Banking & Finance  September 12, 2011

Next chapter in New Frontier Bank saga unfolds

GREELEY – New Frontier Bank’s former president may have blamed the termination of a capital deal on federal regulators, while a bank spokesman said it was more likely an accumulation of things, but the bank’s lawyers are citing a former employee, son of the owner of a customer it is fighting with in bankruptcy court as the real culprit.

By the end of the first week in April, Boulder-based investor group Colorado Financial Holdings had pulled a capital investment of at least $30 million off the table after months of due diligence and working to get regulatory approvals. New Frontier has been operating under a cease-and-desist order issued by the Federal Deposit Insurance Corp. since December that requires, among other things, that the bank shore up its capital levels.

Former President Larry Seastrom asserted in an April 3 interview with the Greeley Tribune that actions by regulators nixed the investment deal. An FDIC spokesman said that the agency does not comment on banks that are still in operation. Seastrom was replaced on April 4 by Vice President of Compliance Wanda Anderson, who will serve as interim president. His removal from the position was a condition of the FDIC order.

Bank spokesman Joe Tennessen said the bank is continuing to work toward a deal to infuse some capital into the bank.

“We still have one or two serious parties,” he explained, adding that CFH was the most serious. Tennessen feels that there wasn’t one issue that busted the deal, but rather a litany of concerns.

Another theory floated

New Frontier lawyers are floating another theory, though. In a third-party claim filed on April 3 in Colorado Bankruptcy Court, New Frontier accuses former bank employee Rodney Johnson of unauthorized access of private bank records. The bank alleges that Johnson then passed the information along to his father John Johnson, owner of Eaton’s Johnson Dairy, and his attorneys. The complaint demands relief from Rodney Johnson for breach of contract, breach of fiduciary duty and misappropriation of trade secrets.

Johnson Dairy and John Johnson, New Frontier customers, filed for Chapter 11 bankruptcy protection in January. The bank claims it is owed around $50 million from the dairy. Additionally, Johnson filed an adversary proceeding in the bankruptcy case against New Frontier; Greg Bell, former chief lending officer at New Frontier; Tim Thissen, New Frontier board member and owner of Thissen Construction; Daniel and Susan Kruse, the sister and brother-in-law of Bell’s fiancé; and William and Carol Bell, Greg Bell’s parents.

According to the complaint, the defendants were all involved in a scheme that allowed New Frontier to continue lending to Johnson Dairy despite being beyond legal lending limits. It alleges a series of transactions from 2003 to 2008 in which the Kruses and the Bells received loans from New Frontier to purchase cows from Johnson, which were immediately leased back to the dairy.

The “cow-lease agreements,” according to the complaint, were actually disguised financing agreements that allowed the Kruses and the Bells to collect about 8 percent to 9 percent above their cost of the loan from New Frontier. The complaint alleges that Greg Bell was responsible for arranging the deals and benefited from them through “kickbacks” kept in a joint account held by him and his fiancé, Brenda Frank – the sister of Susan Kruse.

Further complication

The third-party claim by New Frontier now further complicates the case. As part of its case against Rodney Johnson, New Frontier claims that while serving as an agricultural lender for the bank Johnson accessed the records of the defendants in his father’s case – passing information along to John Johnson and his attorneys. Rodney Johnson most recently served as CFO of Johnson Dairy.

“Due to, in part, disclosures made by Johnson, without authority and in violation of NFB’s policies and procedure manuals, the state of Colorado bank customer privacy laws, and federal laws and regulations relating to the confidentiality of examiner reports, the third party investor has determined not to make an investment in New Frontier Bancorp,” the complaint asserts. Calls to Johnson Dairy and its attorney were not returned in time for publication of this story.

On the same day it filed the third-party claim, New Frontier entered an answer to the Johnson Dairy adversary case. The bank denies acting outside the scope of normal banking practices. In the case of the cow-lease agreements, the bank “affirmatively alleges that it sought outside bank counsel’s opinion on the appropriateness and legality … and was informed that such leases were appropriate and lawful.

The bank also asserts that the deposition of Greg Bell for the case was the first time bank officials knew of his joint bank account with Brenda Frank or that Frank might have an interest in the Kruse cow leases.

As part of the FDIC order, New Frontier had to replace Bell as chief lending officer, but the bank initially kept him on as an agricultural lender. Tennessen said on April 7 that Bell was no longer an active employee of the bank.

This isn’t the first time that the bank has learned some new information about one of its employees through a deposition. In 2005, former bank officer Fred Allison was deposed in a case in which he admitted to forgery, theft and misappropriation of bank customers’ money. The bank ended up settling at least three claims related to Allison.

Allison pleaded guilty on Dec. 7, 2005, to class-four felony theft and was sentenced to 10 years of probation with two years of work release. He was barred by regulators from future work in the banking industry.

In June 2008, Allison was resentenced to Community Corrections for five years for violating his probationary sentence. On March 31, Allison admitted to violating his Community Corrections sentence and received five years in the Colorado Department of Corrections. He was given credit of almost two-and-a-half years for time served.

GREELEY – New Frontier Bank’s former president may have blamed the termination of a capital deal on federal regulators, while a bank spokesman said it was more likely an accumulation of things, but the bank’s lawyers are citing a former employee, son of the owner of a customer it is fighting with in bankruptcy court as the real culprit.

By the end of the first week in April, Boulder-based investor group Colorado Financial Holdings had pulled a capital investment of at least $30 million off the table after months of due diligence and working to get regulatory approvals. New Frontier has…

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