Officials of Jayhawk Bancshares, the holding company that owns Lawrence National Bank, notified regulatory authorities today that they believe the company's chairman had been engaged in a multimillion-dollar loan fraud scheme for several years before he died last month.
LNB's employees and board of directors were told at a meeting this morning that Robert Brozman of Kansas City, who also was the bank's chairman until his death on June 10, had been using false financial statements to obtain loans and misrepresenting their intended purpose since at least 1978.
Terry Sutcliffe, LNB's president, said the amount of fraudulently obtained loans still outstanding totals $23 million but at one time may have run as high as $38 million.
Sutcliffe said he wanted to emphasize that the fraud or any regulatory action that may result will have no effect on LNB customers or directly affect the bank's operations. The local bank made none of the loans in question and did not hold the account into which Brozman funneled the loan proceeds, he said.
"THE ONLY relationship we had to any of that was that Robert Brozman was the majority stockholder of Jayhawk Bancshares," which owns controlling interest in LNB and six other banks in Kansas, Colorado and Illinois, Sutcliffe said.
"I think people would ask the question, `Does this mean my accounts are safe?' and the answer is `Yes,'" he said. "It really doesn't affect the bank because we operate with local autonomy."
Sutcliffe said he believed Brozman's estate would assume the $23 million debt from the loans still outstanding and would liquidate assets from the estate to pay the debt. That could lead to the sale of LNB, he said.
"I would hope that the local management would get an opportunity to purchase it, and I think that is a possibility," he said.
Sutcliffe said the business entity most likely to be affected by the discovery is CenCor Inc., a publicly traded company of which Brozman was founder, chairman and chief executive officer. Brozman also was chairman of two other publicly traded companies, La Petite Academy, the nation's second-largest child care chain, and Concorde Career Colleges.
SUTCLIFFE SAID the fraud was discovered when Brozman's estate was being inventoried for probate, revealing what Sutcliffe called "an apparent major difference in the liability section of Mr. Brozman's financial statement."
"Apparently, he obtained loans and lines of credit from various banks in the name of CenCor Inc., had those lines drawn upon and the money deposited to a checking account at the First State Bank of Kansas City, Kansas, under the name of CenCor of Kansas City Inc.," Sutcliffe said.
Sutcliffe described CenCor of Kansas City as a "shell corporation" one which engaged in no business activity and said the loan proceeds were used for personal and business purposes unrelated to CenCor Inc.
Although First State Bank of Kansas City is one of the Jayhawk Bancshare institutions, none of the loans was obtained from any affiliated institution, Sutcliffe said.
He said the fraud was reported to such federal authorities as the U.S. comptroller of the currency and the bank's bonding company, Kansas Bankers Surety Co. Brozman's records currently are being investigated by the Ernst & Young accounting firm.