Kansas banker Shan Hanes was sentenced to prison for embezzlement and fraud

The former CEO of a rural Kansas bank who admitted to embezzling tens of millions of dollars in a cryptocurrency scheme has been sentenced to more than 24 years in federal prison.

Shan Hanes, 53, of Elkhart, was sentenced to 293 months in prison by U.S. District Judge John Broomes on Monday after previously pleading guilty in U.S. District Court to one count of embezzlement by a bank employee.

Bank boss was “the pig” in the pig slaughter fraud

“Mr. Hanes made some very poor decisions after becoming involved in an extremely well-run cryptocurrency scam,” his defense attorney, John Stang, wrote in a sentencing memo. “He was the pig that was slaughtered.”

Hanes was the “pig” in a cryptocurrency scam known as “pig slaughter,” a term derived from the fattening of pigs before slaughter, in which scammers steal money by convincing someone – the “pig” – to send money for what they believe is a legitimate investment. They may get even more money by promising higher returns for continued bogus investments.

Federal Reserve investigators said Hanes fell for the scam when he was CEO of Heartland Tri-State Bank, and federal prosecutors said he arranged multiple wire transfers totaling $47.1 million. The money came from the bank and went to a crypto wallet, which was then transferred to unidentified third parties.

“As CEO of Heartland Tri-State Bank, Mr. Hanes had the trust of the community of Elkhart, Kansas, but he abused that trust,” said Special Agent in Charge Stephen Cyrus of the FBI's Kansas City Field Office in a statement. “He attempted to enrich himself financially by embezzling funds from the bank. His get-rich-quick scheme was actually a pig slaughtering scheme. His involvement in that scheme ultimately led to the bank's collapse. His job, the bank's job, was to protect its customers and identify fraudulent schemes – not to participate in them.”

More:What is Pig Butchering, the crypto scam that hit a Kansas bank? Here's everything you need to know.

FDIC assumed losses of an insolvent bank

The Federal Deposit Insurance Corporation, which had insured the bank, bore the loss of $47.1 million. The bank went bankrupt and investors lost $9 million.

Kansas banking regulators declared Heartland insolvent in July 2023. At the time, the state bank commissioner's office did not elaborate on the cause of the bank's failure, calling it an “isolated incident.” The collapse came at a time of public unrest following a series of high-profile national bank failures.

“Hanes' greed knew no bounds,” said U.S. Attorney Kate E. Brubacher in a press release. “He violated his professional duties, his personal relationships and federal law. Shan Hanes not only defrauded Heartland Bank and its investors, but also undermined trust in financial institutions with his illegal activities. Today's verdict is a sign of justice for the victims and a sign that the U.S. Department of Justice will hold accountable those who abuse positions of trust for their own benefit.”

Judge imposed harsher sentence than demanded by prosecutor

Court records show that the 293 months was the maximum sentence within the guideline range and exceeded the recommendation of prosecutors and defense attorneys.

Prosecutors had asked for 264 months in prison – the middle of the recommended sentence – and wrote in a sentencing memo that Hanes deserved a “severe punishment.”

“The public and the financial system at large deserve trust in their institutions and the agencies responsible for that trust,” wrote Assistant U.S. Attorney Aaron Smith. “The court must protect the community from further crimes by the defendant while promoting respect for the law and providing deterrence.”

Hanes' lawyer had asked for a lighter sentence or a reduction in the sentence, but at least to the 235 months that are at the lower end of the guidelines.

Stang wrote that his client “acknowledges that this offense is a serious crime” and “accepts full responsibility for his actions.” He noted that Hanes did not benefit financially from the scheme and that a longer prison sentence would reduce his ability to pay restitution.

“Being a victim of this fraud does not excuse the illegal actions of Mr. Hanes, who wrongfully stole money from the bank, leading to the bank's failure and losses for shareholders,” Stang wrote.

“Mr. Hanes regrets the loss he has caused to the community and especially to the shareholders of Elkhart Financial Corporation,” Stang added. “These people were his friends, colleagues and neighbors, and all he can do at this time is try to repay the compensation upon his release from prison.”

The refund will be decided in a separate hearing.

The criminal prosecution before the State Court is not yet completed

Meanwhile, Hanes faces 28 charges related to the crypto scheme in Morton County District Court. His attorney said the potential sentence in that case is 86 months, and the district attorney wants that sentence to be served after the federal verdict.

The trial in this case is currently scheduled for October.

Kansas banker Shan Hanes was sentenced to prison for embezzlement and fraud

Bank boss was “the pig” in the pig slaughter fraud

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Kansas banker Shan Hanes was sentenced to prison for embezzlement and fraud

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