Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, December 15, 1994 TAG: 9412150054
SECTION: VIRGINIA PAGE: C1 EDITION: METRO
SOURCE: MICHAEL STOWE STAFF WRITER
DATELINE: LENGTH: Medium
"How would you like to have a banker in your back pocket?" Welch allegedly asked Hoffman.
In need of credit to help support his business, Hoffman allegedly agreed to participate in a "straw man" loan scheme that eventually left several local banks with thousands of dollars in worthless loans.
That's the story a federal prosecutor told a jury Wednesday during opening arguments at Hoffman's trial, which is scheduled to conclude Friday.
Hoffman, former president of Direct Consumer Marketing in Salem, is fighting a 10-count indictment that charges him with money laundering and conspiracy to misapply bank funds.
He is the first borrower to be charged by federal officials in the bank fraud scheme that revolved around Richard Hess, a Salem mortgage broker who died in 1992.
Welch has not been charged with any crime.
After handing out notebooks packed with more than 40 pages of charts and bank statements to each juror Wednesday, U.S. attorney Tom Eckert laid out what he said was Hoffman's involvement in Hess' scheme.
To ease financial problems of his development companies, Hess devised a scheme in which he recruited third-party borrowers - or straw men - who turned over the loan proceeds to him.
Hess benefited from about 60 straw loans worth nearly $1 million, Eckert said Wednesday. There were dozens of borrowers, he said, and most were motivated by commissions of several hundred dollars they would receive after securing loans for Hess.
Hoffman made about $700 in the deal, but he didn't do it for that reason, Eckert said.
"His motive was to cultivate a crooked banker ... who could make loans for his businesses," the prosecutor said.
That banker was Thomas E. Hartman, a former executive with First Virginia Bank and First Security Bank, who was the main witness against Hoffman Wednesday.
Hartman pleaded guilty in 1992 to accepting bribes in return for approving the illegal loans to Hess. He was sentenced to three years' probation and 100 hours of community service after agreeing to help the government with its investigation.
Hartman testified Wednesday that he agreed to help with the illegal loan scheme in 1987 because "it just seemed like an exciting thing to do."
Hartman left First Virginia in 1988 after bank executives began to uncover the scheme. Nevertheless, he took a top management job with the now-defunct First Security Bank and continued to arrange straw loans for Hess.
Soon, Hess had so many loans that he had to find help recruiting potential borrowers.
That's the reason Welch - an attorney for Hess - ended up calling Hoffman, Hartman testified.
At his first meeting with Hartman on Feb. 21, 1989, Hoffman allegedly signed for a $25,000 loan.
On July 28, after a call from Hartman, Hoffman allegedly obtained another $23,000 loan for Hess. Welch was not involved with that transaction, Eckert said.
Eckert said Hoffman also recruited a Salem businessman who was unaware of the scheme to secure a $25,000 loan for Hess.
Several months later, Hoffman asked Hartman to help him secure a legitimate $50,000 credit line for Hill Brothers - an amount that exceeded Hartman's lending authority. Despite Hartman's efforts, First Security's president rejected the credit application.
Eckert said Hoffman then fired off an irate letter expressing his disappointment to Hartman.
Barry Tatel, Hoffman's attorney, told the jury a different story.
Hoffman "didn't do anything wrong," he said. "This was a scheme devised by Mr. Hess and Mr. Hartman to serve Mr. Hess' and Mr. Hartman's greed."
Tatel admits his client obtained the loans, but said Hoffman got involved with the scheme only to help out Welch, an attorney for his company. He said Hoffman agreed to sign for the second loan because he wanted Hartman to like him, hoping that the banker might grant him credit in the future.
Even so, Tatel said, the loans weren't illegal.
"There were no back room deals; there was no plan to clean out the bank," he said. Hoffman "did something for a friend and he did something to ingratiate himself to a banker."
Hoffman, if convicted, faces up to 54 years in prison and a $2.5 million fine. And even if the jury rules in his favor this week, the former mail order company executive isn't out of hot water.
He was indicted last month on mail fraud charges that stemmed from thousands of customer complaints against Hill Brothers before it went out of business in 1992.
by CNB