Federal prosecutors began laying out their fraud case Tuesday against First NBC Bank founder Ashton Ryan, calling as witnesses former executives who questioned the decisions to make massive loans to a small cadre of borrowers in the years before the bank’s 2017 collapse.

Assistant U.S. Attorney Matthew Payne told jurors during his opening statement that Ryan and his co-defendant, bank vice president Fred Beebe, were part of a broad conspiracy that played out over several years.

He alleged that in order to enrich himself and business partners, Ryan made loans to unworthy borrowers and then falsified documents to cover up that those loans were going sour.

“The evidence will show that the defendants, Ashton Ryan and Fred Beebe, weren’t honest and made false statements to lend money to borrowers who couldn’t pay their debts and had a special relationship to Ashton Ryan,” Payne said.

Altruism or fraud?

Ryan faces charges including bank fraud, conspiracy, and creating false entries in bank records. Beebe faces seven charges on the same indictment, all of which are related to loans made to six borrowers who have taken guilty pleas in the case.

Ryan and Beebe have both pleaded not guilty to the charges. In opening statements, as well as cross examinations of witnesses Tuesday, attorneys for the two men painted a very different picture of their actions. 

Ryan’s attorney Edward J. Castaing, Jr., didn’t dispute that hundreds of millions of dollars in bad loans were racked up by a small number of borrowers over the decade from the bank’s founding in 2006. But Castaing said his client had founded First NBC after Hurricane Katrina with altruistic intentions even if he had perhaps been too lenient with some of the bank’s borrowers.

“Every loan that Ashton Ryan made, he expected and believed it to be a good loan that would be paid back with interest, fees, profits, all to the benefit of the bank,” Castaing told jurors.

He made the loans “to the benefit of the borrowers, too, yes, maybe to a fault,” Castaing added. But it was “to help borrowers rebuild after Katrina and help them get loans they couldn’t get from the Whitneys of this world, the Cap Ones,” he said, referring to Hancock Whitney Bank and Capital One.

Beebe’s lawyer, Sara Johnson, sought to distance her client from the alleged conspiracy. Beebe was a relatively junior vice president working from a Kenner branch of the bank, she said, noting that he had not joined First NBC Bank until 2009.

The charges against Beebe relate solely to loans that were made to Warren Treme, one of the developers who was approved to borrow millions of dollars from the bank even though he was getting deeper under water.

Johnson said that Beebe was essentially duped, and that Treme’s loans were dumped on him when he joined the bank.

“Everyone dumped their junk on the new guy,” said Johnson, leaving Beebe with Treme’s bad loans, which already totaled in the millions of dollars and were above Beebe’s authority to approve or deny.

‘In a mess’

Carl J. Chaney, a former President and CEO of Hancock Whitney Bank who was brought into First NBC Bank in February 2017 as CEO to replace Ryan, was the first witness to be called by the government.

“It was in a mess,” Chaney said of First NBC when he stepped in to try and right the ship. Regulators shut it down two months after he took over.

Assistant U.S. Attorney Nicholas Moses’ questions for Chaney aimed at establishing that the bank turned out to be in a much worse state than he thought when he joined.

“I knew it was in trouble and we needed to raise some capital, the question was how much capital,” said Chaney. “I had thought we needed about $150 million based on the documents I got initially,” but he said that quickly ballooned to $250 million and then kept going higher until regulators seized the bank at the end of April.

He noted that he had come across a pattern of large loans to some of the borrowers who accounted for the bulk of bad loans at the bank, including a series of loans to Mississippi developer Gary Gibbs, who has since pleaded guilty to bank fraud.

“Gibbs was one (borrower) who jumped out to me. It was a very, very large credit, an extremely large loan to be made for a bank of this size,” Chaney said. “I saw personally 17 $1 million loans made to this borrower in one year.”

Chaney said another surprise was that the bank had agreed to pay $30,000 a month to lease a vacant lot on Robert E. Lee Boulevard (now Allen Toussaint Boulevard). “I remember asking, ‘Why in the world would we agree to that?'”

Records available

In cross examination, Castaing sought to demonstrate that no records of these transactions were hidden, part of a legal strategy that appears aimed at showing that others were aware of Ryan’s loans and that the proper paperwork was available.

Chaney agreed that he had learned about the bad loans from the bank’s own books and records.

“They were available for you for your due diligence, weren’t they?” Castaing asked. “And there for the auditors and for the bank examiners?”

The questioning echoed Castaing’s opening statements, which acknowledged that there were large loans made to a few borrowers — including some who were business partners with Ryan in other ventures — but argued that reckless lending isn’t fraud and that the records were there for the bank’s board and outside auditors to see.

The prosecution’s final witness on Tuesday was Dean Haines, a longtime employee of Ryan’s at two previous banks before he joined him to start First NBC in 2006.

Haines had been the top account executive at both First Bank and Trust and then at First NBC, before he became a government whistleblower when the bank collapsed.

In testimony, he said he had also been asked by the board in late 2016 to review loans and determine how deep the hole was in terms of bad loans to the small group of borrowers.

Haines said he came up with a figure of over $440 million of bad debt to just a dozen borrowers.

In cross-examination, Haines said that he had followed Ryan to work for him throughout his career and was still a big admirer.

Haines also agreed that the files he reviewed to determine the size of the debt hole were not concealed.