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Bank Director Accused of Embezzling
BY SARA LINDAU
The newly opened Centennial Bank in Southern Pines has sued former treasurer and board member Henry D. Wilkinson, alleging that he embezzled $200,000 of the bank’s organizing funds.
A complaint filed Tuesday in Moore County Superior Civil Court accuses Wilkinson, 49, of breach of fiduciary duty, fraud, and unfair and deceptive trade practices that have "damaged the bank in excess of $200,000." The bank seeks a jury trial and recovery of triple damages.
Federal and state insurance deposit and banking regulators are also said to be investigating the case. The complaint claims that Wilkinson "admitted" to embezzling the money.
In a letter mailed to shareholders, Centennial CEO John H. Ketner Jr. said the embezzlement occurred in late 1999, before the bank’s incorporation and opening in January. The theft was discovered during a routine audit, he said.
Ketner told The Pilot that he feels confident the bank will prevail in recovering the money. Part of the funds have already been recovered from the former director, he said.
Wilkinson, a resident of the Pinehurst area for about eight years, resigned from the bank’s board of directors March 17.
Wilkinson declined to comment to The Pilot when reached Tuesday at his home in Pinehurst.
The complaint claims that Wilkinson used his position of trust with the bank to carry out a scheme to take money belonging to the bank from its organizing funds, which were deposited in another bank at the time.
The complaint alleges that Wilkinson "diverted, concealed and otherwise embezzled for his own use and gain $50,000 on Oct. 6, 1999, $50,000 on Oct. 14, 1999, $50,000 on Nov. 16, 1999, and $50,000 on Dec. 13, 1999." The funds were the "rightful property of Centennial Bank," the suit says.
The complaint alleges that Wilkinson transferred the money directly from the bank’s checking account at Centura Bank into his personal business account, Pinehurst Area Consultants Inc., also at Centura Bank.
Wilkinson allegedly used the money for personal items such as payment of individual and household expenses, a mortgage, renovations and additions to his and his wife’s home at 55 W. McCaskill Rd. in Pinehurst, payment of federal and state taxes owed, the purchase of a ring owned and used by his wife, and "for such other wrongful purposes as shall be revealed through the discovery process."
The complaint says Wilkinson agreed to become an organizing director of Centennial Bank in 1998, and that the bank "instilled a special confidence in Wilkinson by electing him Treasurer of the Organizing Group of the Bank." As such, he was "in charge of overseeing the financial records of Centennial Bank including management of the bank accounts of the Organizing Group."
The complaint says Wilkinson had an obligation to subvert his personal interests to those of the bank while furthering the best interests of the bank. But, it says, while "enjoying the special confidence instilled upon him by the bank," he devised and carried out a scheme to defraud it.
The complaint alleges that Wilkinson breached his fiduciary duties of good faith and loyalty owed to the bank; and that he concealed, embezzled and diverted the funds for his own personal uses, constituting a false representation or concealment of a material fact.
A complaint of constructive fraud alleges that the fiduciary relationship bound Wilkinson to "act with good faith and loyalty" but that he "failed to act openly, honestly, and fairly in his capacity as a fiduciary when a special confidence had been reposed and took advantage of his position as a fiduciary to the detriment of the Plaintiff (bank) and otherwise breached his fiduciary duty … by making false representations and concealing material facts which were reasonably calculated to deceive, and which did in fact deceive," resulting in damage in excess of $200,000.
The complaint also asks the court to freeze all funds belonging to the bank that are currently in possession of the defendant.
Ketner’s letter to shareholders says, "Your money is safe. Centennial Bank’s initial capital exceeding $7 million remains unimpaired, and the FDIC insures customers’ deposits."
Further, the letter says, the "stolen money was withdrawn from an organizational expense fund prior to the opening of your bank, and not from depositors’ funds or shareholders’ paid-in capital."
The letter assures shareholders that the bank will "take whatever action is necessary to recover the stolen funds; in any event, any loss would not impact the safety and soundness of the bank."
Among the regulatory agencies to which Ketner reported the loss were the Federal Deposit Insurance Corp. and the N.C. Commissioner of Banks.
"We are conducting a criminal investigation," Hal D. Lingerfelt, state banking commissioner in Raleigh, told The Pilot. "We’re just getting started."
It appears, Lingerfelt said, that the money was taken from a fund composed of $1 from each share purchased in the initial stages of organizing the bank. The money was set aside for organizing expenses, such as advertising and start-up costs.
If embezzlement occurs to a bank in the process of formation, Lingerfelt said, his office has some jurisdiction.
"As the result of any investigation," he said, "we’d have recourse to referral to any state or federal prosecutor, or both." He said that his office and the FDIC work together in such cases.
"It appears money may have been taken from the pre-organizing fund," said Lingerfelt, who had previously been alerted to the bank’s audit findings and was told by The Pilot that the complaint had been filed Tuesday.
Wilkinson and his wife have been active in the community. Their home in Pinehurst, known as "The Arches," had been scheduled for the Southern Pines Garden Club’s annual Home and Garden Tour on April 12.
But it was withdrawn from the tour a couple of weeks ago and replaced by another showplace in the Southern Pines-Pinehurst area, as rumors of Wilkinson’s troubles began to circulate around the community.
Wilkinson was also a member of the Board of Directors of the Arts Council of Moore County for several years. But he recently notified another officer of his resignation as vice president of the board, a position to which he was appointed a month or two ago to fill a vacancy, sources on the Arts Council board said.
Wilkinson also worked on committees for the Sandhills Area Chamber of Commerce and had been a member of the Chamber since 1992, a Chamber spokesman said.