Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, February 12, 1991 TAG: 9102120369
SECTION: VIRGINIA PAGE: B1 EDITION: METRO
SOURCE: DAVID M. POOLE STAFF WRITER
DATELINE: LENGTH: Medium
But that was not enough to satisfy Hess.
The Salem mortgage broker demanded Hartman dump his own money into Hess' failing ventures, according to testimony Monday.
Hartman complied, and during the first six months of 1990, he invested several hundred thousand dollars - much of it borrowed.
Hartman's investments were disclosed for the first time Monday during a U.S. Bankruptcy Court hearing on the bankruptcy petition filed by Hess and his wife, Shirley.
The testimony, however, raised questions as to why Hartman would go so far into debt and risk his banking career in order to help Hess.
"I believe there is something to the relationship between Mr. Hess and Mr. Hartman that has not been brought to light yet," said A. Carter "Chip" Magee, a Roanoke attorney appointed to untangle the Hesses' finances.
Hartman did not appear at the hearing on the advice of his attorney, who invoked his client's rights to avoid self-incriminating statements. The FBI has been investigating the so-called "strawman" loans approved by Hartman at first Virginia Bank, and, later, First Security Bank.
In 1988, Hartman resigned from First Virginia Bank after bank officials discovered he had approved nearly $500,000 in strawman loans.
As is the case with all strawman loans, the loans were small and went to individuals who apparently had no connection to one another. The money actually went to Hess and his partners, who paid the borrowers' commissions.
Charles Cornelison, a lawyer for First Virginia, said the bank turned to Hartman and Hess to pay off the loans. Hartman settled with the bank for $350,000 in early 1990, while Hess continued to make monthly payments on about 30 strawman loans.
Financial consultant Susan Modlin Hart said Monday that Hess was behind in his payments when she began to work for him in January 1990.
Hart said Hess was "technically bankrupt," in that he borrowed money to make monthly payments on old loans.
In desperation, Hess turned to Hartman. "Mr. Hess said, `You helped create this mess. I expect you to help pay it back,' " Hart said.
Hartman did as he was told, borrowing $100,000 from the First National Bank of Christiansburg and depositing the money into Hess' bank account, she said.
Hartman regularly came by Hess' Main Street office, asking how much money was needed to make upcoming payments for Hess' business, she said.
Cornelison asked Hart if she thought Hartman was being "blackmailed."
Hart said she did not think blackmail was involved, though earlier, she had said Hartman was well aware he faced possible criminal charges if authorities learned of the strawman loans.
Federal authorities are investigating strawman loan arrangements in which Hess and his partners raised money by using dozens of individuals to obtain small loans at area banks.
In exchange for a commission, the strawmen turned the money over to Hess and his partners, who agreed to pay off the loans. His partners included Joseph G. Marshall, William C. Noell Jr. and Frank R. Quinn.
Hart said Marshall - not Hess - was the original contact with Hartman at First Virginia Bank.
Strawman loans violate federal banking laws if they are intended to conceal the true borrower's identity from a bank's loan committee or bank regulators.
Last week, Hess said First Virginia officials should have been aware of the strawman loans because of documentation contained in their files.
But Cornelison said Monday that Hartman had arranged the loans so no one at the bank could have realized Hess was getting the money.
"If someone had said to the bank, `There's a criminal conspiracy between Richard Hess and Tom Hartman,' then we could have found it," Cornelison said.
by CNB