Magazine Exclusive: Victim or Perpetrator?

The following feature appears in the first quarter 2025 edition of Bank Director magazine. It and other stories are available to magazine subscribers and members of Bank Director’s Bank Services Program. Learn more about subscribing here.

It was late 2022, and Shan Hanes’ future looked bright. The CEO of Heartland Tri-State Bank, a $139 million agricultural bank in tiny Elkhart, Kansas, was a trusted pillar of the community, known for helping customers during hard times, manning the sideline chain gang at high school football games and generating healthy returns for local shareholders.

“Shan was the picture-perfect image of a guy you’d want running your small-town bank,” says Jim Tucker, an Elkhart farmer and bank board member. “He mowed yards and coached sports teams. Most everybody liked him.”

Ambitious and with a knack for explaining farm country to outsiders, Hanes’ industry profile was blossoming as well. He was the sitting chairman of the Kansas Bankers Association and had recently finished a stint on a high-profile Consumer Financial Protection Bureau advisory committee. He also was good with reporters and frequently testified before Congress on topics such as the Farm Bill and competition from the government-supported Farm Credit System, a perpetual irritant for ag bankers.

Moe Houtz, a former bank loan officer and shareholder, recalls accompanying Hanes to Washington on a lobbying trip for the American Bankers Association. “We got into a packed elevator, and someone tapped him on the shoulder and said, ‘Hey, Shan, how’s it going?’” Houtz says. “It was Janet Yellen,” the Secretary of the Treasury.

At 51 and with the youngest of his three daughters approaching graduation, board members worried he might jump to a bigger bank or become a Washington lobbyist.

Two years later, Hanes sits in the Federal Correctional Institution in Leavenworth, Kansas, serving a more than 24-year sentence after pleading guilty to embezzling $47.1 million from Heartland Tri-State and causing it to fail. The bulk of that money is gone, lost to a pig-butchering crypto scam originated on the other side of the world; so are his once-promising future and the community’s trust.

In an emotional August sentencing hearing, 11 victims, most of them bank shareholders, vented at Hanes and asked the judge to impose the harshest prison term possible. “[It’s] a difficult thing to understand how someone that we all considered one of our own could betray the people and the community in such a devastating way,” Stephanie Murray, a retiree and shareholder, told the judge.

Added Brian Mitchell, an Elkhart farmer and regional theater chain owner who was Hanes’ neighbor and a bank client: “The damage that has been done to my town I can only describe in two words, Your Honor: Pure evil.”

What Happened in Elkhart
Prosecutors say Hanes (whose first name is pronounced “Shane”) got ensnared in a crypto scam, fell into a deep financial hole and then used the bank’s balance sheet to try to dig out. According to court filings, he was befriended on WhatsApp by a cybercriminal, most likely from southeast Asia, who slow-talked him into investing in cryptocurrencies.

The amounts were nominal at first, and the gains he saw on the scammer-supplied app looked promising. Over time, Hanes was prodded to invest greater and greater amounts to “unfreeze” those gains but never caught up. It’s not for nothing that such scams are referred to as “pig butchering,” because the victims are metaphorically fattened up over time for slaughter.

As a banker responsible for ensuring customers don’t fall prey to such schemes, Hanes knew better. In a 2022 interview with Bank Director, he listed crypto awareness as a top priority for his board. “We just got indoor plumbing a few years ago, and these guys are worried about the bank’s response to digital currencies,” he quipped then.

It turns out those concerns were justified. While most agree that Hanes was a victim, at a fateful moment he also became a criminal.

After draining his personal accounts, prosecutors and federal investigators say, Hanes began stealing money from those closest to him — $60,000 from his daughter’s college fund, $40,000 from his church, $10,000 from his investment club. Eventually, he turned to the bank, maxing out its credit lines and persuading employees to help circumvent wire transfer policies the board had adopted.

Over six weeks in 2023, Hanes tapped $24 million from a little-used line of credit at a correspondent bank and another $21 million from the Federal Home Loan Bank, according to a material loss review published by the Federal Reserve System’s Office of Inspector General. He also initiated 10 wire transfers, including two for at least $10 million, to a cryptocurrency wallet in his own name before quickly transferring the money to his unseen friend.

