Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, February 19, 1994 TAG: 9402190077
SECTION: VIRGINIA PAGE: C1 EDITION: METRO
SOURCE: MICHAEL STOWE STAFF WRITER
DATELINE: LENGTH: Medium
Walter Hoffman, president of the now-defunct Hill Brothers shoe company in Lynchburg, was charged with money laundering and misapplying bank funds in the 10-count indictment.
Hoffman is the first borrower to be charged by federal officials in the bank fraud scheme that centered on Richard Hess, a Salem mortgage broker who died in 1992.
To ease the financial problems of his development companies, Hess devised a scheme in which he recruited third-party borrowers - or straw men - who turned over loan proceeds to him.
Straw men were paid a fee or promised a high rate of return, and Hess was supposed to make the loan payments.
Assistant U.S. Attorney Tom Eckert said he hopes to prove that Hoffman helped Hess secure three loans for $69,000.
"We think we can show that he made money off those loans," Eckert said.
Hoffman, if convicted, could face 54 years in prison and a $2.5 million fine.
Eckert said the fraud investigation will continue and more charges may be filed.
"Cases like this just take a long time," he said.
Two of the biggest players in the illegal loan scheme have already pleaded guilty.
Former banker Thomas E. Hartman pleaded guilty in 1992 to accepting bribes, and one of Hess' partners, Joseph Marshall, admitted to passing $40,000 in cash kickbacks to Hartman.
In 1987, Hess relied on about 25 straw-man loans to raise $400,000 for a hotel that he and his partners hoped to build off Interstate 77 in North Carolina. The straw men obtained loans of about $25,000 each from First Virginia Bank and turned the money over to Hess and his partners.
In 1988, First Virginia officials discovered the scheme and pressured Hess to repay the loans. Hess paid off First Virginia by taking out new straw-man loans at other banks where Hartman worked.
The indictment states that twice in 1989 Hartman arranged for Hoffman to secure loans for Hess. Hoffman also recruited a Salem businessman who was unaware of the scheme to obtain a third straw loan, Eckert said.
Eckert said federal authorities are also investigating allegations of mail fraud made against Hoffman when he ran Hill Brothers.
In 1992, before the company went out of business, the U.S. Postal service twice threatened to stop delivering the company's mail.
Thousands of customers logged complaints against the company for merchandise that was never delivered, the federal prosecutor said.
by CNB