A civil case filed in federal court under the Racketeer Influenced and Corrupt Organizations (RICO) act names Paul Allen, the promoter behind the announced data center in Floyd, as a participant in a “loan kiting” scheme that threatened the solvency of a 100-year-old family-owned bank in Oakland, Tennessee.
Oakland Deposit Bank cites RICO in its case against former president and CEO Stephen D. Henry. According to court filings in the case, filed on August 14, 2009, in U.S. District Court in Memphis, the bank says it lost millions in the scheme and charges Henry with breach of fiduciary duty.
The bank, founded in 1904 by the Henry family, was sold in January of this year to Tennessee banker Marion “Ed” Lowery, who immediately invested $12 million in the financial institution. On December 2, 2008, the Federal Deposit Insurance Corporation (FDIC) found the bank had engaged in “unsound banking practices and violations of laws,” issued a cease and desist order and forced the bank’s sale.
Court papers say Henry, acting as the bank’s chief executive with unquestioned authority to approve loans, set up loans in shell companies and other people’s names and proceeds were then diverted to Henry and his co-conspirators: Stephen L. Sims of Memphis and Paul Allen of B-Telecom of Ohio.
According to court files:
Henry became acquainted with Allen in or around 2002 and subsequently originated a personal loan for Allen.
From 2002 to 2008, Henry opened deposit accounts and originated several loans for businesses owned or controlled by Allen, including, but not limited to, actual or purported businesses known as the following: BTl Home Theatre, Inc.; B-Telecom Construction, Inc.; M&A Holdings, LLC (a Montana entity); M&A Holdings, LLC (a Tennessee entity); Fiber Media US, Inc.; S& P Properties, LLC; and BTl Sales Management & Marketing LTD.
From 2002 to 2008, Allen also provided Henry with personal information for individuals with whom he worked or was acquainted for the purpose of originating loans in their names. These borrowers included residents of Ohio, Montana, Tennessee, and Canada.
Many of the Allen-related loans were fixed-term loans, while others were lines of credit. Most of the loans were unsecured and, as in the case with the Sims-related loans, Henry did not engage in any due diligence to investigate the credit-worthiness of the borrowers.
After the initial loans were made, Henry and Allen created subsequent loans in the names of the individual borrowers without the borrowers’ knowledge or consent. Signatures for the borrowers on the subsequent loan documentation was typically forged.
The proceeds from these loans were channeled to Allen for his personal use and to fund Allen’s business ventures.
In another instance of loan-kiting, loan proceeds were often used to pay the interest due on loans to Allen’s businesses and other Allen-borrower loans, as well as to cover Allen’s excessive and chronic deposit-account overdrafts.
In order to obtain funds to keep the scheme going and to obtain cash for other purposes, Henry inflated loans, increasing the principal amount of a loan without the borrower’s knowledge or consent. Henry often used those funds to cover the interest payments for Allen’s loans and overdraft amounts. As with the Sims loan scheme, Henry personally benefited from the Allen loan scheme by means of obtaining large amounts of cash through cash-out transactions.
A federal criminal investigation is ongoing.
Allen came to Floyd County in 2008 and began negotiating with the Economic Development Authority to purchase 51.5 acres of undeveloped land in the county’s Commerce Park to, he said, build a “world class” data center.
Earlier this year, the Ohio Secretary of State revoked the certificate of authority and the articles of incorporation for B-Telecom, the original company name used by Allen to promote the deal.
A month later, Data Knight 365 emerged as the company backing the project, along with Power Direct of Cleveland, a telemarketing firm fined by the Federal Trade Commission for violating federal Do Not Call registry rules.
Bill Byler, an Amish businessman from Middlefield, Ohio, and a partner with Allen, became the owner of record for Data Knight 365, which filed organizational papers with the Ohio Secretary of State in April.
Allen and Byler moved into apartments at the Station on South Locust project across the street from the Floyd Country Store. Allen bragged to others that his company was a “world class developer” of data centers with locations all over the world. Dun & Bradstreet, however, listed B-Telecom as a “data entry service” with 11 employees at one location in Parma, Ohio. Data centers listed on the company’s web site did not exist.
