The owner of a Slidell construction firm caught up in a federal grand jury investigation into First NBC Bank founder Ashton Ryan Jr. was charged in federal court Monday with conspiracy to defraud the failed New Orleans bank.
Jeffrey Dunlap, 44, of Slidell, faces one felony count of conspiracy to commit bank fraud and intends to plead guilty, according to his lawyer. He's likely the first domino to fall in a broad probe.
Federal prosecutors have been investigating potential criminal charges related to First NBC's stunning collapse in April 2017.
Many of the latest allegations were first aired in a civil lawsuit filed by Dunlap in November in 22nd Judicial District Court in St. Tammany Parish.
Prosecutors now allege that Ryan encouraged Dunlap to file phony or misleading loan documents with First NBC to support ill-advised loans that Ryan signed off on — even as Ryan, in a separate business venture, ran up a multimillion-dollar debt to Dunlap's firm.
“Mr. Dunlap accepts responsibility for his actions and is working toward a resolution with the government," his lawyer, Walter Becker, said Tuesday.
Federal prosecutors allege that over an eight-year period beginning in March 2009, Dunlap and his firm, Phoenix Civil Contractors, fraudulently obtained a roughly $22 million line of credit from First NBC based on "false financial statements and inflated accounts receivable" that were submitted at the urging of “Bank President A.”
While the bill of information does not identify Ryan by name, the allegations related to “Bank President A” match details of his career and the claims lodged against him in the pending civil suit filed by Dunlap and Phoenix. Justice Department guidelines frown on accusing people of crimes by name in court documents when they have yet to be charged.
Dunlap is scheduled to be arraigned at 2 p.m. Thursday before U.S. Magistrate Judge Joseph Wilkinson Jr.
The Advocate reported in March that a federal grand jury investigating the bank’s stunning $1 billion collapse was probing the arrangement between Ryan and Phoenix, which involved Ryan’s ongoing efforts to develop a 161-acre tract of land in Mandeville, in order to determine whether state and federal banking regulations were violated.
That federal prosecutors convened a grand jury to investigate First NBC's failure was hardly a surprise, given the size of the bank's losses. The collapse was the costliest failure of an American bank since 2010.
While Ryan’s alleged recklessness in making loans has always seemed to be at the forefront of the federal investigation, it was unclear until recently what potential crimes prosecutors were focusing on.
Earlier internal and external reviews of First NBC concluded that Ryan — who founded the bank in 2006 — had an unusual appetite for risk and exerted a “dominant influence” over the bank's operations.
The allegations pointed to a larger pattern of aggressive and risky loan-making by Ryan, who issued or renewed loans to distressed clients even after their long-term prospects were exposed as questionable — in some cases for larger amounts and easier terms than other banks would have granted, according to an analysis prepared last year by the inspector general of the Federal Deposit Insurance Corp.
By the end of 2016, Ryan had been ousted as CEO of First NBC but remained as president of the bank and its parent company. He resigned altogether in April 2017, weeks before First NBC failed and had its assets seized.
Ryan, who has not been charged with a crime, "denies any allegations of fraud," according to his attorney, Eddie Castaing.
“It’s apparent that Jeffrey Dunlap committed fraud against the bank, and so he ought to plead guilty,” Castaing said Tuesday. “He also committed fraud against Ashton Ryan by providing false information to Mr. Ryan and the bank, upon which Mr. Ryan relied.”
Castaing had sought a stay in the civil case involving Phoenix, citing the grand jury's investigation.
His motion warned that if the civil case proceeded simultaneously, Ryan's "risk of self-incrimination is real and immediate." A judge agreed to put the bulk of the civil proceedings on hold, which is common when civil proceedings are overtaken by criminal investigations.
Castaing's motion suggested that federal prosecutors were evaluating whether Ryan or other bank executives and directors were negligent, failed in their fiduciary duty to oversee the business, or benefited personally from a business relationship, like extending the line of credit.
Those are critical questions for prosecutors as they consider bringing charges. Bank directors are typically given considerable latitude to use their best business judgment, experts say. If they can plausibly argue they were acting in good faith on an informed basis, their exposure tends to be limited.
According to the bill of information against Dunlap, "Bank President A" served as Phoenix's loan officer. He reviewed and approved new loans, lines of credit and incremental increases, prosecutors allege. By the time the bank failed, First NBC had advanced Phoenix roughly $22 million on the credit line based on "false statements," the bill states.
The arrangement was crafted so “Bank President A and Owner B” would be able to continue using Phoenix to do work at the Mandeville site without having to use their own money to pay for the work, the bill of information says.
The civil lawsuit that Phoenix filed against Ryan in November further spells out the arrangement.
According to the suit, alleging breach of contract, Ryan had stiffed Phoenix out of nearly $5.5 million that a limited-liability company he co-owns had owed the firm. Ryan's partner in that company is Metairie developer Warren Treme, who matches the description of "Owner B" in the bill of information.
Reached by phone, Treme declined comment Tuesday.
Treme also is named as a defendant in the civil suit, which alleges that Ryan tried to stall on paying his debt by setting up a loan and credit line for Phoenix through First NBC.
Phoenix's work on the Mandeville project, called Wadsworth Estates, spanned seven years beginning in 2009, and included utility work as well as installing drainage, roadways and other infrastructure to develop the property, located on La. 1088. Plans called for a high-end business park and commercial development.
Each time Phoenix's loan from the bank became due, Ryan referenced his own debt to the firm as incoming revenue to justify the loan's creditworthiness and extend it, according to the lawsuit, which alleges fraud, unjust enrichment and unfair trade practices.
Monday’s bill of information echoes that complaint, alleging that Dunlap schemed with Ryan so both men could “unjustly enrich themselves, disguise the true financial status of (Phoenix), and conceal the accurate performance” of the firm’s credit line.
Prosecutors allege that Ryan told Dunlap that Phoenix would be paid back once Wadsworth completed and sold the subdivision, the document states.
Dunlap’s “false and fraudulent financial statements, accounts receivable, and other documents disguised (Phoenix's) true financial condition from First NBC Bank, bank regulators, investors and others," the bill of information alleges.
Dunlap could face up to 30 years in jail and a fine of more than $1 million.