Three years ago, The Bank of San Antonio (TBOSA) announced they had been the victim of “ponzi style” bank fraud scheme involving factoring — a financial service where a bank buys invoices from a company for less than their face value, and attempts to collect more than they paid to generate a profit.
The factoring industry is heavily regulated, and factoring assets banks purchase are assigned credit ratings based on how fresh the invoices are and how likely the creditor will pay. Invoices older than a certain date must be reported as a loss by the factoring bank.
In this case, it was discovered a division of Southwest Bank, led by Wayne Schroder, amassed millions in aged factoring invoices or fictitious invoices altogether, and sold some $13 million worth to the factoring division of TBOSA, Texas Express Funding (TEF), misrepresenting them as creditable by forging records, and lying.
Schroder and 4 others were arrested by the FBI and convicted on bank fraud charges, however, TBOSA is alleging more people had a part to play in the fraud.
TBOSA filed a lawsuit against Southwest Bank, alleging that certain leaders at the bank knew about the fraud. TBOSA then conducted both depositions and discovery to obtain evidence relating to their allegations.
In the first lawsuit brought against Southwest Bank, a state district judge ruled against the plaintiffs in granting a motion for summary judgment. However, court documents explain Southwest Bank had brought a counterclaim in their defense, alleging TBOSA violated a “reliance clause” in the factoring purchase agreement that required the buyer to agree not to rely on the seller’s statements regarding the assets, and not to sue them for any purchase decision based on the sellers’ statements.
By filing the lawsuit against Southwest Bank for fraudulently misrepresenting the factoring assets, Southwest Bank argues this constituted a breach of contract.
Ironically, Southwest’s counterclaim has kept the lawsuit alive, and the judge signed an order creating a new, separate case allowing TBOSA to renew the allegations.
“Although it is true that this Court previously granted summary judgment against Plaintiffs on their affirmative cause of action for fraud, such ruling did not adjudicate whether Plaintiff TEF is entitled to assert fraud as an affirmative defense to Defendant SWBF’s counterclaim for breach of contract. Thus, regardless of the Court’s prior summary judgment ruling, which Plaintiffs continue to strenuously assert was erroneous and should be reversed, this Response creates fact issues sufficient to defeat SWBF’s Motion for Summary Judgment,” the plaintiff’s most recent filing states.
Once again, Southwest Bank has filed a motion for summary judgment asking for the court to rule in their favor and find TBOSA committed breach of contract by suing in violation of the reliance clause.
TBOSA contends certain officers at Southwest Bank committed fraud by non disclosure, pointing to emails and text messages obtained through discovery as well as depositions that they say show bank officers knew about the fraudulent assets, but directed Schroder to sell them off anyway.
The case explains how in July of 2019, Schroeder received a job offer from TBOSA to lead a new factoring subsidiary, TEF.
However, he faced two obstacles to accepting this job, the first being a two year non-compete agreement held by Southwest Bank barring him from working for a competitor, and secondly, millions in toxic factoring assets accrued under several specific accounts.
It continues saying former Southwest Bank President Dewey Bryant instructed Schroeder to “develop an exit strategy” to get these accounts out of the bank and off the books. It says Schroeder then approached Bryant, telling him he intended to sell the aged accounts to TEF/TBOSA (where he intended to go work) and requested he be released from his non-compete agreement.
In a sworn statement from Bryant, he denies having known that Schroeder intended to sell the invoices to TBOSA.
The case says Bryant then called a committee meeting with Southwest Bank officials that included Jeff Adams, Mike Atkins, Buzz Browning, Frank Deaderick, Lee Huff, and Paul Weaver. The committee voted to authorize Schroeder to sell the accounts, and Schroeder’s non-compete release was conditioned on the sale.
The aged accounts sold to TBOSA totaled millions of dollars.
The plaintiffs contend there is sufficient evidence to show both Bryant and another bank official were aware of the factoring accounts being severely aged and uncollectable, failed to properly report them in bank “charge off” reports, and by approving the sale to TBOSA and remaining silent, committed a form of fraud known as “fraud by nondisclosure.”
“An exhaustive discussion of the evidence in this case demonstrates the knowledge of both Dewey Bryant and Paul Weaver as to the true status of the factoring accounts. This evidence also demonstrates that both men discovered potential fraud was occurring through their employee, Wayne Schroeder, in that he was faking verifications of invoices. Despite this knowledge, the Defendants did nothing and said nothing. They simply waited in silence for the transaction to close, which it did”Plaintiff TEF’s Response to SWBF’s Counterclaim MSJ
All of the Southwest Bank defendants deny having known about the true nature of the factoring assets.
A hearing was held this past week in the State District Court of Comal County, where attorneys for both sides presented their arguments in the case.
A judge will now rule on Southwest Bank’s most recent motion, asking the court to rule in their favor on the breach of contract claim.
This case made widespread news when it first emerged three years ago, when Bryant, then an Odessa City Councilman, was challenging current Mayor Javier Joven for the open mayor position.
While Bryant has since retired from his position at Southwest Bank, he has continued to be involved in Odessa politics by forming a political action committee, named “Odessans for Ethical Leadership.”
Odessa Headlines will monitor this story for updates.