By the time he approached Mitchell, one of his biggest farm clients, for a $12 million loan, most of the damage was done. Two weeks later, after a series of tense board meetings, bank officials notified state authorities and the Federal Reserve Bank of Kansas City that they had a liquidity crisis. A week after that, a small army of black government-issued SUVs and cargo vans with out-of-state plates lined Morton Street, Elkhart’s main drag, as Heartland Tri-State was shuttered and sold to a rival an hour’s drive up Highway 27 in this remote part of southwestern Kansas.

A Tragic Tale
It’s a tragic tale with no winners beyond an unfindable criminal group on the other side of the world — and perhaps the bank that acquired Heartland Tri-State’s remains from the Federal Deposit Insurance Corp. at a discount.

The failure cost the FDIC’s Deposit Insurance Fund $54.2 million. Hanes is in prison and has been banned by the Fed from “participating” in the affairs of any financial institution. And local shareholders — a group of 33 farmers, business leaders, and current and former bank employees who first invested in Elkhart Financial Corp., the bank’s holding company, in 2011 — are out much of the $13 million in capital that was on the books before the failure.

The bank performed well over the years, and shareholders became accustomed to healthy dividends and steadily rising valuations. The failure initially wiped out all their holdings, costing some families more than $1 million. Some were forced to sell their homes, change elder care arrangements or scale back retirement plans. A few experienced health problems that were exacerbated by the stress.

The shareholders won a surprise reprieve in November 2024 when a federal judge ruled that $8.1 million seized by the Federal Bureau of Investigation in a Tether account associated with Hanes would go to them. The figure is close to the original cost basis for their investments in 2011 but doesn’t include an estimated 67% gain in the value of shares over the ensuing 12 years. Given where they were before, shareholders are happy.

The FDIC, which had petitioned to receive 85% of those funds to recoup some of the insurance fund’s losses, was shut out, which is unusual. “The FDIC has made clear in general terms that stockholders are usually last in priority, and often realize little or no recovery when a bank fails,” says Brendan Clegg, a partner and regulatory attorney at Luse Gorman, who is not involved in the case. Publicity or the change in presidential administrations could alter the calculus, but he wouldn’t be surprised if the agency challenges the ruling.

Stress and Drama
While cause for celebration, the restitution decision doesn’t wipe away the drama of the last 18 months. In Elkhart, a well-kept county seat of 1,900 set on an endless, windswept prairie perched atop the Oklahoma Panhandle, the loss of the only locally owned bank is felt by everyone.

Depositors didn’t lose money, but businesses have been hurt, jobs lost and the community hobbled. As one area banker confides, “You don’t just shut down a town’s only bank and suck that much value out of a community without feeling it.”

The episode has sparked finger-pointing in a town where everybody knows everybody else. Some folks are mad at employees for putting their loyalty to Hanes above responsibilities to the town. Shareholders have questioned the board’s oversight and early on a few considered suing the directors before concluding it would be too painful for the community.

Mostly there’s been bitterness toward Hanes and his wife, a teacher who has since left town. For months, Hanes had no bank to run but was free to move around Elkhart, getting his hair cut or shopping at the Dollar General with little apparent remorse. Folks seethed: Why were federal authorities dragging their feet on charges? “He’d stolen money from all these people, yet there he was driving down Main Street, going to restaurants,” Mitchell says.

Justice felt served in February 2024, more than six months after the failure, when federal charges were filed. A few days later, the local district attorney filed a 29-count complaint in Morton County District Court, and Hanes spent 10 days in the county jail, released with a GPS ankle bracelet. (That case was set for trial in early 2025.)

The entire affair has stolen a slice of Elkhart’s innocence. Some folks have taken to locking their doors in a place where that’s rare, and there are mixed feelings about the glare of attention from the likes of The New York Times. At the Dairy Kreem, a burger joint three blocks down from the bank, folks say they are exhausted by the spotlight. “Nobody really wants to talk about it,” says one patron, sipping her Coke.

Boardroom Drama
For the board, what happened in Elkhart has been a nightmare. The group has endured stress, scrutiny and the burn of watching the most important institution in town — a bank that was by all accounts in good shape — abruptly fail and get sold to a rival on their watch. Directors, all of whom were shareholders, still don’t know if they will face any penalties or sanctions from government agencies or elsewhere but acknowledge it’s a possibility.

