the September 15, 2006, loan, LEE C. TEVIS and JAMES B. TATE needed additional funding to finish the TATE House. Therefore, on December 13, 2006, TATE extended an additional $300,000 to Two Amigos L.L.C. 24. The funds from the December 13, 2006, Two Amigos L.L.C. loan were disbursed from 5

6 the company s Demand Deposit Account as follows: Date: Check #: Payee: Memo: Amount: 12/13/ Lee C. Tevis None $75, /19/ Edge Custom None $25, Homes/Lee C. Tevis 12/21/ Lee C. Tevis None $25, /30/ Lee C. Tevis None $25, ($4, Cash out) 01/18/ Lee C. Tevis None $20, ($4, Cash out) 01/26/ Lee C. Tevis None $20, ($4, Cash out) 02/08/ Lee C. Tevis None $20, The checks were then deposited to the Lee C. Tevis Custom Homes account, less cash out. 26. Despite the additional $300,000, LEE C. TEVIS still had not completed construction of the TATE House. TEVIS and JAMES B. TATE therefore sought additional funds from AFB. 27. On March 1, 2007, JAMES B. TATE funded Two Amigos L.L.C. a third note for $995,000. A certified check of $650,000 made to Two Amigos L.L.C. was deposited in a Central Bank Account controlled by LEE C. TEVIS. 28. Within three months the $650,000 was disbursed. LEE C. TEVIS wired $204,543 to AFB through the Lee C. Tevis 101, LLC account. TEVIS then paid off three personal notes as follows: 6

7 Date: Descr: Loan #: Principal: Interest and Amount: fees: 3/15/07 H.S.T $50,000 $1, $51, /15/07 Lee Tevis $50,000 $ $50, /15/07 Lee Tevis $100,000 $2, $102, The March 1, 2007 loan was also used to pay off the December 13, 2006 note for $300,000 to Two Amigos L.L.C. and accrued interest, as well as accrued interest on a loan to Lee C. Tevis Custom Homes. 30. On March 1, 2007, JAMES B. TATE presented LEE C. TEVIS and R.M. with separate releases for their personal guarantees signed on behalf of Two Amigos L.L.C. and Lee C. Tevis Custom Homes 101, LLC. TATE described the releases as their get out of jail free card. 31. In April 2007, AFB suspended JAMES B. TATE s lending authority. TATE resigned from employment effective April 30, AFB subsequently foreclosed on the TATE House, which was sold at a significant loss. All in violation of 18 U.S.C COUNT 2 18 U.S.C U.S.C. 2 From on or about September 15, 2006, through March 7, 2007, in Franklin County, in the Eastern District of Kentucky and elsewhere, LEE C. TEVIS, 7

8 being aided and abetted by others, knowingly executed a scheme and artifice to defraud American Founders Bank, a financial institution that was insured by the Federal Deposit Insurance Corporation, and to obtain moneys, funds, credits, assets, securities and other property owned by, and under the custody and control of American Founders Bank, by means of materially false pretenses, representations, and promises, which scheme and artifice, and the execution thereof, was in substance as follows: 1. Beginning on September 15, 2006, and continuing through March 7, 2007, LEE C. TEVIS arranged for Two Amigos L.L.C. and R.M. to fraudulently obtain loans from AFB. Even though the loans were made to Two Amigos L.L.C., the recipient of the funds was actually TEVIS. 2. In particular, on or about September 15, 2006, LEE C. TEVIS caused a loan application to be submitted to AFB that contained materially false representations or omissions and caused AFB to fund a $100,000 loan to Two Amigos L.L.C. 3. On or about December 13, 2006, LEE C. TEVIS caused a loan application to be submitted to AFB that contained materially false representations or omissions and caused AFB to fund a $300,000 loan to Two Amigos L.L.C. 4. On or about March 1, 2007, LEE C. TEVIS caused a loan application to be submitted to AFB that contained materially false representations or omissions and caused AFB to fund a $995,000 loan to Two Amigos L.L.C. 5. Among other things, each of the above loans were made to a nominee borrower. Additionally, the loan applications contained the social security number of an individual 8

