$15 million bank fraud case against Lawrence man moving toward trial after judge rejects request to dismiss
Years of multiagency investigation into fraud by others in his banking circles ultimately produced the federal indictment against Lawrence businessman Troy A. Gregory, documents filed in the case reveal.
Gregory, facing criminal charges for his role in an alleged $15 million bank loan scheme over a decade ago, argued that the government took improper steps in that long process of bringing the case against him and should dismiss it.
However, the judge has refused his request. Gregory’s complex case continues moving toward a trial date of Aug. 5 in U.S. District Court in Kansas City, Kan.
In a December 2017 indictment, a federal grand jury charged Gregory, then 50, with one count of conspiracy to commit bank fraud, four counts of bank fraud and two counts of making false statements in bank records. At the time of the alleged crimes, Gregory was a Lawrence resident and an executive and loan officer at Lawrence’s University National Bank.
Gregory is accused of using false information to obtain a construction loan from 26 Kansas banks.
The indictment alleges that around late 2007, Gregory began the process of making a new $15.2 million construction loan to a group of borrowers he’d previously loaned millions of dollars to — even though he knew the group was struggling to make payments. The new loan was for the group to build an apartment complex in Junction City.
To get the new loan approved, Gregory made false representations to the other banks, according to the indictment. He then allegedly used loan funds for other purposes than building the apartments, including diverting over $1 million to pay for certificates of deposit pledged as collateral on the loan, pay off debt on the apartment property and make payments on unrelated loans.
The indictment alleges that the involved banks ultimately wrote off millions of dollars on the $15.2 million construction loan.
Gregory left University National Bank in 2009.
A federal criminal investigation and a Douglas County civil lawsuit launched two years after that are the focus of the opening section of U.S. District Judge Carlos Murguia’s order denying Gregory’s request to dismiss the pending case.
Murguia describes those legal matters — in which Gregory wasn’t a defendant — as “necessary background” to his decision.
According to Murguia’s order, filed in January:
“The [Gregory] Indictment is the result of a multi-year criminal investigation into, primarily, John Duncan and his business(es) for allegedly fraudulent banking activities,” Murguia wrote. “The IRS commenced the investigation in the fall of 2011, but other government agencies … soon joined the investigation. The criminal investigation of Duncan lasted approximately two years, culminating with Duncan pleading guilty.”
In 2014, a federal judge sentenced Duncan to more than four years in prison and restitution of $6.9 million.
The Duncan case’s tie to Gregory were two private, civil attorneys representing Kaw Valley National Bank of Topeka, the victim of Duncan’s crimes.
As the bank’s representative, one of the lawyers was interviewed by the federal government during its investigation of Duncan. Both lawyers — working for Lawrence firm Stevens & Brand — continued to communicate with the government about the ongoing investigation until Gregory’s indictment in 2017, exchanging over 400 emails on top of speaking by phone or in person.
Separately, those lawyers, but not the federal government, were working on a private civil suit filed in 2011 in Douglas County District Court against Duncan and other individuals and businesses. That suit lasted five years, ending with a summary judgement in 2016.
University National Bank, where Gregory had formally worked as a loan officer, was the plaintiff in the Douglas County suit. Kaw Valley Bank was among the defendants, so its lawyers “exhaustively investigated the underlying facts,” including Gregory’s conduct.
Gregory fought being called to testify in the Douglas County case — going so far as to invoke his Fifth Amendment rights. However, ultimately, he was deposed.
In the current federal case against Gregory, he sought dismissal saying the Stevens & Brand attorneys had acted as “government agents” in the investigation leading to his indictment. Gregory argued their involvement was improper and violated his due process rights.
Murgia shot down that argument, however.
The judge said the government wasn’t prosecuting that case and that Gregory pleading the Fifth was evidence he knew a criminal investigation involving him was underway.
Also, Murguia said the private attorneys’ communication with federal investigators along the way wasn’t unconstitutional or improper.
“While defendant sets forth a litany of contacts between the government and the S&B Attorneys, he has not adequately connected those contacts to a violation of a recognized due process right,” the judge wrote in his order.
Gregory had also argued that his charges should be dismissed because federal prosecutors abused the grand jury process by continuing to collect evidence even after he was indicted in December 2017. Namely, postindictment, the grand jury heard testimony from a probable witness at Gregory’s trial and received thousands of pages of documents from Gregory’s former employer, University National Bank.
Murguia did not find those were grounds for dismissing Gregory’s charges, either.
The judge did rule that the witness’s grand jury testimony couldn’t be used at trial. He said federal prosecutors’ postindictment questioning of the man before the grand jury went beyond the stated purpose and appeared to be “the possible beginning of ‘testimony laundering.'”
The government will still be allowed to use the University National Bank documents in its case against Gregory, Murguia ruled.
Since leaving University National Bank in 2009, Gregory has been a partner with DJT Student Housing Group Inc., according to his LinkedIn profile and the DJT website. Gregory was previously on the board of directors for Veritas Christian School, 256 N. Michigan St., but told the Journal-World in the weeks following his indictment that he was no longer involved with the school.
Gregory’s federal trial is estimated to last 17 days, court records indicate. His attorneys and prosecutors continue filing motions debating what evidence and testimony may be admitted at the trial.
Messages to Gregory’s listed attorneys were not returned Friday.
Attorney Jim Eisenbrandt, who represented Gregory when the federal indictment was filed over a year ago, told the Journal-World then that Gregory categorically denied its “baseless” allegations. Eisenbrandt said the loan in question was “fully performing” when Gregory left University National Bank in 2009.
In his statement, Eisenbrandt added, without elaboration, “The indictment is based upon false allegations by convicted felons who are seeking favors from the government.”