Allen continued to promote the project and work with county officials under the Data Knight 365 name and the new comppany announced plans for the data center three weeks ago in a press release listing, as a contact, Don Sabin, an Allen associate at B-Telecom. A two-page web site was set up through Citizen’s Telephone in Floyd.
As late as last week, the county appeared ready to proceed with closing on the $900,000 purchase and was waiting on additional documentation and a $100,000 deposit from Data Knight, due by September 1. County officials said they were unaware of Allen’s previous problems but based their belief in the project on the backing of Power Direct.
Allen moved out of the apartment on Locust Street last week, telling some he had relocated to Montgomery County and saying to others that he is now living “between Floyd and Roanoke.” The apartment is still rented by Data Knight 365.
I knocked on the doors today of the two apartments rented by the company.
No one answered.
20 thoughts on “Data Center promoter named in loan kiting scheme”
What reaction has the economic development authority had to the revelations concerning Mr. Allen?
One of the comments above suggests that the Floyd should sell Mr. Allen two acres for $50K each. Based on the allegations that Mr. Allen is involved in a loan kiting scheme it would seem reasonable to assume that he would be purchasing said land from Floyd with stolen money. I don’t see how Floyd can proceed under these circumstances given that they have lots of adverse information on Mr. Allen and his associates. Its the moral equilivent of buying stolen goods.
When will Mr. Allen need to reappear in Floyd for this deal to move forward? I suspect that he will not show up. I think it it more likely that one of his associates will come around again, but not Mr. Allen. Too many questions need answers and given what has been revealed I do not see that Mr. Allen will want to go on record concerning the issues that have been raised.
I guess I wasn’t very clear in my comment. I didn’t intend to ask voters to vote for or against Mike. I simply intended to point out that voters should look into his position on this before they cast a vote this fall.
Lauren,
As far as I know, Mike did a decent job while he was with the Town of Floyd. I’m sure someone will correct me if my assessment of his performance is in error! What was his vote on this matter, anyway? Did he vote for or against the contract with DataKnight 365? If so, why?
Rather than asking the voters of the Courthouse District to think about not voting for Mike this fall, wouldn’t it be more reasonable to ask Mike to hold a Town Hall type meeting with his constituents to explain his decision-making process? I think it would be better to ask questions about how the EDA arrives at its decisions. How many of us attend the quarterly meetings, for instance? The meetings are at 7:00 p.m., so it isn’t as though working folks can’t attend. We are all busy, but we have to set some time aside to keep an eye on our elected and appointed officials. If we see them making decisions which we think are not wise, then we need to speak up, not wait until the decision is made and then start casting stones. I think this fiasco should be an object lesson for all of us – we need to be involved in the decisions that our elected and appointed officials make on our behalf.
I notice that Mike Maslaney is listed as a member of the Economic Development Authority. I hope the voters of the courthouse district take a long look at his position on all of this before any of them cast a vote for him this fall.
Sounds a little like the time the Roanoke City Council bought “The original African Queen” for the new Wasena Transportation Museum.
Doug, the people of Floyd County owe you a lot for digging into this and exposing these people for what they are. I’m sure they thought they could come into a small, rural area and stay under the radar but I’m also sure they didn’t figure on having a longtime journalist with professional skepticism living in the area.
Thank you sir. I know you get a lot of flack for some of the issues you raise but I suspect your will emerge as the hero in this whole, sordid mess.
To the author of the comment entitled “Data Center and Paul Allen”: I had my tongue firmly planted in my cheek when I suggested that Floyd County sell DataKnight 365 2 acres of land for $50K per acre. I was aware that their money may well have been stolen, but I was making an outrageous suggestion in response to DataKnight’s outrageous proposal. I’m sorry the humor in the comment didn’t come across.
The government`s bank insurer, the Federal Deposit Insurance Corporation (FDIC), is requiring banks to prepay $45 billion in insurance fees to help replenish the Deposit Insurance Fund.
I’d like to add to my previous assertion that $4,000 in legal fees is a pittance for a deal of this size. In February of this year, I retained Jim Shortt as my attorney in a civil case and paid him $1,200.
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