A Nashville man has pleaded guilty to charges that he defrauded Chattanooga-based Cornerstone Community Bank.
According to a release from John A. Horn, acting U.S. Attorney for the Northern District of Georgia, Grady Wayne Fricks, 65, used his relationship with a senior bank employee to "obtain a fraudulently inflated loan."
"Fricks' ability to manipulate people to further his scheme left the bank and its stockholders shouldering the loss," Horn said.
The release said that in November 2004, Fricks contacted a senior vice president at Cornerstone that he had a cozy relationship with asking for an $850,000 loan to purchase property in Ringgold, Ga. Fricks neglected to mention that he had already signed a contract to purchase the property for $425,000. The banker broke company policy by not requiring a copy of the sales contract, and then the banker allowed Fricks to pick his own appraiser to appraise the property. Fricks paid the appraiser $1,000 plus a $100 "tip" to inflate the value of the property. The appraiser furnished Fricks with a fraudulently inflated report, valuing the property at $1,010,000.
Prior to the loan closing, Fricks reportedly contacted the banker at Cornerstone and asked "Do you care if I get some money back at closing?" The banker responded "what the bank cares about is that the HUD-1 settlement statement shows a sales price of $850,000."
Fricks then obtained two HUD-1 settlement statements, one with the actual value of the property and one with the inflated value, and presented the inflated one to the bank, which in turn loaned Fricks the $850,000.
Two years later, Fricks contacted the same Cornerstone vice president and said he wanted to borrow more money against the property. He paid the same appraiser another $1,000 plus $100 tip to re-appraise the property. The appraiser turned in another fraudulent report, this time raising the property value to $1,433,000. Because of the new appraisal, Cornerstone released the additional collateral pledged by Fricks in the original loan, consisting of five properties and the guaranty of Fricks Properties, a company Fricks owned.
The case is being investigated by the Federal Bureau of Investigation with the assistance of the Office of the Special Inspector General for the Troubled Asset Relief Program.
Fricks' sentencing will be August 14.