Gary Gibbs, a Mississippi developer testifying in First NBC Bank founder Ashton Ryan’s federal fraud trial, told jurors on Thursday that he lied for years about the true state of his withering real-estate empire, building up a mountain of bad debts that played a central role in the bank’s 2017 failure.
By the time of the bank’s collapse, Gibbs was by far its biggest borrower, with more than $130 million of the nearly $1 billion in bad loans that brought the bank down.
He blamed Ryan for letting his lending get out of control.
“I was unaware at that time that it was fraud,” Gibbs claimed during cross examination from Ryan’s attorney. “I was deferring to a very experienced banker and accountant, and I was just following his recommendations.”
Gary Gibbs walks to the Federal Court in New Orleans to testify in the trial of former First NBC Bank founder Ashton Ryan Jr. on Thursday, January 26, 2023. Ryan (Photo by Chris Granger | The Times-Picayune | The New Orleans Advocate)
In the third week of Ryan’s trial, Gibbs was one of several former borrowers whose testimony formed the core of the government’s case against Ryan. Gibbs followed contractor Jeffrey Dunlap and developer Warren Treme on the witness stand, both of whom testified about a complex web of transactions that piled up tens of millions of dollars in bad loans on land deals, some of which included Ryan as a partner.
Ryan’s attorney, Edward Castaing, has countered that all of the borrowers and former bank officials expected to testify — nine in total — have taken guilty pleas for conspiracy and are cooperating with the government on the understanding that they will get light sentences.
He has sought to show that all of the borrowers lied of their own volition about their finances to keep loan money flowing, using some of it to finance lavish lifestyles instead of paying down their debt.
Real estate deals
Over more than a day of testimony that featured talk of private jets and secret meetings, Gibbs told how he first became a borrower at First NBC around 2007, when he was looking for financing for a hotel and duck hunting lodge in Arkansas.
He had major projects in the region that needed financing, including several large low-income housing developments in Tennessee, Arkansas and Louisiana.
At Ryan’s request, Gibbs said, he also took over the debt on other First NBC-backed projects controlled by New Orleans lawyers Henry Klein and Fred Heisler, including a New Orleans East low-income housing project that was never completed.
Gibbs, 68, who had declared bankruptcy in 2005 just two years before he began borrowing from First NBC, said his company’s finances started to spiral out of control after Devere Construction defaulted on his Arkansas low-income housing project in 2013. He said that meant he couldn’t fund other projects as planned and should have gone into bankruptcy protection again to reorganize his debts.
But he claimed that Ryan kept lending to him and directed him to inflate his financial position, including valuing federal tax credits at millions of dollars when in fact they were worthless.
His loans with First NBC went from about $46 million in 2013 to more than $123 million by the end of 2016.
Former First NBC executive Ashton Ryan, Jr., left center, walks to U.S. District Court in New Orleans with his lawyers, Peter Castaing, far left, Edward J. Castaing, Jr., right center, and Deborah Pearce for his trial on Tuesday, January 10, 2023. (Photo by Chris Granger | The Times-Picayune | The New Orleans Advocate)
To make its case, the government has presented a blizzard of documents, including many similar loan memos and emails showing that Ryan signed off on millions of dollars of loans using his “incremental lending authority,” which meant that individual loan didn’t require board approval.
At one point in early 2015, Ryan made a succession of $1 million loans to Gibbs over a period of just one month without board approval, according to prosecutors.
A ‘black hole’ of debt
In all, First NBC made 155 separate loans to Gibbs over the nine years he was a client.
At one point, in a recording of a meeting of First NBC’s loan committee, board member John Calhoun says of Gibbs’ mounting loan, “I don’t know when it will stop; I just don’t want to keep lending money into a black hole.”
Ryan is heard assuring Calhoun and the rest of the board members that Gibbs has assets and cashflow and that it’s best to keep lending until his projects pay off.
In his cross-examination, Castaing pressed Gibbs on his claim that Ryan had been the one driving him to lie about his finances.
“There is no proof that Ashton Ryan told you to do that apart from your word against his, is there?” Castaing asked.
“No sir,” said Gibbs.
Castaing also asked Gibbs about his personal spending during the time he was unable to make loan payments, supposedly because he was short of cash. Those included the purchase of two private airplanes, a Beachjet 400b and a Piper Meridian 500, for a total of $1.3 million. There were also a series of luxury automobile purchases, renovations on two houses, a Mercedes-Benz automobile for his sister, Land Rover SUVs for both his granddaughter and her friend, and other personal expenditures.
Surprisingly brief
In a trial expected to last four to six weeks that in its first 13 days has already featured nearly 1,000 documents, U.S. District Judge Eldon Fallon has sympathized with the jury over the monotonous nature of the evidence.
“I know this is very tedious for you,” he said to the jurors Thursday.
Still, not every portion of the trial has dragged. Warren Treme, who had been a partner in two development ventures with Ryan, gave testimony on Wednesday that was surprisingly brief. Like other borrowers, he said Ryan had conspired with him to fraudulently inflate his finances to cover up his inability to pay back his loans.
He gave monosyllabic answers and frequently said he could not remember in his questioning by prosecutors.
Gun in the face
On Tuesday and Wednesday, Dunlap, a contractor, testified that he had racked up debts as he waited for payment for work done on projects for Ryan and Treme, including their Wadsworth Estates land near Covington.
He said he was owed $7 million for work done on Wadsworth and other projects and had agreed to take out a series of loans from the bank as part of a scheme to cover up the outstanding debt owed by Ryan and Treme on those projects.
Ryan’s defense quizzed Dunlap on his alleged history of problems with partners, some of whom have accused him of fraud separate from the First NBC case. Dunlap agreed that his former partner, Michael Imonti, had put a pistol in his face and accused him of fraud previously. Imonti had gone to the FBI, but nothing came of that incident, Dunlap said.
Imonti, who currently resides in Arizona, could not be reached for comment.
Also testifying was Ronald Schmitt, president of Beverly Industries, where Dunlap had worked before starting his own firm. “Dunlap left Beverly because of poor performance,” he said, adding that he didn’t trust him and found him to be dishonest.
Dueling secret recordings
Dunlap also testified against Fred Beebe, the co-defendant with Ryan in the case, saying he was aware of steps he and Treme had taken to cover up their finances while getting new loans from the bank.
Beebe was Treme’s loan officer and is charged with fraud and conspiracy only in relation to Treme’s dealings.
The prosecution played recordings of conversations that Beebe and Dunlap both secretly made of each other at the end of 2016, when the bank was near collapse.
The prosecution argued that their back-and-forth showed Beebe’s knowledge of the fraud. Beebe’s lawyers countered that it showed that he was trying in good faith to help Dunlap out of the mess he had gotten himself into.
