Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 22, 1991 TAG: 9102220570
SECTION: VIRGINIA PAGE: B2 EDITION: METRO
SOURCE: DAVID M. POOLE STAFF WRITER
DATELINE: LENGTH: Medium
Charles Cornelison said a January 1990 settlement with a senior loan officer who made the loans showed that First Virginia did not try to transfer its problems to other banks.
Under the agreement, First Virginia held former loan officer Thomas E. Hartman personally responsible for repaying $400,000 of the loan money, Cornelison said.
First Virginia offered to loan Hartman the money over 20 years at 1 percentage point above the prime interest rate, he said.
Cornelison said the agreement showed that First Virginia wanted to settle its loan problems without asking Hartman to seek financing from another bank.
Cornelison's remarks came at a Bankruptcy Court meeting for creditors of Richard A. Hess, a former Salem loan broker under criminal investigation for his role in a "strawman" loan scheme.
Hess and his partners borrowed $750,000 from First Virginia through strawman loans, and then took out similar loans at other banks to pay off First Virginia.
Hess and his partners recruited "investors" to take out loans at First Virginia and then turn the money over to Hess. In return, Hess paid them a commission and promised to make the payments.
Hess has claimed that after First Virginia officers learned in 1988 that Hartman had made about 30 strawman loans, First Virginia encouraged Hess to borrow money elsewhere to pay off First Virginia.
He stuck by his story Thursday under questioning by Cornelison. Hess even claimed to have secretly taped a telephone conversation in which a First Virginia official encouraged him to get loans at other banks.
Hess, however, did not bring a copy of the tape to the meeting.
Cornelison said Hess was trying to blame others - including banks, his former attorneys and the media - for the collapse of a pyramid scheme that bankrupted many of his investors.
Hess did concede that he ran the operation "by the seat of the britches."
The strawman loans play a central role in an FBI investigation of possible bank fraud and possible land sales fraud at Smith Mountain Lake.
Earlier this month, Hartman took the Fifth Amendment when asked to testify at a bankruptcy court hearing about his business dealings with Hess.
by CNB