updated September 1, 2016

Enforcement Hearing Concludes Against Former Valley Capital Bank Executives Ellsworth and Stevenson

The OCC charged Ellsworth and Stevenson with engaging in numerous violations of law and regulation, unsafe or unsound practices, and breaches of fiduciary duty in their roles at the bank.

Compliance Actions

A hearing before an Administrative Law Judge concluded last week with respect to enforcement actions brought by the Office of Comptroller of Currency against Steven Ellsworth, former Director and Chief Credit Officer, and Kevin Stevenson, former Director and Chief Operations Officer, of Valley Capital Bank, N.A., Mesa, Arizona. The hearing commenced on Monday and concluded on Thursday.

The OCC alleged that Ellsworth and Stevenson made unlawful loans to bank employees for which they received personal benefit. The OCC further charged that Ellsworth and Stevenson misappropriated bank funds to make payments on their own personal debts, that they caused fraudulent payments to be made to bank employees, and that they made false statements to the OCC during the OCC’s investigation of the bank.

During the hearing, the OCC provided evidence that Ellsworth and Stevenson engaged in numerous regulatory and legal violations, were instrumental in facilitating unsafe or unsound practices, and that both former Valley Capital Bank officers breached their fiduciary duties while at the Mesa bank, which was shut down by the OCC in December 2009.

The OCC presented documents to prove that Ellsworth and Stevenson made a $500,000 loan to a member of the bank’s management. Those funds were then used to purchase stock in the bank, an impermissible violation of federal banking regulations. When the OCC discovered the loan it ordered Valley Capital Bank to remove it from its books. However, because the borrower was unable to repay the loan Ellsworth then asked the bank’s CEO, Frank Ortwine, to take out a new loan to pay off the improper loan with the proceeds. Stevenson and Ellsworth promised Ortwine they would quickly remove him from the loan; the new loan was a “short term” fix for the bank’s regulatory problem, according to court records. On that condition Ortwine agreed. He signed the loan and then also signed a credit agreement to guarantee the debt. Subsequently Ellsworth and Stevenson were unable or simply declined to remove Ortwine from the loan, instead reimbursing him with bank stock (which is now worthless).

In March 2009 Ortwine was fired by Valley Capital Bank. He received a $30,000 severance. To allegations of impropriety Ortwine has responded that the bank made false promises and failed to disclose information before he agreed to take out a new loan to fix the bank’s regulatory problems. Ortwine received bank stock (which now has no value) for the transaction. Ortwine claims that he did not personally benefit from the loan transaction. The FDIC. has sued Ortwine seeking to recover $512,000 for the deposit insurance fund. That dispute is ongoing in federal court. Case No. 2:10-cv-01178-GMS.

Through the administrative hearing the OCC sought an order to bar Mr. Ellsworth and Mr. Stevenson from further participation in the conduct of the affairs of any insured depository institution. In addition, the OCC has sought the assessment of a Civil Money Penalty against Ellsworth and Stevenson in the amount of $100,000 each and payment, of $833,506.70 restitution for the amount of loss that Ellsworth’s and Stevenson’s misconduct caused to the Deposit Insurance Fund.

The Administrative Law Hearing has now concluded. The parties will wait for a decision by the Administrative Law Judge. An adverse outcome may irreparably damage the careers of both Ellsworth and Stevenson who are reported to still be working in banking.