A Hardin County business has been indicted for participating in a conspiracy that defrauded three banks of more than $9 million.
According to the indictment, Charles Ray Smith, of Harding County, Tennessee, owned and operated Tennessee Material Corporation (TMC), an establishment that sold construction aggregates, primarily limestone, crushed stone, sand and gravel. Smith also owned and operated other businesses, including American Construction; American Cash and Loan; American Coal and Irons; and Louisiana Materials.
Between March 2009 and March 2012, Smith maintained a business checking account at Central Bank for TMC. He had additional bank accounts for TMC at various financial institutions, including First Metro Bank and Wayne County Bank.
Smith conspired with former Central Bank Chief Executive Officer (CEO) Christopher Brent Jerrolds, 54, of Savannah, Tennessee, to execute a scheme that defrauded Central Bank, Wayne County Bank, and First Metro Bank of more than $9 million. Jerrolds pleaded guilty to bank fraud in May 2016 for his role in the conspiracy.
Smith reportedly deposited insufficiently funded checks (“bad checks”) into TMC’s account at Central Bank between March 2009 and October 2010. These bad checks were deposited into TMC’s account to cover overdraft balances. When a previously deposited bad check in TMC’s account was returned for insufficient funds, another bad check drawn on one of TMC’s other bank accounts was deposited to replace the previously deposited bad check(s). The deposited amounts and the frequency of deposits increased each month, and at times, multiple checks were deposited on a single occasion.
By October 18, 2010, Smith was responsible for depositing 161 bad checks into TMC’s account with a total transaction amount of approximately $116,169,218. Jerrolds allowed Smith to deposit the bad checks into TMC’s account at Central Bank. The deposit of the bad checks created false balances in TMC’s account. The fraudulent account balances enabled TMC to unlawfully take approximately $3.9 million belonging to Central Bank.
Furthermore, according to the indictment, between March 2010 and March 2012, Smith allegedly received from Jerrolds various Central Bank “letters of credit.” The co-conspirators concealed the issuance of the letters of credit from Central Bank; did not enter the letters of credit into the books and records of Central Bank; and did not obtain approval from the Bank’s Board of Directors to issue the letters of credit.
One of the letters was worth $2 million, which Smith used as collateral to obtain a $2 million loan from Wayne County Bank. In obtaining the loan, Smith concealed from the bank his true financial condition and did not disclose that Central Bank’s board of directors did not authorize the letter of credit. Smith used a portion of the proceeds to the $2 million loan to cover some of the bad checks deposited into TMC’s account at Central Bank.
From March 2011 to March 2012, Smith presented additional letters of credit from Central Bank to Wayne County Bank, to replace the prior letters of credit that were expiring.
Between August 2009 to February 2012, Smith used his businesses to obtain multiple loans from First Metro Bank amounting to $1,783,660.44. Smith collateralized the loans with fraudulent letters of credit from Central Bank.
Wayne County Bank and First Metro Bank both made demands on the letters of credit after Smith defaulted on the loans.
On Monday, September 19, 2016, Smith was charged in a nine-count indictment, which includes one count of conspiracy to commit bank fraud and eight counts of bank fraud.
If convicted, Smith faces a sentence of up to five years in federal prison for conspiracy to commit bank fraud and up to 20 years on each count of bank fraud. Smith also faces a fine of up to $250,000 for each count in the indictment.