Alleged ‘mastermind’ of bank-fraud case is sentenced to 14 months in prison

Prosecutors had asked for a sentence four times longer

By: - April 26, 2022 1:39 pm

The alleged "mastermind” of a million-dollar scheme to defraud the Small Business Administration has been sentenced to 14 months in prison. (Photo by krisanapong detraphiphat/Getty Images)

A central Iowa businessman alleged to be the “mastermind” of a million-dollar scheme to defraud the Small Business Administration has been ordered to serve 14 months in prison.

Federal prosecutors had asked the judge in the case to sentence Michael Barry Slater, the founder and president of Vital Financial Services in Clive, to 57 months in prison and to impose a “significant fine” for his conviction on one count of conspiracy to commit mail fraud.

Instead, U.S. District Judge Stephanie Rose last week sentenced Slater to 14 months in prison, with a three-year term of supervised release to follow. Rose also ordered Slater to pay restitution in the amount of $4,528,191. No fine was imposed.

Slater was part of a group of financial executives criminally charged with shifting millions in potential losses from the now-shuttered Valley Bank in Moline, Illinois, to the SBA.

Prosecutors alleged that it was Slater who hatched a plan that called for Larry Charles Henson of Davenport, the former president and chairman of the bank, to engineer certain loans so that it appeared the borrowers qualified for SBA guarantees.

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To do this, prosecutors said, Slater and bank executives 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.

As part of that scheme, Henson and Valley Bank Vice President Andrew Erpelding had Susan McLaughlin, also a bank vice president, alter the bank’s loan-payment reports to eliminate any evidence of past-due payments so the loans would appear to be eligible for SBA backing.

In March, Henson was sentenced to nine months in prison and ordered to pay $4.5 million in restitution after being convicted of fraud. Earlier this month, McLaughlin was sentenced to time served on a felony conviction of fraud and was ordered to pay a $500 fine. Erpelding is expected to be sentenced May 17.

Prosecutors sought stiffer sentence

Prior to Slater’s sentencing, prosecutors argued for a sentence of 57 months and a substantial fine, telling the court that Slater had engaged in SBA lending for over 20 years and so “the true extent of the damage he has done to the program will likely never be known.”

They alleged that before launching Vital in 2009, Slater had been employed as a senior finance consultant and partner at Banc-Serv Consulting in Indiana. In March 2019, several of Banc-Serv’s key employees were indicted for engaging in fraud involving SBA loans made between 2004 and 2017.

“Slater was employed by Banc-Serv and was involved in originating SBA loans during the time period charged in the Indiana indictment,” prosecutors told the judge in the Valley Bank case.

With regard to the fraud committed at Valley Bank, prosecutors said, Slater “served as the mastermind and originator of the scheme, and without his expertise the other defendants would not have been able to engage in this fraud.”

The prosecutors alleged the plot was formed in October 2011, when Slater called Henson and explained “a variety of ways in which he had banks fraudulently hide from the SBA” information about loans that might disqualify them from SBA-backed guarantees.

Slater’s attorney may have disputed the prosecutors’ allegations or argued for a lighter sentence, but the available court records give no indication.

Four days before sentencing, Slater’s attorney informed the court that he intended to file “certain sentencing-related documents,” including exhibits reports and memoranda for the judge to review prior to sentencing, and he asked for permission to file all of those records under seal so they couldn’t be accessed by the public.

No reason was given for the added level of secrecy, but court records indicate Chief Magistrate Judge Helen C. Adams approved the request.

Slater’s attorney, Sean Spellman, declined to comment on the case.

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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.

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