Criminal Allegations Made Against Oklahoma National Bank
Newsok.com, June 25, 1983
Eighteen instances of alleged criminal wrongdoing at Oklahoma National Bank before it was declared insolvent and sold last fall have been sent to federal prosecutors by the Federal Deposit Insurance Corp. The allegations have, in turn, been forwarded to the FBI for further investigation.
Assistant U.S. Attorney James Bednar, who is handling the Oklahoma National investigation, said FBI agents will determine whether the misdeeds discovered by the FDIC were intentional or due to mistake or negligence.
No evidence concerning the southside bank has been presented to either of two federal grand juries now sitting.
Neither Bednar nor the FDIC would disclose the nature of the allegations or say who was named in them. Sources have told The Oklahoman that the bank's most serious troubles involved its energy lending.
The Oklahoma Securities Commission has alleged violations of securities law by one of the bank's biggest borrowers, the bankrupt Vulcan Oil and Gas Co. Depositions and court records show Vulcan officials used funds from the firm's production account to establish the now-bankrupt Club DAX at NW 63 and May.
Also, two Texas men have accused two bank officers and a Vulcan official of inducing them to establish a company in Oklahoma and borrow $750,000 from Oklahoma National to keep Vulcan afloat.
Troubles at Oklahoma National that resulted in its insolvency have been overshadowed by highly publicized investigations by federal authorities, banking regulators and even Congress into what caused the much larger, crosstown lender, Penn Square Bank, to be closed last July 5.
The FDIC has alleged it discovered 245 instances of criminal wrongdoing at the failed Penn Bank. The second of two federal grand juries was empaneled this spring to hear evidence concerning both that bank's collapse and allegations of bid-rigging on federal highway projects.
Federal sources have confirmed plans to return indictments in the Penn Bank case and explain that the job of looking at all $2.5 billion in loans booked by that bank in recent years has slowed prosecutors' progress in preparing complete cases.
Penn Bank is being liquidated by the FDIC.
Oklahoma National has remained open through a sale arranged by the FDIC on Oct. 3, 1982, when examiners determined the bank's loan losses exceeded its $12 million in Capital and the bank was therefore insolvent.
No precise loss figure was announced, but the FDIC obligated itself to cover loan losses above $19.5 million as part of the purchase arrangement worked out with First Oklahoma Bancorporation.
First Oklahoma Bancorporation, the holding company that owns First National Bank and Trust Co., held a $1.3 million note from Oklahoma National secured by stock in Oklahoma National's holding company.
In the swift takeover, First National made an immediate $11.5 million Capital infusion, and the southside bank remained open.
Bankruptcy court records show that Vulcan Oil and Gas owed Oklahoma National $1,480,000 on notes totaling $5 million when the firm filed for bankruptcy two weeks before Oklahoma National's near-failure.
In his personal bankruptcy petition, Vulcan president J. Rodney Fancher, 45 percent owner of the firm, listed unsecured debts to Oklahoma National of $5.3 million in the form of note guarantees between December 1979 and June 1982. His total debt was listed at $7 million.
DAX Inc. listed a $1 million debt to Oklahoma National in its January petition for reorganization under Chapter 11 of federal bankruptcy laws. The Chapter 11 filing was changed later to a straight Chapter 7 when it was recognized that reorganization wasn't possible for the closed club, court documents state.
Vulcan officials have been sued by the state securities department and dozens of investors for allegedly violating securities laws in operating their oil and gas firm, in particular, their failure to provide investors with certain facts: That one of the firm's founders, the late Ray T. Hanrahan, had been indicted in Texas in 1957 for selling unregistered securities and fraud;
That J. Rodney Fancher and Hanrahan had been general partners in Brokers Associates, a failed Oklahoma limited partnership;
That although investors were told acreage cost would average $20,000, the cost was actually less than that or merely the leasor's royalty interest;
That Vulcan officers arranged for "built-in" profits for themselves regardless of the productivity of the wells by establishing Vulcan Oil Field Service Co. which provided services to Vulcan Oil and Gas. "There was an incentive to complete even marginal wells because the completion itself was profitable."
That Vulcan was paying commissions in the form of carried oil and gas interests to its unregistered salesman and later in cash;
That investors were shown initial production figures or flush figures on wells surrounding Vulcan wells and were never told the flush or initial production figures had no relation to current production of Vulcan wells.
The securities department also alleged that beginning in May of 1981, J. Rodney Fancher began writing checks on Vulcan's production account to himself and other Vulcan officials Reginald Fancher, F. Lee Clayton and James H. Thomas.
In sworn testimony in February, Thomas was asked about those checks by a securities department lawyer.
"We bought together a club and restaurant here in Oklahoma City and we took funds and personally put those in DAX Inc.," Thomas testified.
"So you took funds from one company and moved them over to DAX's to start the company?" he is asked.
"No, they wrote a check to me and I endorsed the check and the check went to DAX's. We didn't take it from one company; it was taken out of our production account."
"Whose money was it?"
"Vulcan Oil and Gas's production, so it was corporate money. We were all owners of the corporation."
Thomas described the money as "bonus and loans" from Vulcan to its officers. "We wanted to put together a fine club and restaurant here in Oklahoma. They were all taken as loans. The reason why we got the loans would be considered as a bonus per se, that, you know, we didn't go to the bank and borrow the money. We had to borrow money from Oklahoma National Bank, too."
Thomas said the amount taken from Vulcan to use at DAX totaled $650,000.
The securities department alleged the diversion of funds from Vulcan to DAX meant Vulcan wasn't paying its bills for drilling and completion costs, and liens were placed on its wells.
One of the firms that claims Vulcan owes it money is Midway Pipe and Supply of Drumright. The firm's owners, Texans Ben E. Irby and Sam H. Snyder, have been sued in federal court by Oklahoma National for collection of two loans totaling $750,000, which the bank and FDIC say are in default.
Texans Irby and Snyder, both of Longview, have filed a counterclaim saying they were tricked into borrowing the money to set up their company by Vulcan official Mike Sims of Houston and former Oklahoma National employees Paul Doughty, who was executive vice president, and loan officer Mark Mitchell.
Irby and Snyder allege their oilfield supply firm served the purpose of supplying equipment to Vulcan on credit at a time when Vulcan had reached its lending limit at Oklahoma National. Vulcan owes Midway $385,000, the suit claims.
The two men, who run a similar oilfield supply operation in Texas, claim Sims persuaded them to open a business in Drumright, promising Vulcan would give them all the business they would need. On Sept. 28, 1981, the Texans borrowed $600,000 from Oklahoma National from Midway to buy land, construct a building and open a business.
The suit alleges that $15,000 of the $600,000 was paid directly to Sims through two cashier's checks issued by Oklahoma National, without the knowledge of Snyder and Irby.
The size of Midway's debt was increased by $150,000 on March 6, 1982, the suit says, at a time when Vulcan owed Midway more than a half million dollars.
"Midway was told by the bank through its officer Doughty not to worry about Vulcan's nonpayments, and was further encouraged to continue to sell to Vulcan on credit, even though the bank knew or should have known that Midway would not be able to recover from Vulcan for inventory and goods sold on credit," the suit states.
Oklahoma National has also sued Sims for recovery of $450,420 in loans on seven promissory notes and for $275,000 on three notes. Sims has countered that no demand was ever made by the bank on the latter three notes and that they have either been renewed or paid off.