Category Archives: Financial Services

Six Houston-area residents charged with mortgage fraud

Six Houston-area residents have been charged in a multi-layered fraud scheme involving mortgage fraud and identity theft.

The US Attorney’s Office in the Southern District of Texas issued a press release, outlining some of the details. However, the original indictment filed last month remains sealed. Therefore, at this time, I don’t know how the scheme started and how long it continued.

The scheme involves

  • Elvina Buckley, a Woodlands realtor
  • Heather Ann Campos, a mortgage broker, based in Spring
  • Melinda Munoz, a notary, based in Spring
  • Leslie Edrington and her daughter, ShyAnne, also based in Spring
  • David Lewis Best Jr, a financial services executive

Ms. Campos and Mr. Best are considered fugitives and warrants remain outstanding for their arrest.

The indictment alleges that the six recruited clients for credit repair and “cleaned” their clients’ credit histories by filing false identify theft reports with the Federal Trade Commission.

After falsely inflating client credit worthiness, the six would fraudulently obtain credit cards, disaster loans and mortgages for themselves and their clients. They maintained control of the properties purchased in their clients’ names for the purpose of, allegedly, building a real estate portfolio worth millions of dollars and enriching themselves with rental income.

If convicted, all face up to 30 years in federal prison and a possible $1 million maximum fine.

Houston bank to pay $8 million for failing to counter money laundering activities.

CommunityBank of Texas has agreed to pay penalties of $8 million to settle charges that it failed to counter money laundering activities.

CommunityBank is part of CBTX, which is in the process of merging with Allegiance Bank, another Houston-based community bank. CBTX has 35 branches, mainly in the Houston and Beaumont areas.

The penalties were levied by two different regulatory bodies, the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network.

The Bank Secrecy Act (BSA) requires banks to implement and maintain an effective anti-money laundering (AML) program in order to guard against money laundering through financial institutions.

Weak controls

The bank had an AML program in place. However, as implemented, the program was not adequate to meet the minimum requirements of the BSA. The bank had an enterprise-wide automated monitoring system that reviewed transactions and generated alerts for review by analysts. However, the compliance office was understaffed. In practice, the three BSA analysts were reviewing an average of 100 alerts per day.

In addition, the BSA case officer applied exemptions for customers whose activities were thought to be ‘well-known’.  Exemptions were granted to customers who were later arrested or convicted of financial crimes.

The bank was also lax in fully completing questionnaires on new customer due diligence. In addition, there were many instances where it failed to file suspicious activity reports (SARs) on transactions over $5,000.

Illegal gambling and drug dealers

The regulators gave three examples where the bank should have reported suspicious activity.

  • Customer A operated a used car dealership and a financing company. The businesses had 19 accounts at the bank. The accounts received suspicious deposits of large round dollar amounts sent by persons known to be gamblers. Although the automated AML system created alerts, the bank did not act or report them. In 2019, the customer pleaded guilty to tax evasion and money laundering associated with operating an illegal sports gambling business for over 30 years.
  • Customer B was a former CPA who pled guilty in 2013 to a tax crime in relation to sports gambling. Despite that, the bank onboarded him as a new customer in 2017 and permitted him to open an account for a gambling establishment. The bank filed three incomplete SARs. Only after customer B was arrested in May 2019 for operating an illegal gambling ring, did the bank file an amended SAR reporting over $30 million in suspicious activity.
  • Customer C and his family was onboarded as a new customer in 2009 but the customer due diligence paperwork was incomplete. The accounts subsequently showed red flag indicators such as frequent deposit of checks, absence of typical business activities and a high volume of fees imposed for insufficient funds. Despite that, and knowing there was law enforcement interest in 2018, the bank failed filed to file any SARs. until January 2020. In July 2020, the customer and several members of the family were arrested on chemical trafficking charges. It was only in September 2020, did the bank file a more substantial SAR.

After the bank was notified of an investigation by the regulators in 2018, it hired a new Director of Financial Crimes and increased AML staffing.

SEC filing – 8-k

Spirit of Texas Bank to be acquired for $581 million

Spirit of Texas Bancshares, based in Conroe, has agreed to be acquired by Simmons First National Corporation, in a transaction worth $581 million. [UPDATE 04-08-22 – The deal has now closed.]

