Educate on the potential consequences that follow from BNC National Bank’s TARP Funds Fraud (Troubled Asset Relief Program).
About the Author:
My name is Joshua McCarty. I am a Freelance Videographer. I make films to bring awareness to
important subjects that occur within the world. In 2007 I was incarcerated because I thought I was
smarter than the people I was trying to deceive. This thinking caused me to go to prison for six years. I
spent those six years rebuilding myself mentally and started to develop healthier thinking habits. Since
my release, I have graduated from college with an Associate’s Degree in Human Resource Management
and will be furthering my education.
Upon completion of this Case Study, participants will be able to:
- Understand aspects of bank and wire fraud.
- Describe potential penalties for forging documents.
- Identify options one can take to prevent committing fraud.
- Explain why it’s critical to actively supervise the actions of third party partners.
- Recognize behavioral patterns that can lead to illegal activity.
Individuals in the banking industry, with an emphasis on those who work in mortgage lending
Mortgage, BNC National Bank, Powers, McMaster, Fraud.
Current State of the Industry:
Financial crises leave a dramatically heavy impact on the economy, as an economic downturn leads to
foreclosures, business shutdowns and soaring unemployment rates. Under these circumstances,
sometimes people feel pressured, and even obligated, to make desperate decisions to keep their
livelihood afloat. Desperate times, however, do not justify desperate measures. In these instances,
people often fail to visualize the outcome of their actions and causing them to believe they will not get
caught. Moreover, fraudulent businesses and scam artists become more prevalent during times of
turmoil, adding to the financial chaos, scamming people out of money or assets. These kinds of
fraudsters will do anything with the impression that they are invincible, that they will not get caught.
They do not understand the severity of their actions and how government investigations can lead to
serious federal prison time for white-collar crimes.
Future State of the Industry:
The government is dedicating more assets than ever to seek out and combat white collar crime. Owners
and employees, therefore, should be more cautious and wary than ever as well, to ensure compliance.
within an organization. They should understand why government investigations start and how many of
them end. Educating themselves with ongoing legal developments can help ward off any thoughts of
fraudulent activity, even when there seems to be no other way. Awareness of consequences may result
in fewer people reaching a decision to engage in felonious behavior.
BNC National Bank provides banking services and mortgage loans to homeowners. BNC is federally
licensed and regularly assists people and businesses throughout the United States. Two former
mortgage officers planned to deceive BNC out of millions of dollars in TARP funds. The officers
mistreated documents to receive loan funds to benefit themselves due to the financial crisis.
Investigation began and federal prosecutors later summoned a grand jury. Both officers and accomplices
face prison sentences of up to 30 years in prison plus fines.
The economic crisis impacted many people and businesses. People lost their jobs, and some
experienced foreclosure during this devastating period. Banks held back from lending money leading to
gridlock. This caused confusion and desperation. In the wake of the crisis, two men, Scott Powers
and David McMaster also saw signs of decline. Powers and McMaster were high-ranking officials at
American Mortgage Specialists Inc. Powers served as the Chief Executive officer, while
McMaster served as vice president. AMS operated out of Arizona as a mortgage
loan company. They would allow future homeowners to borrow capital to purchase property. After the
loans funded, AMS would then sell those loans to outside investors for profit. Due to the impact
their company experienced from the recession, Powers and McMaster decided to mislead BNC bank into
purchasing subpar loans that did not meet BNC’s qualification. AMS and BNC collaborated on loan
securitization deals. BNC would co-sign on all loans given to homebuyers from AMS. BNC advocated for
AMS believing the company to be a successful company, when in fact the company appeared to
Be headed for financial ruin.
During the recession, Powers and McMaster company experienced serious financial difficulties and had
a difficult time making payroll. To survive, they strategically siphoned TARP funds (Trouble Asset Relief
Program) in the amount of $20 million. TARP funds were a program designed by the U.S. Treasury to
help relieve financial grief in America. These funds were purposed to buy businesses that were in
trouble and facing shutdown. Due to financial pressures, Powers and McMaster took advantage of these
funds through deception. For three years Powers and McMaster cleverly covered up that their mortgage
firm experienced a rapid decline. They used AMS to deceptively receive TARP loans from BNC bank. They
forwarded inaccurate reports about AMS to BNC bank exaggerating how much cash they contained and
AMS’s overall worth as a company. Powers and McMaster, moreover, did not act alone. They engaged
two accomplices to implement their scheme. Lauretta Horton and David Kaufman served as the
directors of accounting and outside auditor at AMS, respectively. Horton forged financial documents
while Kaufman provided false audits of the company’s financial reports.
Powers used AMS to borrow funds from BNC with the knowledge that they would not pay them
back. BNC would then be responsible for the reimbursements to their customers and the Department of
Treasury. This scheme so dramatically impacted BNC, that BNC could not pay investors a dividend for
nearly 24 months after the damages caused by Powers and McMaster.
Investigation with the Financial Fraud Enforcement Task Force began.
Based on the circumstances, Powers and McMaster seemed to be respectable people in their
profession. When disaster struck the economy, instead of enduring and finding legitimate ways to
maintain their business, or accept the unwanted consequences, they picked a disastrous alternative
This scheme impacted BNC Bank to the point where it took them nearly two years to recover. Not only
did BNC suffer, many Americans who banked with BNC also suffered. Everyone involved took an
unexpected financial loss. TARP loans dishonestly obtained by AMS, deeply affected thousands of
people, and four individuals will now face serious consequences far worse than had they let their
business go under. As a result of this fraud BNC Bank, Powers, McMaster, Horton,
and Kaufman all pleaded guilty to criminal charges. The individuals involved face lengthy sentences and,
adding insult to injury, BNC still faces a likely huge fine for failing to adequately supervise AMS’s actions.
Powers and McMaster allowed financial strife and stress to interrupt good thinking. They saw their
mortgage company take a devastating hit and chose to respond with deceit and greed. This
behavior emulates the initial gut reaction of many business owners who may experience the same kind
of hardships. It’s a business built up over the long course of many years, it can be difficult to come to
terms with letting it go in one fell swoop. A robust internal compliance policy could have helped the
principals overcome their instincts. While losing one’s company is emotionally difficult, it remains a far
better alternative than going to prison.
BNC’s internal compliance failed the company as well. So, we see that even large banks require constant
reminders of the due diligence that must be applied in order to ensure legal compliance. BNC cannot
simply blame AMS for the fraud and move on. The bank will face a heavy fine in addition to the financial
loss and reputational impact of failing to adequately supervise this material third party partner.
When people understand how government investigations start and how they end, they will be less
inclined to make poor judgements. Coming up with healthier solutions during tough times can ensure
people do not jeopardize their freedom in addition to financial calamity. Compliance programs can help
ensure adherence to laws, rules and regulations to help avoid and minimize potential damage.