9 who was not a party to the loan. Moreover, some of the proceeds of the loan applications were used for purposes other than construction of the TATE House. All in violation of 18 U.S.C and 2. Kentucky, COUNT 3 18 U.S.C U.S.C. 2 On or about September 15, 2006, in Franklin County, in the Eastern District of LEE C. TEVIS, aided and abetted by James B. Tate, knowingly made a false statement for the purpose of influencing the action of American Founders Bank, an FDIC insured institution, in that TEVIS caused AFB to approve a $100,000 loan to nominee borrower Two Amigos L.L.C., and its member, R.M., utilizing a social security number purporting to belong to R.M., when in truth and in fact, as TEVIS well knew, R.M. did not have a valid social security number and the social security number used belonged to an individual not a party to the loan, all in violation of 18 U.S.C and 2. Kentucky, COUNT 4 18 U.S.C U.S.C. 2 On or about December 13, 2006, in Franklin County, in the Eastern District of LEE C. TEVIS, aided and abetted by James B. Tate, knowingly made a false statement for the purpose of 9

10 influencing the action of American Founders Bank, an FDIC insured institution, in that TEVIS caused AFB to approve a $300,000 loan to nominee borrower Two Amigos L.L.C., and its member, R.M., utilizing a social security number purporting to belong to R.M., when in truth and in fact, as TEVIS well knew, R.M. did not have a valid social security number and the social security number used belonged to an individual not a party to the loan, all in violation of 18 U.S.C and 2. COUNT 5 18 U.S.C U.S.C. 2 On or about March 1, 2007, in Franklin County, in the Eastern District of Kentucky, LEE C. TEVIS, aided and abetted by James B. Tate, knowingly made a false statement for the purpose of influencing the action of American Founders Bank, an FDIC insured institution, in that TEVIS caused AFB to approve a $995,000 loan to nominee borrower Two Amigos L.L.C., and its guarantor, R.M., utilizing a social security number purporting to belong to the guarantor, when in truth and in fact, as TEVIS well knew, the guarantor did not have a valid social security number and the social security number used belonged to an individual not a party to the loan, all in violation of 18 U.S.C and 2. Kentucky, COUNT 6 18 U.S.C U.S.C. 2 On or about September 15, 2006, in Franklin County, in the Eastern District of 10

11 LEE C. TEVIS, aided and abetted by James B. Tate, an officer and employee of American Founders Bank (AFB), a financial institution that was insured by the Federal Deposit Insurance Corporation, with intent to defraud AFB, willfully misapplied, embezzled, abstracted and purloined moneys, funds, and credits entrusted to the custody and care of AFB, in that TEVIS and TATE caused AFB to fund a $100,000 loan knowing the recipient and guarantor were nominee borrowers for TEVIS, and that a portion of the loan proceeds would be used for TEVIS s benefit, all in violation of 18 U.S.C. 656 and 2. Kentucky, COUNT 7 18 U.S.C U.S.C. 2 On or about December 13, 2006, in Franklin County, in the Eastern District of LEE C. TEVIS, aided and abetted by James B. Tate, an officer and employee of American Founders Bank (AFB), a financial institution that was insured by the Federal Deposit Insurance Corporation, with intent to defraud AFB, willfully misapplied, embezzled, abstracted and purloined moneys, funds, and credits entrusted to the custody and care of AFB, in that TEVIS and TATE caused AFB to fund a $300,000 loan knowing the recipient and guarantor were nominee borrowers for TEVIS, and that a portion of the loan proceeds would be used for TEVIS s benefit, all in violation of 18 U.S.C. 656 and 2. 11

