Opinion ID: 2756545
Heading Depth: 3
Heading Rank: 3

Heading: The August 2005 Loan

Text: Richard Crouch was an employee of the Federal Land Bank Association of South Alabama (“the Bank”) in Montgomery, Alabama. The Bank had hired 3 Case: 13-15677 Date Filed: 12/02/2014 Page: 4 of 49 Crouch to head a project called Capital Markets of the South (“CMS”), an unincorporated joint venture of the Bank and four other land banks to make large loans. The documentation for loans that Crouch originated through CMS was all done in the name of the Bank. In 2005, Hulse contacted Crouch and expressed interest in a line of credit in the $25 to 30 million range to use for acquiring and developing a property in the United States. Crouch traveled to Houston, Texas for a face-to-face meeting with Hulse. At the meeting, Hulse stated that he had a very significant bond portfolio, but he did not give an estimate of its value. Hulse proposed that the bonds would be used to secure the contemplated loan. Crouch admitted to Hulse that he did not have much experience using bonds as collateral for loans or otherwise and that he required “an education from somebody who understood about how [a lender] would use [the bonds].” Hulse stated that Teers was his broker and that he would set up an appointment for Crouch to meet with Teers. The next day, Crouch met with Hulse and defendant Teers over breakfast. Teers told Crouch that he was Hulse’s broker, that he and Hulse had been doing business together for almost ten years, and that he was very familiar with the bond market and how bonds worked. Although Teers did not give a specific dollar value of the bonds, Teers described Hulse’s bond portfolio as “significant.” Crouch understood Teers to be referring to a current bond portfolio. Crouch testified that it 4 Case: 13-15677 Date Filed: 12/02/2014 Page: 5 of 49 mattered to him whether H&H had bonds, and he would not have pursued the loan if Teers had revealed that he did not then manage any money for Hulse. Hulse and Crouch left the meeting together, and when Crouch asked for specifics as to the size of the bond portfolio, Hulse indicated that it was enough to cover the cost of a Canadian property that the men earlier had discussed, which Crouch knew to be worth $400 million. Crouch subsequently emailed Hulse to discuss a potential $30 million line of credit. Crouch thanked Hulse and Teers for educating him on Hulse’s business model and plans, and noted that H&H would be the borrower on the loan and would pledge land and government securities as collateral for the loan. Crouch’s proposal stated that the lender did not expect the value of the bonds to fully secure the loan, but that the bonds pledged would need to produce income sufficient to cover the interest payments on the loan. Crouch also requested a detailed description that would help the lender understand the overall nature of Hulse’s financial holdings and businesses. On March 17, Hulse responded by fax, describing how he first started investing in bonds (“March 2005 fax”). Hulse also faxed to Crouch a cash flow sheet indicating that the bond portfolio produced enough interest income to service the debt on the loan. Crouch told Hulse that he needed Hulse’s attorney to provide independent verification of up to $18 million in AAA-rated securities, including names and 5 Case: 13-15677 Date Filed: 12/02/2014 Page: 6 of 49 terms. On March 28, Hulse sent Crouch an email, attaching Bloomberg descriptions of the bonds. That same day, Mock wrote a letter to Crouch stating that Mock was the senior trust officer for Hulse and Hulse’s companies and that the transfer of bonds from the trust to H&H was permitted under the conditions of the trust agreements. Crouch subsequently discussed the Bloomberg descriptions with defendant Teers, and Teers told him that they represented the bonds that could be used as collateral. Crouch secured approval for the $30 million line of credit from the CMS banks contingent on $16 million in bonds being pledged as collateral. Crouch had additional communications with defendant Teers before the Bank loaned the money to Hulse. On August 18, 2005, Teers sent Crouch Bloomberg pages for multiple bonds and the signature page for the loan’s Pledge Agreement, signed by Teers on behalf of Tri-Star, in three separate faxes. Crouch thought the Bloomberg pages represented bonds that were going to be part of the collateral required by the Bank. 1 Based on these documents, Crouch believed that the Bank’s $16 million pledge requirement had been satisfied. The loan was approved and the proceeds distributed in August 2005. Prior to the loan approval, no one told Crouch that Hulse did not actually own any bonds. 1 At trial, other testimony indicated that information from the Bloomberg system can confirm the existence of bonds but cannot confirm their ownership. 6 Case: 13-15677 Date Filed: 12/02/2014 Page: 7 of 49 The loan proceeds of more than $22 million were used to create two accounts at Tri-Star, a collateral account and an operating account. On August 22, 2005, Teers used the $16 million in the collateral account to purchase bonds.