By John Lyon
Arkansas News Bureau

LITTLE ROCK — A Little Rock lawyer whose scheme to issue bogus bonds caused the failure of a Batesville bank pleaded guilty today in what a federal prosecutor called the largest fraud in Arkansas history.

Kevin Harold Lewis, 43, pleaded guilty to one count of bank fraud in U.S. District Court in Little Rock. The total loss from his scheme has been estimated at $39.9 million.

U.S. Attorney Christopher Thyer talks to reporters outside the federal courthouse in Little Rock after a hearing Wednesday in which Little Rock lawyer Kevin Lewis pleaded guilty to bank fraud. (John Lyon photo)

Lewis will be sentenced at a later date. He could be sentenced to up to 30 years in prison and fined up to $1 million, but federal sentencing guidelines — which the judge does not have to follow — would put his prison sentence at no more than 12 years and seven months.

In a news conference after Lewis’ plea hearing, Christopher Thyer, U.S. attorney for the Eastern District of Arkansas, said Lewis issued fraudulent rural improvement district bonds and used the bonds as collateral to obtain loans, the proceeds from which he used to continue issuing bonds as well as funding several businesses he was involved in and maintaining “a very opulent lifestyle.”

Thyer called Lewis’ operation a “Ponzi scheme.”

“He was able to roll and roll and roll and was robbing Peter to play Paul,” Thyer said.

The scheme began to come to light in October 2010, when the FDIC discovered during a routine bank audit that First Southern Bank in Batesville had a bond portfolio that included $23 million in rural improvement district bonds created by Lewis. Lewis and his family’s PA Alliance Trust were majority shareholders in the bank.

The FDIC discovered that the bonds were fraudulent and reported its findings to the FBI and the U.S. attorney’s office. In December, the FDIC shut down the bank and entered into an agreement with a Missouri bank to take over its assets and deposits.

Other banks from which Lewis obtained loans using fraudulent bonds as collateral included Centennial Bank, Citizens, Liberty Bank, First Community, Allied, Simmons and Regions Bank. Thyer said the “intended loss,” or the amount Lewis intended to steal through fraud, was $47 million.

CLARIFICATION: Citizens State Bank in Bald Knob, not Citizens Bank, was a victim of Lewis’ scheme, the U.S. attorney’s office said today.

Lewis’ obtained a 53 percent controlling interest in First Southern Bank for his trust by borrowing $4.6 million from First State bank in Lonoke, according to prosecutors. He increased his trust’s share to 65 percent in part with funds from the sale of two fraudulent bonds to First Southern Bank.

“Mr. Lewis’ actions have resulted in the failure of First Southern Bank and significant loss by many other banks in this state,” Thyer said. “(With a loss of) between $20 million and $50 million, Mr. Lewis’ plea today represents the largest fraud in the history of Arkansas.”

Thyer’s office has seized $1.5 million in assets related to Lewis’ fraud, including rental property, commercial properties, vehicles and cash. Lewis also has surrendered some legitimately obtained assets to various victims as part of his cooperation with the government.

Multiple lawsuits have been filed in connection with Lewis’ activities.

“It is my anticipation that civil litigation concerning Mr. Lewis’ actions among the various victims in this state will continue for years to come, but to be sure there will never be enough money collected to fully satisfy all of the victims in this case,” Thyer said.

Lewis appeared in court with his attorney, Tim Dudley. District Judge James M. Moody allowed Lewis to remain free until his sentencing.

Moody initially said Lewis would have to wear an electronic monitor until his sentencing, but Dudley asked that Lewis be allowed to forego the monitor, saying he was not a flight risk.

“He’s got deep roots in the community,” Dudley said. “All his family is here. He’s got no money with which to flee.”

After Assistant U.S. Attorney Karen Whatley said she would leave the decision to the judge’s discretion, Moody said Lewis would not have to wear a monitor.
Lewis did not respond to reporters’ questions as he left the federal court building in downtown Little Rock.

“We’re not going to have any comment,” Dudley said.