SUPERFUND

The development deal that led to Pruitt adviser's banking ban

City leaders in the Tulsa, Okla., bedroom community of Claremore were jubilant in 2008 about a development proposed for the south side of their city. Nestled between a Lowe's and a Walmart, "Oklahoma Plaza" was to feature shops, restaurants and an outdoor amphitheater. Developers predicted it would create 300 jobs.

Ten years later, much of the land is still empty. But the troubled project remains a weight around the neck of Albert "Kell" Kelly, president of the bank that financed it. Documents obtained by E&E News show it played a role in his being banned from banking.

Back then, Kelly was president and CEO of SpiritBank, a northeast Oklahoma institution his family has run since the Great Depression.

Today, Kelly is a top adviser at U.S. EPA, brought in by Administrator Scott Pruitt to bring some business sense to the agency's multibillion-dollar Superfund cleanup program.

But his business reputation has been under fire since August, when the Federal Deposit Insurance Corp. (FDIC) revealed it had banned Kelly from banking, the industry where he had spent his career. He'd signed the FDIC consent order in May 2017, about two weeks before Pruitt announced his Superfund role (Greenwire, Aug. 28, 2017).

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FDIC hasn't been clear about what its investigators think Kelly did to deserve the lifetime ban, along with a $125,000 fine.

But the agencies did name the companies involved: U.S. Payments LLC and Claremore Construction and Development LLC.

The document states that once the order was issued, FDIC wouldn't initiate any new enforcement actions regarding those two companies. The company names have not been reported previously.

The order only hints at the agency's allegations, saying the agency believes that Kelly "violated a law or regulation, by entering into an agreement pertaining to a loan by the bank without FDIC approval."

Claremore borrowed more than $10 million from SpiritBank. The company, sometimes referred to as CCD, was set up to handle the Claremore development after SpiritBank foreclosed on the original developer in 2010. A SpiritBank vice president was an executive of CCD.

Ken Wagner, another top lieutenant Pruitt brought with him from Oklahoma to EPA headquarters, was at times listed as one of the attorneys for SpiritBank on the development.

U.S. Payments is a payment processing company in which SpiritBank has had an ownership interest. It is headquartered at a SpiritBank location in Tulsa.

The FDIC consent order states that Kelly did not admit or deny the violation. Kelly's supporters have said the FDIC penalties were payback for his aggressive criticism of financial regulators when he was chairman of the American Bankers Association in 2011 and 2012. He once dubbed Congress' 2010 financial overhaul the "Main Street destruction bill."

But legal experts say the FDIC doesn't impose such bans lightly, and they usually indicate that a banker persisted in a violation after being warned by the agency.

One called the ban the "death sentence" of banking regulation and "the mark of Cain." Another said that, when it comes to banks, "he can't do much more than open a checking account."

Kelly's bank loaned money to a Pruitt partnership that bought a minor league baseball team in 2004. Later that year, SpiritBank loaned Pruitt money to buy a home. There is no indication in the FDIC documents that those particular loans had anything to do with the agency's enforcement actions.

Kelly spent 34 years at the Tulsa bank, which started decades ago in his hometown of Bristow, Okla. He served as president and CEO from 1990 to 2014 and chairman from 2012 until last spring.

The FDIC's order stated Kelly's actions showed his "unfitness to serve as a director, officer, person participating in the conduct" of a bank. But EPA officials say Kelly has Pruitt's full support.

"I have personally known Kell for a number of years," Ryan Jackson, Pruitt's chief of staff, said in a statement forwarded yesterday by an EPA spokesman. "EPA is fortunate to have him as part of our team."

Jackson also said SpiritBank last year asked Kelly to remain on its board of directors, and said "Spirit would confirm" that Kelly did nothing to threaten the bank. SpiritBank did not return messages yesterday, and it is not clear how Kelly could have continued to serve on the board of directors after being banned from banking by the FDIC.

Kelly did not return a message left on his mobile phone, and EPA did not make him available for an interview. But the EPA spokesman forwarded another statement from Frank Keating, a former Oklahoma Republican governor and former CEO of the American Bankers Association.

"Kell Kelly is a man of high integrity," Keating stated. "During my time as CEO of the American Bankers Association, Mr. Kelly served as my chairman and helped lead the association through a difficult period following 2008 financial crisis, Administrator Pruitt is fortunate to have him."

Kelly traveled to contaminated sites around the country as head of a task force on "streamlining" Superfund. His panel's report recommended expanding Pruitt's role in the Superfund program, suggesting a "Top 10 Administrator's Emphasis List" of sites needing immediate attention (E&E News PM, Dec. 8, 2017). His travels included a listening session last year on a St. Louis-area landfill contaminated with World War II-era nuclear waste. Pruitt last week ordered the partial excavation of the waste.

