Bank loses $26 million in alleged fraud

Bank loses $26 million in alleged fraud

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A Bismarck bank is trying to get back more than $26 million it claims it lost to a defunct Arizona mortgage lender it did business with.

BNC National Bank filed a complaint in an Arizona court in June alleging fraud by American Mortgage Specialists. In 2006, the bank entered an agreement with the mortgage company to buy interest in mortgages the Arizona company sold and serviced.

According to the lawsuit, however, American Mortgage Specialists — or AMS — diverted BNC’s money that was meant to go toward the purchase of interests in AMS mortgages, and gave the bank false financial statements and other reports about loans BNC was investing in.

In April, BNC demanded $27 million it had paid to participate in the AMS loans, but has not received any.

The state of Arizona revoked AMS’ mortgage broker’s license in June and the company has shut down.

BNC’s suit asks the court to appoint a receiver to recover assets from AMS.

Dave Hoekstra, BNC’s president for its North Dakota operations, said that the bank was insured for such losses up to $15 million and that the bank has remained profitable and financially sound while trying to get back what it paid AMS.

“Right now, we are in the recovery mode,” he said. “We are still considered well-capitalized.”

Hoekstra declined to discuss the case in detail and referred to the bank’s comments in its financial reports.

In a report on its second quarter activities, Gregory K. Cleveland, president and chief executive officer of BNCCORP, said the company was trying to recover the losses.

“We have been pursuing available remedies since we learned of this fraudulent activity and we will continue to do so,” he said. “We have verified that this fraud loss is isolated to the actions of this single servicing company and are not indicative of any other credit quality concerns within our loan portfolio.”

According to the Arizona Corporations Commission website, AMS would be dissolved because it was not maintaining a registered agent with the state. Phone numbers for the company were disconnected or were not answered. According to the records of the clerk of the Superior Court of Maricopa County, AMS has not filed a response to the complaint and did not have an attorney on record. Its website also is not working.

BNCCORP has headquarters in Bismarck but also operates community banks in Minnesota and Arizona and has mortgage banking offices in several Midwest states.

“We maintain ‘well-capitalized’ capital ratios at the bank despite the losses due to the servicing company’s actions,” according to Cleveland’s comments on BNC’s second quarter results. “We will remain focused on improving capital, reducing problem assets and resolving the issues related to the fraud as effectively as possible.”

According to Cleveland, the bank’s non-interest income rose during the period and it was reducing its nonperforming assets.

The second quarter report also states that any fraud was “limited to a single servicing company and that no bank employees were involved in or aware of this wrongful conduct by this servicing company.”

Total assets for BNCCORP at the end of June were $751.1 million, a decrease of $117 million since Dec. 31, 2009, according to the report.

(Reach reporter Christopher Bjorke at 250-8261 or chris.bjorke@bismarcktribune.com.)

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