Bank fraud trial of former First NBC CEO Ashton Ryan begins this week

The fraud trial of former First NBC Bank CEO Ashton Ryan, Jr. is set to begin Monday in federal court in New Orleans, the culmination of a sprawling investigation by federal authorities into the local bank following its descent from post-Hurricane Katrina financial darling to the largest U.S. bank failure since the 2008 financial crisis.

Ryan faces a 49-count indictment on charges that include bank fraud, conspiracy, and creating false entries in bank records. The trial comes more than five years after the bank's nearly $1 billion collapse in 2017.

Nine alleged co-conspirators have already pleaded guilty, and court documents indicate federal prosecutors plan to argue that Ryan, once one of the city's most prominent businessmen, used federally-backed deposits and investor capital to build a massive piggy bank with little oversight. Prosecutors allege that he regularly loaned out money to unworthy borrowers who were in some cases his business partners, and that when the deals turned south, false documents were used to paper over the losses.

Those flailing ventures, together with other risky practices, allegedly helped lead to the bank's collapse, according to plea agreements, reports from federal regulators and documents filed by prosecutors. The demise of First NBC wiped out shareholders and also led to other collateral damage, including some borrowers left in ruins as loans were sold off to debt collectors.

Ryan, for his part, has pleaded not guilty to the charges. His attorney, Eddie Castaing, Jr., declined to comment on the specifics of the case but said Ryan "is looking forward to his day in court."

The trial, which will be held before U.S. District Court Judge Eldon Fallon, is expected to run for more than a month in the Hale Boggs federal courthouse on Poydras Street. If convicted, Ryan faces up to 30 years in prison — effectively a life sentence for the former banker who turned 75 in December.

Ryan is being tried alongside Fred Beebe, 64, a relatively junior former First NBC Bank vice president who, apart from Ryan, is the only one of the five former bank officials facing charges who did not take a plea deal. He has pleaded not guilty and also faces a sentence of up to 30 years.

Rare case

The trial will be one of the most high-profile court cases for the local U.S. Attorney's office since the prosecution of former mayor Ray Nagin nine years ago.

It represents a rare case where officers of a failed bank are being put on trial, said Herbert Larson, senior professor of practice at Tulane University Law School and an expert in federal white collar crime.

Larson, whose experience includes defending bankers caught up in the 1980s savings and loan crisis, said prosecutors have a high bar to prove fraud in such cases.

"Reckless lending behavior is not a crime," he said. "It becomes a crime only if you've made false statements in furtherance of that behavior and (the prosecution) has to prove the specific intent to defraud."

The complexity of the Ryan trial and the amount involved makes it a landmark case.

"The loss amount is what separates it from everything else," said Pat Fanning, a former federal prosecutor and current criminal defense attorney. "It makes this case a really big deal."

A steady rise

Ryan was once one of the city's leading civic figures, a white-haired, patrician benefactor to many local charities and organizations, including his alma maters Jesuit High School and Tulane.

An accountant by training, Ryan spent a long spell auditing banks as a partner at Arthur Anderson, one of the "Big Five" public accounting firms. In the 1990s, he moved into banking himself, working for First National Bank of Commerce, a prominent New Orleans institution that was acquired by Bank One in 1998.

That job inspired his choice of name when he founded First NBC in 2006. At the time, he touted altruistic aims to help rebuild the city in the wake of Katrina and to foster equity and diversity.

Celebrity backers included NFL stars Eli and Peyton Manning, which helped further raise Ryan's profile.

An easy touch

First NBC quickly acquired a reputation as offering generous deposit rates locally, as well as being a fairly easy place to get a loan.

While it wouldn't be known publicly until after the bank's failure, First NBC was more comfortable than most banks taking big risks on individual loans. For instance, in a civil suit filed by the Federal Deposit Insurance Corporation against First NBC's auditor, documents alleged that Ryan helped funnel $50 million to oil man Roger Linder, a Ryan acquaintance, for an offshore oil company that went bust.

Regulators' reports said a bank of First NBC's size and limited expertise had no business making such a large loan to such a specialized and risky company.

Meanwhile, a Mississippi developer had $123 million of bad loans with the bank at the time it collapsed. Gregory St. Angelo, a senior bank officer and the firm's top lawyer, was another major borrower, owing $46 million.

The bank also had built up a large concentration of loans backed by historic tax credits for projects to rehabilitate buildings in the French Quarter and elsewhere in New Orleans.

Loose lending practices helped the bank expand rapidly, with its assets growing from around $400 million in 2008 to nearly $5 billion eight years later.

When it went public on the Nasdaq Exchange in 2013, it was valued at more than $100 million. Just over three years later, the stock was worthless, felled in part by growing losses and critical questions by hedge funds about its historic tax credit portfolio.

After its collapse, Hancock Whitney Bank acquired about $1.6 billion in First NBC deposits and $1 billion in assets, which included cash, securities and its performing loans.

The FDIC was left with $1 billion in bad loans, which it sold off for cents on the dollar.

Risk taking or fraud?

Whitney almost immediately closed all but a handful of the 29 First NBC branches it acquired.

A key question for the jury will be whether Ryan was just a poor risk-taker — generous to a fault and himself a dupe of fraudsters — or was a willing participant who personally benefitted.

"Ashton is a nice guy, for sure, he used to ask me if I wanted to borrow any money every time I'd see him," said Madro Bandaries, a longtime New Orleans attorney who also was a personal acquaintance of Ryan's.

"Being a good guy doesn't relieve him of his fiduciary obligation as president of the bank," Bandaries said. "But the U.S. Attorney is going to have to show he knew about and either authorized or took some over-riding action that led to the lending mania — and where was the board in all this?"

Indeed, the question of culpability has been raised in two civil lawsuits by the FDIC. One alleged that First NBC's auditor, E&Y, was negligent, a charge that E&Y has denied. A second was unsealed by a federal judge last year. In that lawsuit, which seeks $163 million in damages, the regulator argued that six former non-executive directors who had signed off on allegedly fraudulent loans were as culpable as Ryan.

The food chain

In pursuing Ryan, the U.S. Attorney's office in New Orleans has put together a classic "food chain" case, painting a picture of a CEO allegedly participating in a widespread conspiracy to defraud First NBC by falsifying documents so he could make loans against inflated or non-existent collateral.

In all of the charges made so far, prosecutors allege that Ryan and other bank officers would continue to lend money and to falsify documents so as to cover up the fact that borrowers had already essentially defaulted.

So far, prosecutors have charged 14 people with fraud. The nine that have already pleaded guilty are likely to be among the prosecution's key witnesses over the next several weeks, though it isn't yet clear who will eventually take the stand.

The bank officers who have pleaded guilty are St. Angelo, the bank's former lawyer, and William Burnell and Robert Brad Calloway, both senior lending officers.

Others taking guilty pleas were six of the bank's largest debtors at the time of its collapse: real estate developers Gary Gibbs and Kenneth Charity; financial services business owner Frank J. Adolph Jr.; hotel owner Arvind "Mike" Vira; and contractors Warren Treme and Jeffrey Dunlap.

In November, prosecutors separately charged Glenn Diaz, a long-time prosecutor in St. Bernard Parish, along with his associates Peter Jenevein and Mark Grelle, with bank fraud in an alleged scheme that netted Diaz $200,000. Prosecutors said they conspired to process false invoices for payment from First NBC. Their trial is scheduled to begin in April. Diaz and his associates have pleaded not guilty.

Staff writer Jillian Kramer contributed to this report.