The Bank of San Antonio and a subsidiary are accusing a former top-level employee of forging documents, arranging kickbacks, and swindling the company out of millions of dollars.
Officials of the bank and subsidiary Texas Express Funding (TEF) said they discovered what they called a “Ponzi-style fraud scheme” in May, resulting in losses of $13.2 million. After learning of the alleged fraudulent activity, bank officials notified the FBI and banking regulators.
The Bank of San Antonio formed TEF last year as a subsidiary specializing in receivables financing. But in a lawsuit filed Tuesday, the bank alleges TEF’s former president, Wayne Schroeder, fraudulently induced the bank to purchase millions of dollars of worthless accounts receivables from various businesses.
The suit, which also names five other individuals and four entities, claims negligent misrepresentation, civil conspiracy, breach of contract, and unjust enrichment and seeks to recover the $13.2 million plus punitive damages.
“In addition to being made whole, we want to make sure that this fraudulent scheme cannot be perpetrated against any other innocent financial institution,” stated Brent Given, president and CEO of The Bank of San Antonio.
Formed by the bank in August 2019, TEF is a business that purchases unpaid accounts receivables, or invoices, from companies at a discounted price. The practice, also referred to as “factoring,” provides a company with immediate cash flow and represents an investment for a third party such as TEF and The Bank of San Antonio.
The suit filed by the bank and TEF details numerous allegations against Schroeder and others.
According to the suit, the scheme started with the bank and TEF investing $10.4 million to purchase the accounts receivable of various businesses from Southwest Bank Factoring and Southwest Bank and continued over the course of nine months before it was discovered on May 6.
A longtime banking executive and an acquaintance of Given, Schroeder holds degrees from Texas A&M University and Southern Methodist University, according to his LinkedIn profile. He resides in New Braunfels, according to the suit.
In 2014, Schroeder created a factoring business known as Titan Factoring with partner Isaiah Navarrete, then sold it to Southwest Bank in 2017, according to the suit. Southwest Bank, located in Odessa, set up a subsidiary for the accounts receivable business known as Southwest Bank Factoring, which operated in Comal County.
When Schroeder was hired by The Bank of San Antonio in August 2019 to head up TEF, he induced his new employer to buy out the customer accounts then owned by Southwest Bank Factoring by misrepresenting the value of those accounts through altered documents and false information, according to the lawsuit. The lawsuit states that the “overwhelming majority of all the customer invoices TEF purchased were either fraudulently prepared, hopelessly aged, and uncollectable, or both.”
Schroeder also allegedly forged the signature of a Southwest Bank Factoring client, a business owner found to be in prison at the time the document was signed, the suit said.
The Bank of San Antonio lost “several millions of dollars” more, the lawsuit alleges, after wiring funds to pay what turned out to be fraudulent invoices created by a fake company set up by Schroeder.
Another scheme alleged in the lawsuit involved Schroeder altering the accounts receivables documents of a trucking company and a custodial business to conceal the true age of invoices initially owned by Southwest Banking. The suit claims he also created false invoices and arranged kickbacks through various means that led to bank accounts he owns.
Named in the suit were other individuals who allegedly conspired with Schroeder to falsify documents. The suit also claims Schroeder used part of the proceeds from these schemes to purchase a Ford Shelby Cobra Mustang valued at $90,000.
“It’s really quite breathtaking … the outright fraud, how bold he was in perpetuating the fraud,” said attorney Andy Taylor, who is representing The Bank of San Antonio. “But maybe he figured he’d never get caught.”
Schroeder resigned from TEF April 30, shortly before the alleged fraud was discovered.
“We started asking Mr. Schroeder questions to figure out what was going on, and he just would give us a bunch of excuses and stories that turned out not to be truthful at all,” Taylor said.
A Houston criminal defense attorney, Chip Lewis, said by Taylor to be representing Schroeder, did not return calls for comment.
Although Southwest Bank is named as a defendant, the lawsuit does not allege that Southwest Bank knowingly committed fraud, Taylor said. Instead, the suit accuses Southwest of committing a breach of contract and negligent misrepresentation, he said. “[But] once we depose them, we’re going to find out what they knew and when they knew it.”
The lawsuit comes just weeks after The Bank of San Antonio announced an agreement with The Bank of Austin and Texas Hill Country Bank to merge the three banks into one institution with total assets of over $1.5 billion. Pending regulatory approvals, the merger is expected to close in the fourth quarter of this year.
Bank Board Chairman Bruce Bugg said he disclosed what he knew about the incident to merger partners and regulators within a week of discovering the alleged fraud.
“Everyone understood the situation for what it is – an outright and elaborate fraud – which in no way is a credit issue or reflection on our bank’s operating culture,” said Bugg, calling the alleged fraud “a one-off, isolated event.”
Both Taylor and Bugg said they are confident the bank will be able to recover its losses through the lawsuit and a $10 million insurance policy that helps cover losses from employee dishonesty.
Disclosure: The Bank of San Antonio is a Rivard Report business member. For a full list of supporters, click here.