12 COUNT 8 18 U.S.C U.S.C. 2 On or about March 1, 2007, in Franklin County, in the Eastern District of Kentucky, LEE C. TEVIS, aided and abetted by James B. Tate, an officer and employee of American Founders Bank (AFB), a financial institution that was insured by the Federal Deposit Insurance Corporation, with intent to defraud AFB, willfully misapplied, embezzled, abstracted and purloined moneys, funds, and credits entrusted to the custody and care of AFB, in that and TATE caused AFB to fund a $995,000 loan knowing the recipient and guarantor were nominee borrowers for TEVIS, and that a portion of the loan proceeds would be used for TEVIS s benefit, all in violation of 18 U.S.C. 656 and 2. Kentucky, COUNT 9 18 U.S.C. 1028A On or about September 15, 2006, in Franklin County, in the Eastern District of LEE C. TEVIS did knowingly use, without lawful authority, a means of identification of another person, that is, the social security number of J.M., during and in relation to violations of 18 U.S.C. 1344, 1014, and 656, all in violation of 18 U.S.C. 1028A. COUNT U.S.C. 1028A On or about December 13, 2006, in Franklin County, in the Eastern District of 12

13 Kentucky, LEE C. TEVIS did knowingly use, without lawful authority, a means of identification of another person, that is, the social security number of J.M., during and in relation to violations of 18 U.S.C. 1344, 1014, and 656, all in violation of 18 U.S.C. 1028A. COUNT U.S.C. 1028A On or about March 1, 2007, in Franklin County, in the Eastern District of Kentucky, LEE C. TEVIS did knowingly use, without lawful authority, a means of identification of another person, that is, the social security number of J.M., during and in relation to violations of 18 U.S.C. 1344, 1014, and 656, all in violation of 18 U.S.C. 1028A. FORFEITURE ALLEGATION 18 U.S.C. 981(a)(1)(C) 28 U.S.C U.S.C. 982(a)(7) As a result of the offenses alleged in Counts 1-8 of this Indictment, LEE C. TEVIS shall forfeit to the United States any property, real or personal, which constitutes or is derived from proceeds traceable to bank fraud, false statements, and misapplication of bank funds as alleged in Counts 1-8, including, but not limited to: 13

14 MONEY JUDGMENT: A sum representing the gross proceeds in aggregate obtained by the defendant as the result of the aforestated violations of 18 U.S.C. 1349, 1344, 1014, and 656. By virtue of the commission of the offenses charged in Counts 1-8 of this Indictment, any and all interest LEE C. TEVIS has in the above-described property is vested in the United States and hereby forfeited to the United States pursuant to 18 U.S.C. 981(a)(1)(C), 1982(a)(7), and 28 U.S.C If any of the property listed above, as a result of any act or omission of the defendantsa. cannot be located upon the exercise of due diligence; b. has been transferred to, sold to, or deposited with a third person; c. has been placed beyond the jurisdiction of the Court; d. has been substantially diminished in value; or e. has been commingled with other property which cannot be subdivided without difficulty; it is the intent of the United States to seek forfeiture of any other property in which the defendant has interest, up to the value of the judgment described above, including but not limited to the following property: 104 Kiawah Court, Georgetown, Kentucky; 107 Valhalla Place, Georgetown, Kentucky; 165 Schoolhouse Road, Bloomsburg, Pennsylvania; and 14

15 2143 Fishers Mill Road, Georgetown, Kentucky. A TRUE BILL FOREPERSON _ KERRY B. HARVEY UNITED STATES ATTORNEY 15

16 PENALTIES COUNTS 1-8: COUNTS 9-11: PLUS: PLUS: Not more than 30 years imprisonment, $1,000,000 fine, and 5 years supervised release. Mandatory term of imprisonment of two years. The term is to run consecutively for one count, but may run concurrently for multiple counts. 18 U.S.C. 1028A(b)(2)(4). Mandatory special assessment of $100 per count. Restitution, if applicable. 16