TWO FORMER BEST BANK EXECUTIVES SENTENCED FOR CONSPIRACY AND MILLIONAIRE FRAUD RELATED TO BOULDER BASED BESTBANK FAILURE

DENVER - Troy A. Eid, United States Attorney for the District of Colorado, Cory Nelson, Acting Special Agent in Charge of the Federal Bureau of Investigation's Denver Office, Terry L. Stuart, Special Agent In Charge of the IRS-Criminal Investigation, Denver Field Office, and Jon T. Rymer, Inspector General for the FDIC, announced that THOMAS ALAN BOYD, of Niwot, and JACK O. GRACE, JR., of Berthoud, were sentenced today by US Senior District Court Judge Richard P. Matsch for conspiracy and fraud related to the failure of Boulder based BestBank in Boulder. BOYD was sentenced to serve 90 months (7.5 years) in federal prison, and ordered to pay a $15,000 fine and forfeit $4,743,909 to the victims of the crime. GRACE was sentenced to serve 72 months (6 years) in federal prison, and ordered to pay a $15,000 fine and forfeit $92,000. Both were ordered to report to a facility designated by the Bureau of Prisons within 15 days of designation. The final defendant, Edward Mattar, is scheduled to get sentenced on October 19, 2007 at 10:00 a.m.

U.S. District Judge Richard Matsch rebuffed defense lawyers who argued that their clients were victims, saying “these defendants perpetrated a fraud on the banking system of the United States”.

Last week, co-defendants DOUGLAS R. BAETZ, and GLENN M. GALLANT, were both sentenced to each serve 120 months (10 years) in federal prison, as well as pay a $15,000 fine and ordered to forfeit over $23 million for their role in the BestBank failure. The forfeited money goes to victims of the crime.

U.S. District Judge Richard Matsch rebuffed defense lawyers who argued that their clients were victims, saying “these defendants perpetrated a fraud on the banking system of the United States”.

When BestBank failed in July of 1998, its largest asset was a portfolio of sub prime credit card accounts with a reported value of more than $200,000,000. Sub prime credit card borrowers are high risk borrowers with poor credit histories. The credit card accounts were funded by BestBank using money from depositors. BestBank attracted depositors by offering above market interest rates.

From 1994 through July 1998, the defendants engaged in a business operation that made more than 500,000 BestBank credit card loans to sub prime borrowers. In July of 1998, the Colorado State Banking Commissioner and the FDIC determined that the value of the sub prime credit card loans maintained as an asset on the books of BestBank was overstated because delinquent loans were fraudulently made to appear non-delinquent. BestBank’s liability to its depositors exceeded the value of its other assets, making it insolvent.

According to the indictment, BestBank entered into agreements with CENTURY FINANCIAL and BAETZ and GALLANT to market BestBank credit cards to sub prime borrowers. CENTURY FINANCIAL sold $498 travel club memberships, marketed first through Universal Tour Travel Club and later through All Around Travel Club (AATC).

In almost every instance, those who signed up for the travel club did not pay cash for their membership. Instead, BestBank and CENTURY FINANCIAL offered to finance a travel club membership for sub prime borrowers using a newly issued BestBank VISA credit card. The credit limit for the sub prime borrowers as provided by the bank was $600. BestBank also charged fees, which immediately brought the borrowers close to the credit limit. Less than half of those who signed up for the travel club received their membership materials.

The defendants carried out a fraudulent scheme in several ways. Most people did not pay the mandatory $20 service fee required before the account was funded. Over 50 percent of the sub prime borrowers’ accounts were non-performing.

BestBank and CENTURY FINANCIAL, in many instances, did not send the sub prime borrowers their credit card or monthly statements. The indictment further alleges that BAETZ, GALLANT, and CENTURY FINANCIAL fraudulently concealed the sub prime borrowers’ non-performance and delinquency rates by reporting non-performing accounts as performing. BAETZ and GALLANT paid $20 to some accounts so they would appear to be performing when in fact they were not.

"These defendants are finally headed to prison after engineering one of the biggest bank failures in Colorado history," said U.S. Attorney Troy Eid. "The FDIC Inspector General, FBI and IRS deserve enormous credit for seeing that justice is done."

“The sentences delivered by Judge Matsch in this case demonstrate the importance to protect the integrity of our financial institutions and to hold those accountable who exploit those positions of trust," said FBI Acting Special Agent in Charge Cory Nelson.

"Fraud schemes harm everyone. It creates an untaxed economy that uses legitimate businesses to launder illegal proceeds, and increases the costs of doing business in our community," said Terry L. Stuart, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.

This case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation, and the Federal Deposit Insurance Corporation.