Defendants found guilty on all charges in Banc-Serv fraud trial

A jury has delivered guilty verdicts on all charges against the former officers and employees of a now-defunct financial services firm in Westfield.

Kerri Agee, 46, co-founder and former president and CEO of Banc-Serv Partners LLC, was found guilty on four counts of wire fraud affecting a financial institution and one charge of conspiracy to commit wire fraud affecting a financial institution.

Former Banc-Serv Chief Operating Officer Kelly Isley, 40, of Westfield and former relationship manager Nicole Smith, 44, of Indianapolis were both found guilty on two charges of wire fraud affecting a financial institution and one charge of conspiracy to commit wire fraud affecting a financial institution.

Banc-Serv co-founder Matthew Smith, 52, of Westfield was found guilty of one charge of conspiracy to commit wire fraud, and former Chief Marketing Officer Chad Griffin, 48, of Carmel was found guilty of one charge of conspiracy to commit wire fraud affecting a financial institution.

After a full day of deliberation the jury returned the guilty verdicts Wednesday night, concluding an eight-day federal trial held in Indianapolis before Judge Tanya Walton Pratt.

Banc-Serv provided consultation and outsourcing services for small-business lenders who made Small Business Administration loans. Agee and Matthew Smith were married when they founded Banc-Serv in 2002. Smith left the company in 2005, and the two are no longer married.

According to the Department of Justice, defendants convicted of conspiracy or fraud affecting a financial institution face a maximum sentence of 30 years in prison per count. The charge of conspiracy to commit wire fraud carries a maximum sentence of 20 years. A federal district court judge will determine any sentence for each of these defendants after considering sentencing guidelines and other factors.

The sentencing date  has not yet been set.

The five had been indicted in March 2019 on charges that they, and several co-conspirators, originated dozens of loans totaling more than $10 million that were ineligible for SBA guarantees. All five were originally indicted on additional charges that were later dismissed.

The defendants’ actions, prosecutors said, were meant to generate additional fee revenue for Banc-Serv, and to avoid having to indemnify the lenders, secondary-market investors or the SBA for having originated and sold loans that later went into default.

In closing arguments Tuesday, the prosecution described the case as a clear-cut example of fraud.

“I’m here to tell you simply: It is what it looks like,” said U.S. Department of Justice attorney Vasanth Raman Sridharan. “It looks like, and it is, a scheme to get SBA guarantees on loans that never should have gotten them.”

On multiple occasions, Sridharan said, the defendants altered loan applications—changing things like applicants’ company names and job titles—with the goal of getting loans approved. “When they (the defendants) get a ‘no,’ they try to find a way around it.”

Another tactic the defendants used, Sridharan said, was telling the SBA that loan proceeds would be used by the borrower as working capital—money used in the business’ day-to-day operations. In reality, Sridharan said, the borrowers intended to use loan proceeds to repay things like back taxes or student-loan debt—uses that went against SBA rules.

He highlighted an email that Agee sent to Nicole Smith, Isley and Griffin after the SBA denied a loan application in April 2009. In its denial, the SBA said a sum categorized as working capital appeared to be intended for debt repayment, which was against SBA rules.

After getting that denial from the SBA, Agee forwarded it to her colleagues and added the comment, “They got us.”

Sridharan told the jurors that they did not need to have expertise in banking or SBA rules to understand what the case was about. “It’s about simple, straightforward lies that the defendants told to get the SBA to part with those valuable loan guarantees.”

In their closing arguments, the defendants’ attorneys pushed back, saying that the situation was not as simple as prosecutors would suggest.

Agee’s attorney, Jonathan Bont, pointed to email exchanges in which Agee discussed permissible and impermissible uses of SBA loan proceeds. The fact that Agee had these discussions in writing shows that she was acting with good intent, Bont said.

“She put them in emails all the time. She didn’t pick up the telephone and have secret phone calls,” Bont said. “There was no intent to defraud, and that’s the key to this case.”

In referencing Agee’s “They got us” message, Bont argued the words actually meant that Agee was acknowledging an error, not admitting wrongdoing.

Bont also said Agee had been under extreme pressure at the time of the events in question: She was leading a growing company while raising three children ages 5 and younger, and her marriage to Matthew Smith was floundering. “I think she was doing her best.”

Some of the defense attorneys had said that the events in question took place during a time of turmoil, when the SBA’s rules and the structure of the organization were changing significantly.

Isley’s attorney, James Voyles, called the defendants “scapegoats” and “fall guys” who were operating in a changing SBA environment, “a system that very well may have been in chaos itself.”

Nicole Smith’s attorney, James Edgar, said his client was inexperienced in SBA lending when she joined Banc-Serv, which Edgar described as a “pressure-cooker” environment in which employees worked up to 60 to 70 hours a week handling loan applications that could run up to several hundred pages each.

“If you don’t train Nicole Smith properly, of course she’s not going to do things the way the government would prefer,” Edgar said.

Terry Wayne Tolliver, Griffin’s attorney, also portrayed his client as ill-equipped to operate in the complex world of SBA lending. Griffin, who is Agee’s brother-in-law, had been a truck driver before joining Banc-Serv. “It was going to take a long time for a novice to understand the rules and regulations and be trained up.”

Tolliver also raised the question of whether Griffin read or responded to all the email messages that were presented during the trial.

Matthew Smith’s attorney, Michael Donahoe, said his client was living in Chicago and running his own company during the time period in question, and has been unfairly associated with the case because of his association with Agee. “He was married to Kerri, and he gets dragged into this because of that.”