The American public reported almost $4 billion in losses due to cryptocurrency investment fraud in 2023, marking a staggering 53% increase from the previous year, according to the FBI’s 2023 Internet Crime Report.
Among the victims was Shan Hanes, the former CEO of the now-collapsed Heartland Tri-State Bank (HTSB). While it’s not initially clear why HTSB closed, the impact of over $47 million Hanes embezzled – which he used to invest in cryptocurrency – significantly impaired HTSB’s capital and liquidity and led to the bank becoming insolvent.
Initially investing in cryptocurrency with personal funds, Hanes wanted to finance more and resorted to embezzling over $47 million from his bank, leading to HTSB’s collapse and significant losses for its investors. Not only did the executive embezzle from HTSB, but he also absconded $40,000 from a local church and $10,000 from a local investment club.
Although he didn’t know at the time, Hanes was being scammed. He was, in fact, investing in a “pig butchering” cryptocurrency investment fraud. As coined by the initial criminals who first carried out the scheme, pig butchering consists of a series of methodical scams, the first phase of which is to build a victim’s trust and a desire for more over an extended time – metaphorically fattening the pig (e.g., sending fraudulent investment statements depicting significant returns from initial investments, or even allowing for some withdrawals to serve as “evidence” of legitimacy and value). The scheme then persists with the victim continuing to send funds – with pressure for more, as the “butchering” phase – with the criminals metaphorically bleeding out every penny they can.
Hanes not only embezzled from HTSB, the church, and the investment club to further his personal cryptocurrency investments, he then lost the funds he embezzled through the “pig butchering” scam. The ex-CEO pled guilty to one count of Embezzlement by Bank Officer (18 U.S. Code § 656) earlier this year and is now facing a looming prison sentence. He’s scheduled to be sentenced later this week and faces a maximum of 30 years in prison.
A February 2024 report issued by the Consumer Financial Protection Bureau Office of Inspector General pointed out both significant internal control breakdowns (e.g., bank employees not following established wire approval procedures) and the influence of the CEO as a dominant management official as having created the opportunity for the series of wire transfers that impaired HTSB’s capital and liquidity.
This case underscores both the domino effect of investment fraud through the economy and the fundamental importance of internal controls. As Hanes heads to sentencing, his experience serves as a reminder of the importance of vigilance and education as they relate to investment fraud. Financial pressure is a significant contributor to fraud risk, and that pressure can stem from personal investment scams.
If you or someone you know has invested in an investment scam, the AARP Fraud Watch Network Helpline (877-908-3360) is a great free resource available, regardless of AARP membership. The helpline is staffed with trained anti-fraud and victim specialists, including noble volunteers, who provide judgment-free guidance.
If your organization suspects someone has stolen funds or other resources, an investigation by your own team – or in tandem with outside forensic accountants – can ensure suspicions and related evidence are sufficiently examined and help inform and prioritize remediation activities.
If you need assistance with assessing fraud risk, fraud prevention strategy or investigating fraud suspicions, contact James Rumph in our Columbus office or Tom Pratt or Brian Webster in our Pittsburgh office.
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