Banks Cheated in Grain Scheme

Wells Fargo & Co. subsidiary Wells Fargo Bank and three other lending institutions lost millions of dollars in a fraud scheme by officials of a failed Illinois grain elevator operator, federal prosecutors said Thursday.

John “Buzz” C. Gibbons, chief executive of defunct Ty-Walk Liquid Sales Inc. in Minooka, Ill., and Kathleen L. Lestina, the company’s board secretary, were charged with mail fraud in the scheme and plan to plead guilty, Assistant U.S. Atty. Patrick Layng in Chicago said. They lied about the amount of grain they had in order to obtain as much as $63 million in financing from lenders, prosecutors said.

The fraud hurt grain farmers and devastated Illinois’ grain insurance fund in what was the biggest financial collapse of a grain elevator in Illinois history. The Illinois Farm Bureau is seeking legislation to increase state oversight of grain elevators and change how the fund operates, a spokesman said.

“They were giving warehouse receipts for the same grain to everybody,” said Kathryn George, a managing director at Brown Bros. Harriman & Co., which lost $1 million in the scheme. “A lot of people will be very happy these charges came down.”

Irv Miller, Lestina’s attorney, said neither she nor Gibbons “made a penny” from the alleged fraud and were trying to keep the elevator business going.

Joe Duffy, a lawyer for Gibbons, didn’t return a phone call seeking comment. Lestina, 42, and Gibbons, 50, each face up to 30 years in prison and a $1-million fine, prosecutors said.

Prosecutors say the scheme took place from December 2000 to August 2001, when Ty-Walk went out of business.

Gibbons and Lestina obtained a $33-million credit line from San Francisco-based Wells Fargo; a $10-million loan from New York-based Brown Bros.; a $15-million commodity repurchase agreement with New York-based American International Group Inc.’s AIG International; and a $5-million credit line from Itasca, Ill.-based First Midwest Bank.

George said Brown Bros. would be reimbursed for the $1-million loss it suffered on the $10-million loan.

Wells Fargo spokeswoman Beth Doroff said the company doesn’t comment on pending litigation. Representatives for the other lending institutions weren’t available for comment. Layng wouldn’t say how much lenders lost.

Lenders and farmers recovered about $31 million, including about $5 million through the Illinois Grain Insurance Fund, created to protect those who use grain elevators. The scandal wiped out the fund.