The bank was growing under Hanes’ leadership. Late last decade, it acquired two branches in neighboring communities, and two more potential deals were on the table. Tucker says his father Bill, the bank’s recently deceased chairman, was a big fan.

“To my dad, Shan Hanes was the bank’s Patrick Mahomes, the quarterback who was 12-0,” he recalls. “The bank performed solidly every year, shareholders were getting nice dividends, and we were growing. I certainly thought he was doing a good job.”

Tucker says he first learned something might be amiss in early July 2023. There was a larger-than-usual wire transfer, but it came with a plausible backstory involving Hanes helping a young borrower. “The idea of Shan doing something criminal didn’t even cross my mind,” Tucker says. Then another large wire transfer was brought to the board’s attention. Hanes claimed it was a mistake, but he was a meticulous numbers guy who didn’t make many mistakes. Questions started to percolate.

On July 5, Hanes approached Mitchell for the $12 million loan. He admitted he was involved in crypto — even showed him an account on his phone that purported to contain $40 million waiting to be released — but insisted it didn’t involve the bank. Mitchell says he turned down the loan request, and when he heard the next week that Hanes had wired $12.4 million of bank funds over three days in early July, he alerted a board member.

Over the next several days, directors absorbed what Hanes had done — and what he still wanted to do. Their CEO conceded that he had invested bank money in crypto, yet he wanted the board to borrow $18 million more, which he argued would yield a $20 million profit. It was the only chance to save the bank. Board members were incredulous at what they were hearing. What had happened to the risk-averse Boy Scout who ran their bank? “He was talking in circles,” Tucker recalls. “Finally I slapped the table and said, ‘Bullshit! … Shan Hanes, I don’t even know who you are right now.’”

Hanes came to the next day’s board meeting looking disheveled in shorts, a T-shirt and flip-flops and made one final pitch for the added investment, which was unanimously rejected. The last director to vote said, “Shan, I’m not comfortable betting the farm on this,” Tucker recalls. “Shan leaned across the table and said, ‘David, I’ve already bet your farm for you.’ It was chilling.”

Shuttering the Bank
Management contacted state and federal officials on a Friday, and a team of examiners and investigators arrived the following Tuesday. Management told employees, most of whom didn’t know what was happening, that it was a surprise audit.

At 4 p.m. on Friday, July 28, 2023, Bill Tucker, the chairman, sat in the boardroom near the back of the bank and began signing the paperwork to officially dissolve its charter. The scene was surreal. Roughly 50 people from various agencies — guys in blue suits with badges on their hips, IT professionals with power tools and ladders, armed guards and more — milled about until the bank’s 5 p.m. closing, when the state banking commissioner read a statement that Heartland Tri-State had been the victim of a scam and was being put into receivership.

The bank would be converted to its new owners — Dream First Bank, a then-$511 million institution based in nearby Syracuse, Kansas, which acquired it from the FDIC for about $3 million, with some additional discounts — over the weekend.

Employees would be required to work Saturday and Sunday, getting paid time and a half for their efforts. They would not be allowed to use their phones that weekend and would be subject to searches at any time.

This was the first time many employees had heard anything about a scam. Some cried. Others stared forward or trembled as the guys in suits began moving furniture and carting off computers, and the IT crews climbed their ladders to remove security cameras from the ceiling. “The bank literally went away before our eyes,” says Tucker, who stood alongside his chairman father as the scene played out.

A Cautionary Tale
What happened in Elkhart is a cautionary tale for bank boards everywhere. Heartland Tri-State’s policies and operations looked similar to those of most other community banks, if not better. Its CAMELS ratings were historically strong — a string of 1s and 2s on the examiners’ five-level scale for at least five years running. Its CEO was an industry leader. If fraud like this could happen here, it could happen anywhere.

The Fed OIG review cites a dominant CEO and a breakdown in internal controls as significant factors in the failure. The board had policies in place, such as capping the daily wire amount for any one sender and requiring two employees to sign off on any wire transfer, that should have prevented the transfers. The bank also employed a standard BSA/AML policy that mandated filing suspicious activity reports for something as unusual as multi-million transfers to a cryptocurrency account.

Yet Hanes convinced the bank’s CFO (who was also the BSA officer and a board member) to sign off on eight wire transfers and not file SARs on them in a timely manner. “Senior bank employees circumvented the bank’s wire policy and daily limits to approve and process [Hanes’] wire transfer requests,” the OIG review states.