Spirit of Texas Bank operates 37 branches, primarily in the Texas triangle between Houston, Dallas-Fort Worth and San Antonio.

Simmons, based in Arkansas, operates 209 branches, but only 23 in Texas, around Dallas/Fort Worth and towns north of there.  It did have five locations in Austin and San Antonio but sold them to Spirit in February 2020 for $131 million. Simmons has been on an acquisition spree recently. Just last month, the company completed the acquisitions of two Tennessee-based banks for $278 million.

Spirit of Texas started in 2008 by acquiring First Bank of Snook in College Station. It went public in May 2008, raising $42 million. That valued the bank at around $200 million. It has made four  acquisitions since going public.

Founder and CEO of Spirit, Dean Bass, will retire and join the Simmons board as an independent director.

Two weeks ago, two Houston-based banks, Allegiance and CBTX, announced a $1.5 billion merger.

Both transactions are expected to close in the second quarter of 2022.

Simmons Spirit acquisition – investor presentation

Houston banks to merge in $1.5 billion all-stock transaction

Houston-based banks, Allegiance Bank and CBTX, have agreed to merge in an all-stock transaction. The combined market capitalization will be around $1.5 billion. and it will have $8.7 billion in deposits, placing it 6th in the Houston region (behind JP Morgan, Wells Fargo, Bank of America, PNC and Zions).


Allegiance has 28 branches, 27 in Houston and 1 in Beaumont. CBTX has 19 branches in Houston, 15 in the Beaumont area and one in Dallas.

Allegiance shareholders will own 54% of the combined stock, CBTX 46%. The bank name has yet to be determined.

Steve Retzloff, CEO of Allegiance, will become Executive Chairman, while Paul Egge, CFO of Allegiance, will take the same role in the combined company. Bob Franklin, CEO of CBTX, will become CEO of the combined company.

Both banks began operations in 2007. Allegiance initially concentrated on organic growth but in recent years made four acquisitions including Farmers & Merchants and Post Oak Bank. It completed its IPO in 2015.

CBTX started out in Beaumont in 2007 with the acquisition of CountyBank and later bought Crosby State Bank, Vista Bank and Memorial City Bank to expand into Houston. It went public in 2017.

The banks expect annualized pre-tax cost savings of $36 million. That’s net of $1 million of incremental costs for increased regulations and risk management that are required when a bank exceeds $10 billion in assets.

Closing is expected in the 2nd quarter of 2022.

SEC filing – Allegiance and CBTX merger

Cadence Bank to pay $8.5 million to settle claims of redlining

The Justice Department has announced a settlement with Houston-based Cadence Bank to resolve allegations that the bank engaged in lending discrimination by ‘redlining’ predominantly Black and Hispanic neighborhoods in the Houston area.

The Justice Department alleged that the bank engaged in redlining between 2013 and 2017 by avoiding providing loans and other home mortgage services in majority-Black and Hispanic neighborhoods.

In 2018, the Houston Metropolitan Statistical area had over 7 million residents. The region was 37.6 percent Hispanic, 35.5 percent White and 17 percent non-Hispanic Black. 52 percent of the census tracts were majority-Black and Hispanic.

Branches in majority-white areas

From 2013 to 2017, 12 of the 13 branches that Cadence operated were located in majority-white neighborhoods. The remaining branch was in downtown Houston and mainly served commuters. In 2017, the downtown area became majority-white due to demographic change.

Cadence relied on its loan officers to generate loans. All, except the downtown branch, had at least one loan officer assigned to them. None of the loan officers spoke fluent Spanish, nor did the bank provide training to serve the credit needs of the majority-Black and Hispanic areas. The bank did not advertise at all in Spanish.

Of the nearly 1,600 mortgage applications that Cadence generated in that period, 14 percent came from majority-Black and Hispanic areas. In contrast, similar-sized peers in the Houston area generated 36 percent of their applications from the same areas.

As a depository bank, Cadence is subject to the requirements of the Community Reinvestment Act which requires most banks to meet the credit needs of the communities that they serve. In the case of Cadence that’s Harris, Fort Bend and Montgomery counties.

The regulator initiated an examination of the Bank’s practices in October 2017.


