Mercantile Bank agrees Jan. 19 to pay settlement

Mercantile Bank National Association, in an agreement filed Jan. 19, will pay $260,286 to settle a civil complaint brought by the United States. The government subsequently dismissed a civil complaint against the bank alleging violation of federal law.

A release from the U.S. Attorney for the Western District of Missouri said the settlement was to recover government losses on a Small Business Administration-guaranteed loan to Lines Music Company in 1995.

The settlement payment covers, in part, about $117,000 in guarantee payments the SBA made to Mercantile and more than $16,000 for costs of investigating the case.

In the complaint, which was filed together with the settlement agreement, the United States alleged violations of the False Claims Act. Assistant U.S. Attorney Cynthia J. Hyde handled the case.

A release from the U.S. Attorney's Office said bank employees submitted a loan application that said Lines' existing loans from Mercantile were current when they were in fact delinquent. The loan application also did not show that another loan secured by inventory and accounts receivable had a second lien on real estate.

The civil complaint alleges that in June 1995, Mercantile violated the federal law when it used false records or statements to convince the SBA to pay its guarantee on a loan that the bank had issued earlier in that year.

Lines Music Company, the recipient of the loan, defaulted on the $155,000 loan after two payments, according to the complaint. Lines Music Company filed for bankruptcy protection in June 1995.

The SBA would not have guaranteed the loan if it had known Lines Music's true financial condition, the complaint said.

In addition to the settlement payment, Mercantile agreed to institute a compliance program to address SBA loan procedures and to cooperate with the government in its investigation of the loan.

The civil complaint was separate from, but related to, criminal charges filed Jan. 12 against an assistant vice president with Mercantile. She is charged with making false statements to the SBA, making false entries in the records of a federally insured bank and presenting a false claim against the United States.

Andrea McGehee will appear in court Jan. 28 for a hearing and arraignment.

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