Blue Ridge Savings & Loan has history of banking violations
In 2001, two close political and business associates of North Carolina Rep. Charles Taylor (R-11) pled guilty and were convicted of bank fraud and conspiracy to money laundering involving loans of $2.27 million.
Throughout the 90s Taylor’s bank, Blue Ridge Savings and Loan, repeatedly broke federal banking rules that limit how much money an institution of its size can lend to any one borrower. In 1991, the bank, headquartered in Asheville, NC, was reprimanded for violating their $500,000 lending limit.
In 1996, the federal Office of Thrift Supervision downgraded the bank’s confidential rating. In a report kept secret for years, the federal agency, (which oversees Savings and Loans), reported that the bank continued to circumvent the limit by lending money to straw borrowers in an “apparently deliberate and willful circumvention of the laws.”
Bank President Hayes Martin, former Taylor for Congress campaign treasurer, approved the fraudulent loans. Chuck Cagle, former Republican party activist and district chair, received them in his own name and the names of several family members. Both men served delayed light sentences for their crimes after an unexplained four year sentencing delay.
Taylor founded the bank in 1978 and served on its loan committee until the loan decisions were relegated to a board in 1992, which was when he began serving as chair. The loan committee and then the board were stacked with relatives, in-laws, and hand-picked friends, including three former campaign treasurers.
Both Martin and Cagle testified that Taylor not only knew about the loans but “micro-managed” every detail of bank business. “Mr. Taylor controlled everything” at the bank, Martin testified in a 1999 deposition, “calling 10-11 times a day,” when he wasn’t in town. They also testified that Taylor conspired to hide details from FBI investigators.
A third convicted conspirator, bank attorney Thomas Jones, also testified Taylor knew about the fraudulent loans from the start. Not only did he know about the loans, Martin and Jones testified that Taylor discussed the loans at numerous board meetings. Cagle quoted Taylor as saying “Hayes [Martin] hasn’t done much of a job and the Feds are coming,“ according to the summary of the September 2000 FBI interview with Cagle.
Yet, Taylor has never been investigated by either federal prosecutors or any law enforcement officials. In fact, according to his attorney, he has never been interviewed by any public official.
Taylor has repeatedly denied any allegations that he was involved with the loans, calling the testimony “self-serving statements of desperate men.” However, if prosecutors had decided Cagle and Martin weren’t truthful, their plea agreement would be ruled “null and void,” their convictions would stand, and their sentences could be greatly increased.
During the investigation, in 1999, Taylor voted in Congress to change federal requirements that banks report suspicious client activity (the type of report that led to the initial investigation into his Savings and Loan). HR 10, H. Amdt 249, Vote #269, 7-1-99
Banks are regulated more heavily than other businesses, in part because the federal government insures their deposits. Much regulation stems from the 1930s, after the banking system had collapsed from the stock market crash.
Taylor’s banking violations came to light in the late 1990s when Cagle defaulted on his loans, many of which had been made in the names of unsuspecting relatives. The bank foreclosure proceedings uncovered a series of fraudulent behaviors on the parts of bank officials, including falsely notarized signatures, wildly inaccurate documentation, and intentionally inflated appraisals.
One couple whose property Cagle used as collateral, and whose names were on the loan documentation, had no knowledge of the transaction. Since no one working at the bank had spoken to the couple whose names were on the loan, the court documents were filled with errors. Even their names were misspelled.
According to the Raleigh News & Observer:
As Cagle struggled with his financial difficulties, he sold the car dealership in 1995 to three businessmen. Blue Ridge financed the sale, lending about $225,000 to each buyer, all the loans secured by property in Salisbury.
Two of the buyers, William Eastridge and Roger Dale Jenkins, made few payments and defaulted. Blue Ridge foreclosed on both loans. The loans turned out to be undersecured because of faulty appraisals. The properties offered as collateral were each worth less than $100,000.
Jenkins borrowed $228,750. At the time of foreclosure he owed more than $250,000 because of accumulated interest. Blue Ridge took possession of Jenkins' property and sold it a year later for $96,000.
Similarly, Eastridge borrowed $223,875. He defaulted and owed the bank some $247,000 in principal and interest. The bank took Eastridge's property and sold it for $50,000.