Cadence will pay

  • $3 million fine
  • $4.17 million to create a loan subsidy fund for residents of predominantly Black and Hispanic neighborhoods in Houston
  • $750,000 for development of community partnerships to provide services to increase access to mortgage credit in these areas
  • $625,000 for advertising, consumer financial education and credit repair initiatives.

The bank is also required to dedicate at least four mortgage loan officers to majority-Black and Hispanic neighborhoods and open a new branch in one of these neighborhoods. It will also hire a Director of community lending to oversee these efforts and work with the bank’s leadership.

Merger transaction

In April, Cadence announced that it would merge with BanCorpSouth, based in Tupelo, Mississippi in a $6 billion all-stock transaction. The deal is expected to close later this year.

Cadence entered settlement negotiations with the Department of Justice, with the consent and support of BancorpSouth.


Galveston Insurance company to be sold for $5 billion

Moody Gardens – Galveston

American National Group (ANAT), an insurance company based in Galveston, has agreed to be acquired by Brookfield Asset Management Reinsurance for $5.1 billion.

The all-cash offer of $190 per share represents a 25% over the weighted average share price for the past 30 days. There were press reports in May that the company was exploring a possible sale. Prior to that, the stock price was around $120 per share.

ANAT was formed in 1905 in Galveston by William Lewis Moody Jr. It has $30 billion in assets, primarily in life insurance, though it has health, property, and casualty products. It operates in all 50 states.

70% of the stock is owned by the Moody Family or The Moody Foundation. The Libbie Shearn Moody Trust, The Moody Foundation and the Moody Medical Research Institute, who collectively own 60% of the shares, have approved the sale.

A lot of the shares of ANAT are owned in trusts of surviving members of the Moody family. Once the beneficiary dies, most of the shares in those trusts will revert back to The Moody Foundation.  According to the 2019 financial report of The Moody Foundation, about two-thirds of its investments (direct and indirect) were tied up in its investment in ANAT, so the sale will allow it to diversify its assets.

Following closing, Brookfield Reinsurance intends to maintain American National’s headquarters in Galveston and its presence in League City, as well as its operational hubs in Springfield, Missouri and Albany, New York.

According to the Wall Street Journal there has been a ‘frenzy among investment firms to amass insurance assets in recent months, with Blackstone Group Inc., Apollo Global Management Inc. and KKR & Co. all announcing big transactions’. With low interest rates, insurance companies generate a lot of cash that can be reinvested in other higher yielding investment products.

The deal is expected to close in the first half of 2022.

In April, CFO Tim Walsh was promoted to COO.

Press release – American National Group


SEC charges Katy investment advisor with $3.7 million fraud

The Securities and Exchange Commission (SEC) has charged Knight Nguyen Investments (KNI) and three individuals with obtaining funds from retail investments in five fraudulent securities offerings.


Knight Nguyen was based in Katy, Texas. Majority owner Chris Knight Lopez was also charged, along with his brother Jayson (based in Florida) and Forrest Jones.  Chris Lopez formed KNI in 2015, even though he had no experience as a securities professional. Jones was hired in February 2017.

The Scheme

Between March 2016 and September 2018, the SEC alleges that Chris Lopez and Jones raised $3.7 million from approximately 70 clients.  They largely targeted older and unsophisticated individuals who were trying to preserve or grow their retirement savings. Lopez and Jones promised that they would invest in safe and secure investments. Instead they invested the funds in five high-risk investments. Four of them were associated with or controlled by the Lopez brothers. Of course, this was not disclosed to the clients.

The SEC alleges that Chris Lopez and Jones fabricated documents and bank statements to purportedly show that some of the investments had millions of dollars in assets or cash. The SEC also alleges that they registered documents with the SEC that overstated the amount of regulatory assets under management.

Liberian gold and diamonds

A lawsuit filed in Oregon in 2016 appears to have triggered the SEC’s interest. A Portland doctor invested $2.4 million in a scheme to import gold and diamonds from a mine in Liberia. The doctor never got his gold and he lost his money. He sued his investment advisor, based in Salem and also KNI. KNI apparently sold the promissory notes issued by the purported mine.  In the current complaint, the SEC states that KNI stole that money.

