Des Moines man identified as ‘Co-Conspirator No. 1’ in SBA fraud case

By: - November 19, 2021 3:30 pm

Authorities allege an Iowa finance executive conspired with others to defraud the Small Business Administration. (Photo by Getty Images)

The Iowa finance executive who allegedly conspired with others to defraud the Small Business Administration has been identified in court records as Michael Barry Slater of Des Moines.

Slater is the founder and president of Vital Financial Services, a lending service provider based in Clive. He pleaded guilty this week to a charge of conspiracy to commit wire fraud shortly after a federal indictment against him was made public.

Sentencing is scheduled for March 15, 2022. Slater faces a sentence of up to 30 years in prison and fines of more than $1 million.

According to court records, Vital Financial Services originated, packaged, and disbursed liquidated loans that had been guaranteed by the Small Business Administration on behalf of banks and other lending institutions. Although Vital helped its client banks — mostly small, federally insured lenders located in the Midwest — obtain SBA guarantees on loans, federal regulations stipulate that SBA-backed loans cannot be used to refinance debt simply to shift the risk of default from the lender to the SBA.

One of Vital’s client banks was the now-shuttered Valley Bank, located in the Illinois Quad-Cities and run by president and chairman Larry Charles Henson, who was recently indicted and pleaded guilty to charges of wire fraud. Henson is expected to be sentenced March 8, 2022.

Henson’s indictment detailed Slater’s role in the scheme, but identified him only as “Co-Conspirator No. 1.” With the indictment against Slater unsealed this week, he was revealed to be Co-Conspirator No. 1.

The new indictment accuses Slater of conspiring with Henson and employees of Vital to commit wire fraud with regard to three loans.

According to prosecutors, Slater worked with Henson and other Valley Bank employees to engineer those loans so that it appeared the borrowers qualified for SBA guarantees. To do this, they allegedly completed loan-guarantee applications that included false statements about both the borrowers’ eligibility to receive the loans and the eventual disbursement of the loan proceeds.

For example, in September 2011, Valley Bank allegedly attempted to shed itself of any risk associated with a $5 million loan it had made to a Kentucky-based business that was highly leveraged and had limited capital.

Slater allegedly advised Henson to “do everything possible to make sure the borrower is not more than 29 days late” in payments to ensure that their application for an SBA-backed refinancing of the loan would be approved – even if that meant having Valley Bank grant the borrower a 90-day deferral of payments. Slater also is alleged to have called Henson and suggested a variety of ways in which the bank could fraudulently conceal from the SBA the fact that a loan was at risk of default.

Shortly after that, Slater called Valley Bank Vice President Andrew Erpelding to alert him that the loan couldn’t be refinanced by the SBA because of previous past-due payments. Erpelding allegedly called Henson and told him of the problem, after which the two men jointly called Valley Bank Vice President Susan McLaughlin, instructing her to alter the bank’s loan-payment reports.

McLaughlin allegedly complied, changing the borrower’s payment history to eliminate any delinquent payments. The bank, along with Slater, then transmitted the falsified information to the SBA as part of the application for refinancing.

Around that time, the SBA denied Valley Bank’s application to refinance a $4.6 million loan involving a Florida company, pointing out that the borrower was already a guarantor on two other SBA loans that were in default. Slater is alleged to have then submitted a new application for the loan, this time identifying the borrower only through an acronym of the borrower’s actual name.

Slater then emailed Erpelding and explained to him that the bank would need to “rewrite” its loan documents to put them all in the fictitious name used on the SBA application and then make sure there were no delinquent payments referenced in those documents. The SBA approved the falsified application and the borrower ultimately defaulted, leaving the federal agency on the hook for $2.1 million.

A third loan, also supported by false documentation, resulted in a default and the SBA sustaining $3.4 million in losses.

Erpelding was charged in October with conspiracy to commit wire fraud, but the indictment was only recently unsealed. He is to be sentenced Feb. 15, 2022.

Court filings indicate McLaughlin has also been indicted and prosecutors said in a press release she has entered a guilty plea to wire fraud. Despite a Nov. 12 order unsealing that case, all of the documents in the case remain inaccessible to the public. Her sentencing appears to be scheduled for Feb. 15, 2022.

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Clark Kauffman
Clark Kauffman

Deputy Editor Clark Kauffman has worked during the past 30 years as both an investigative reporter and editorial writer at two of Iowa’s largest newspapers, the Des Moines Register and the Quad-City Times. He has won numerous state and national awards for reporting and editorial writing. His 2004 series on prosecutorial misconduct in Iowa was named a finalist for the Pulitzer Prize for Investigative Reporting. From October 2018 through November 2019, Kauffman was an assistant ombudsman for the Iowa Office of Ombudsman, an agency that investigates citizens’ complaints of wrongdoing within state and local government agencies.