While it’s easy — and accurate — to think of the failure as the result of a CEO gone rogue, could the board have done something to prevent it? Tucker, whose family has owned banks for most of the last 40 years, doesn’t think so. “You could say, ‘Well, we shouldn’t have trusted him.’ But how do you run a bank and not trust your president?” he asks.

Even so, regulatory attorneys say what happened at Heartland Tri-State highlights the importance of having multiple lines of defense and enhanced training in emerging threats like cryptocurrencies. The external risk landscape is evolving rapidly, and boards need to keep pace.

The Fed OIG review suggests a “tiered” wire-transfer approval process that gets more eyes involved as the numbers increase and requires board approval for transfers above a certain amount. If Heartland Tri-State had such a policy, the board “may have had the opportunity to detect and potentially prevent” the failure, it states.

Tightening approval requirements on borrowings also can help. While Heartland Tri-State’s wire transfers garner attention, attorneys say the sudden high-volume use of the bank’s credit lines also should have triggered questions.

“There was no mechanism to get board approval as things escalated,” Clegg says. “You want a catchall, where a variety of unusual circumstances that could increase risks go to the board for approval,” including unusually high levels of borrowing, big dollar transfers or activities like cryptocurrency trading.

For larger banks, educating employees on using whistleblower mechanisms can be crucial. For smaller banks, perhaps the best prevention efforts center on strengthening informal lines of communication that can serve as an early warning system for the board.

“In my experience, most of the time when there is fraud more than one individual is aware of it,” says John Geiringer, a partner at Barack Ferrazzano Kirschbaum & Nagelberg. “It’s important to have a culture of compliance and a strong tone that emanates from the board that says to employees, ‘If you see something, say something.’”

The Big Unknown: Why?
Heartland Tri-State’s scandal has been a source of chatter and speculation in the Kansas banking community. Dream First CEO Chris Floyd says he’s regularly approached at industry events by bankers wanting to know the hows and whys of what happened. “It’s the ‘why’ that really bugs people,” he says.

It’s a question that bothers people in Elkhart even more. With the plea deal, Hanes never testified in court, and through his attorney declined an interview request for this story. When given a chance at the sentencing hearing to explain, Hanes said he was duped and apologized for failing to recognize how his actions made things worse. But as the judge noted, he has never really helped people understand what motivated him to risk his bank and the fortunes of so many friends in the first place. His attorney, John Stang tried: “Was it greed? Was it being gullible? Apparently, he wasn’t intelligent enough.”

With no obvious reason, there’s a gnawing sense that there’s more to the story. The Shan Hanes folks in Elkhart knew lived a modest lifestyle. He loved his family, community and bank, and didn’t appear to need money. Even today, people think he was too smart to have simply been duped. “Was he never who we thought he was? Was he lying the whole time? Or did something happen that made him turn 180 degrees?” Tucker asks.

For now, only Hanes knows the answers. 

What’s Pig Butchering?
Pig-butchering scams, like the one that sparked Heartland Tri-State Bank’s failure, are becoming more commonplace. A University of Texas study estimates that up to $75 billion has been stolen from victims worldwide via pig butchering since 2020.
Here’s how the scam typically works: A bad actor — often forced labor working for gangs in southeast Asia — establishes contact with a victim via text message or social media. That person spends months forging a trusted relationship and eventually offers to help the victim invest in allegedly lucrative virtual currency opportunities.

The numbers start small and show gains to build confidence. The hook: In order to get the riches on their fake account screens, victims must invest more. The stakes rise over time, and the scammers become more demanding. The “pig” is being fattened for a slaughter until a victim has nothing more to give. Because it’s crypto, the money is usually untraceable.
The scam has become so prevalent that in 2023 the Financial Crimes Enforcement Network issued an alert with 15 behavioral, financial and technical “red flags” for banks to monitor. They include customers using home equity loans to purchase crypto or appearing “distressed or anxious” about accessing funds ahead of a deadline.

As scammers get more aggressive, banks must increase their vigilance to protect customers.

*This article has been updated to reflect when the U.S. attorney’s office in Kansas filed charges against Hanes and when director Jim Tucker says he first learned of Hanes’ potential wrongdoing.