Separate investigation into Jones

In June 2020, the SEC opened a separate investigation against Forrest Jones. A customer claimed damages of $350,000, alleging that Jones made unsuitable investment recommendations and misrepresentations.  At the time, in 2018, Jones worked at Fortune Financial Services in Montgomery. The investigation remains open.

CFO of Main Street Capital to depart

Brent Smith, the CFO of Main Street Capital, is leaving the company, effective August 31, 2021. He will be replaced by Jesse Morris, who will also retain his duties of Chief Operating Officer.

Main Street is a publicly-traded private equity company with a market capitalization of $2.8 billion. It has its head office in the Galleria area.

Rather bizarrely, the announcement was made through a SEC filing by MSC Income Fund, which is a closed-end investment company, advised by Main Street. The company itself has not yet issued a press release nor filed an 8-K with the SEC, even though they announced their Q1 results last Thursday.

Mr. Smith has been CFO and Treasurer since November 2014. He was previously the CFO of Cal Dive International. Cal Dive was a publicly-traded oilfield services company that filed for bankruptcy in 2015. Its assets were sold off to multiple buyers and the company was subsequently liquidated through a Chapter 7 filing.

Terms of Mr. Smith’s departure were not disclosed in the MSC filing, though it did refer to a retention agreement. Mr. Smith had a base salary of $361,250. According to the recent proxy filing, in the event of a termination of employment, any unvested shares would vest ($1.3 million at the end of 2020) but Mr. Smith would not receive any other payments.

I will update this post once more details are known

SEC filing – MSC Income Fund

CFO promoted to COO at Galveston insurance company

Tim Walsh, CFO and Treasurer of American National Group (ANAT), has been promoted to Chief Operating Officer. Brody Merrill, who joined the company in November 2020 as Deputy CFO has been promoted to the CFO position.

ANAT is an insurance company that was formed in 1905 in Galveston by William Lewis Moody Jr. and still has its headquarters there. It has a market capitalization of $3 billion. 70% of the stock is owned by the Moody Family or The Moody Foundation.

Mr. Walsh joined the company in 1995 and has been the CFO since 2017. Prior to that, he had been in charge of various divisions within ANAT. In fact, when he became CFO, he also kept his positions as Executive VP of Property and Casualty operations and multiple line agencies. In connection with his promotion, Mr. Walsh’s salary will increase from $575,000 to $650,000.

Prior to joining ANAT, Mr. Merrill spent 8 years at USAA in San Antonio. His last position was VP of Corporate Finance. Mr. Merrill’s salary will increase by $10,000 to $350,000.

SEC filing – American National Group CFO


Cadence Bank to merge with BancorpSouth in all-stock deal

[UPDATE 10-29-21] The deal has now closed.

Cadence Bancorporation, based in Houston, has agreed to an all-stock merger with BancorpSouth, based in Tupelo, Mississippi. The combined business will have a market capitalization of $6 billion.

The two banks are quite complementary is that Bancorp is a community bank, while Cadence brings commercial banking expertise. Bancorp has 325 full-service branch locations in Alabama, Arkansas, the Florida Panhandle, Louisiana, Mississippi, Missouri, Tennessee and Texas. Cadence has 98 branches in Alabama, Florida (around Tampa), Georgia (where Bancorp South has no presence), Mississippi, Tennessee, and Texas.

The two banks have contrasting histories. Bancorp was founded in 1876 in Verona, Mississippi and moved to Tupelo ten years later.  In contrast, Cadence was only formed in 2009 by banking industry veterans who helped grow Amegy Bank before it was sold to Zions Bancorporation in 2005.

The shareholders of Bancorp will get 55% of the combined equity, Cadence 45%. The company will keep the Cadence name. It will have its corporate headquarters in Houston, but its banking headquarters in Tupelo.

Dan Rollins, the CEO of Bancorp will become the Chairman and CEO, while Paul Murphy, CEO of Cadence will become Executive Vice Chairman. Mr. Rollins, before becoming CEO of Bancorp in 2012, spent 18 years in Houston as President and COO of Prosperity Bank.

Chis Bagley, COO of Bancorp will become President of the combined group. He’s also ex-Prosperity, having spent 17 years there. Valerie Toalson, the CFO of Cadence, will become the CFO of the combined group.

The deal is expected to close in the fourth quarter of 2021.

SEC filing – Cadence BanCorp merger