Kelly has contributed more than $200,000 over the years to federal and state campaigns, usually to Republicans. Among his contributions were at least $2,750 to Pruitt and $2,000 to Donald Trump's presidential campaign. But he had earlier contributed to the presidential campaign of former Republican Florida Gov. Jeb Bush.

'Idiosyncratic' structure for CCD

Claremore was established around the time SpiritBank was foreclosing on the original, Missouri-based developer of the Oklahoma Plaza.

In addition to restaurants, shops and the amphitheater, the "lifestyle center" was to have a multiplex movie theater, professional office space and housing.

SpiritBank loaned the Missouri developer at least $15 million in 2008. But the financial crisis hit and threw the entire country's economy into turmoil. SpiritBank foreclosed on the property in early 2010.

SpiritBank started over with a new developer, Jim Tapp, and his company, Tapp Development Co. Tapp was listed as the "manager" of the limited liability company. But a SpiritBank vice president named Becky Goumaz was also listed at times as manager. In a few instances, she signed documents for both SpiritBank and CCD.

Records show that SpiritBank had loaned CCD about $10 million. It also took an unusual role for a bank, serving as a partner in the development, not just the landowner. One banking law expert said the "idiosyncratic" structure of the company could have attracted the FDIC's interest.

The deal with Tapp Development did not work out. SpiritBank put the property up for sale again in 2015.

In a brief phone interview, Tapp said he didn't want to talk about the Claremore development. But he did acknowledge talking to FDIC officials about it. "Absolutely," he said.

Bank examinations in June and September 2011 may have been a turning point for the FDIC and SpiritBank. FDIC documents indicate the agency wanted the bank to change the way it handled bad loans after those examinations.

The Oklahoma Plaza land in Claremore is still formally in the hands of CCD, and city officials say that when they have questions or concerns, SpiritBank is still their point of contact.

In a 2012 FDIC consent order, SpiritBank agreed to "charge off" at least $3.9 million in poorly performing loans, meaning it would acknowledge in its books that it did not expect to be repaid.

The order also required that loans to executives and other insiders at the bank be "thoroughly reviewed," committed the bank to establish a loan review committee, and ordered extra reviews of expenses for "customer entertainment and business development."

It also limited the bank's ratio of loans to deposits and prohibited the bank from entering any "new line of business."

Relationship questions

U.S. Payments, founded in 2004, operates a network of "Paysite" payment kiosks where people can pay bills with cash.

The relationship between SpiritBank and U.S. Payments is unclear. Some employees describe U.S. Payments as an affiliate of the bank.

U.S. Payments borrowed money from SpiritBank, pledging "all business assets" in 2006. SpiritBank also owned stock in the company. In 2010, SpiritBank pledged 1,250 shares of U.S. Payments stock it owned as collateral for a loan from a Kansas bank.

Also, an executive of SpiritBank's holding company served for a time as a director of U.S. Payments.

FDIC brought an enforcement action against SpiritBank in 2014 in connection with an "affiliated third-party payment processor."

That consent order committed the bank to taking steps to comply with anti-money-laundering regulations, including a policy on how to handle "suspicious activity reports."

Kelly stepped down as president of the bank about five months before the FDIC order on payment processors was issued. He stayed on as chairman of the board until he took the EPA job last spring.

Democratic lawmakers have been trying with little success to find out more about Kelly's case since his banking ban was made public in August. Reps. Elijah Cummings (D-Md.) and Frank Pallone (D-N.J.) asked FDIC and Pruitt for more information in September 2017 (Greenwire, Sept. 22, 2017).

"Billions of dollars move through these accounts. These funds should not be entrusted to someone who has been barred from working for every financial institution from credit unions to Wall Street banks," Pallone said.

Last week, Sens. Elizabeth Warren (D-Mass.) and Cory Booker (D-N.J.) sent a letter to Pruitt, saying Kelly's banking career was "marked by mismanagement and fraud."

According to The Intercept, Warren had previous sent Kelly a letter pressing him on the bank's handling of money from the Troubled Asset Relief Program (TARP), often referred to as the bank bailout.

SpiritBank's holding company got $30 million from TARP's Capital Purchase Plan in 2009, which it put into mortgage lending.

The stock was auctioned off in 2013 after the bank missed $3.7 million in dividend payments. The bank had paid more than $2 million in dividends, but stopped after agreeing with the Federal Reserve to cease paying dividends.

The federal government got only about $10 million for the stock, resulting in a loss to taxpayers of about $18 million. By then, the other four Oklahoma banks that had received money in the program had repaid the Treasury.

Lawmakers had been hoping to question Kelly at a January hearing on Superfund, but he backed out shortly before the hearing, citing unspecified scheduling conflicts.

Click here to see documents related to this story.

Twitter: @MikeSoraghan Email: msoraghan@eenews.net

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