Two other groups of loans had disturbed regulators who sanctioned the bank privately in the mid-90s:
The bank made more than a dozen loans to individuals associated with a development near Asheville called The Hills at Avery Creek. Some of the borrowers, in turn, gave full control of the money and all financial responsibility back to the company, The Hills of Avery Creek, according to the confidential bank report.
In the second series, the bank provided $785,000 to a developer named Gerald Candler. In 1995 and 1996, the bank also made eight construction loans totaling $886,000 to Candler's brother, to a Candler employee and to Rolland King, a former business associate of Candler.
The federal examiners described both groups of loans as "troublesome." In the case of the Candler loans, they criticized Martin for "apparently deliberate and willful circumvention" of banking regulations.
The examiners also criticized his handling of the construction loans. Under normal banking practices, such loans are paid out in installments as construction proceeds. With the Candler loans, however, Blue Ridge disbursed the money prematurely, in some cases where lots were still vacant, according to court documents and the regulators' report.
Candler defaulted on the loans, and the bank foreclosed.
Rolland King, named as the borrower on two construction loans, said in a sworn statement filed with the foreclosure proceedings that he received none of the $200,000 intended for him.
The checks "were made out to me, but somebody forged my name," King said in an interview. "They paid all the money out and not a stick of work was ever done."
Martin and Cagle were convicted in 2001 but their sentencing was “mysteriously delayed” until 2005. Neither the prosecutor nor the defense had requested the delay, according to the August 21, 2003 Raleigh News and Observer.
Both Martin and Cagle received two years probation and a $200 fine.
Jones was sentenced to 51 months (which includes time for an unrelated charge). After the conviction, lawyers for Jones filed a motion charging that U.S. Attorney General John Ashcroft or his aides blocked investigators from probing Taylor as part of the fraud case. Federal officials have denied the allegation, and Judge Mullen dismissed the motion earlier this week.
Other testimony on Taylor’s involvement:
• Taylor’s lawyer responded to questions about the lack of official interviews by saying that efforts to question him “died on the vine” due to logistical challenges.
• Martin repeatedly testified that Taylor knew every detail of Cagle’s fraudulent loans. He “knew about them from the start.” Martin testified that the loans were discussed at multiple board meetings and the minutes deliberately written not to accurately reflect the discussions. He did not testify who ordered the inaccurate minutes of the board’s official records.
• Martin testified in court that Taylor ordered him to move from the Asheville branch an employee who had been cooperating with the investigation. “Get her the hell out of here,” Martin quoted Taylor as saying.
• Cagle testified that Taylor called him every Thursday night when he returned home from Washington. He said they would talk politics and discuss the status of his loans.
• Martin said Taylor would regularly call him and ask, “How much money have you made for me?’ and “When can you pay me dividends?”
• Martin told FBI agents “that he spent a good bit of his time” at the bank “helping Charles Taylor to skirt issues” with the Office of Thrift Supervision.
• Martin said Taylor was aware Cagle was taking loans in his mother’s name, and Taylor said, “We can always get out of these deals.”
• As Cagle’s financial situation worsened, Taylor grew increasingly irritated, according to Martin. Martin told FBI agent one meeting ending up in a screaming match.
• Because of the foreclosures against Cagle, Taylor’s bank now owns all of his property. Cagle rents his home from the bank.
Two men get probation for bad loans from Taylor's bank
April 22, 2005 Asheville Citizen-Times
Taylor associates sentenced in case Martin, Cagle get 2 years probation
Jan 28, 2005 Hendersonville Times-News
Sylva lawyer in bank fraud case sentenced
Oct. 8, 2004 Asheville Citizen-Times
Former attorney receives sentence
Oct 7, 2004 Hendersonville Times-News
Sentencing in bank fraud postponed: Mysterious delay called indefinite
August 21, 2003 Raleigh News & Observer
Taylor tight-lipped on bank fraud investigation
April 16, 2003 Asheville Citizen-Times
Taylor's S&L broke rules - Thrift healthy despite bad loans
September 21 2000 The Raleigh News & Observer (archived)