Indiana Community Weathers Collapse of Local Bank

Earl Ford McNaughton might never have realized the effect of his actions today, had anyone asked about his future several years ago. Back then he was the champion of the small Indiana town in Steuben County that his family had first settled in 1836. That year, KPCNews.net reports, his great-great-great-grandfather, Alexander McNaughton, built a water-powered grinding mill in his little town of Ray.

The McNaughtons started making loans and issuing credit years before folding the family’s informal financial services into their own bank, the State Bank of Fremont, in the late 1800s, according to KPCNews.net. In 1915, the bank changed its name to the First National Bank of Fremont.

In his own mind, everything Earl McNaughton did in his business affairs was good and proper. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) did not agree and burst his bubble in 2004. The federal investigations, the mountain of debt and no less than nine lawsuits initiated over unpaid loans, totaling some $6 million, signaled the beginning of the end for Earl McNaughton.

The federal investigation of McNaughton centers around his alleged use of 15 bank employees to fraudulently borrow money that was never repaid, according to the Originator Times. The employees took out loans in their own names and passed the proceeds of the loans to McNaughton. The bank employees, through which he received the funds, received bonuses and raises to make payments.

Earl McNaughton was a pillar of his community, to be sure. Until forced to resign in November 2004, Earl ran the nationally chartered bank that his family had established, according to The Fort Wayne Journal Gazette. Under his leadership the bank expanded the total number of seven branhes in both Steuben and DeKalb counties.

He ensured the economic health of the area by helping to bring in natural gas lines, as well as starting industrial parks. McNaughton pioneered the issuance of bonds to provide low-interest loans to lure employers to the area. The Fort Wayne Journal Gazette reports that he contributed millions to Tri-State University from which he received an honorary doctorate in business administration in 2000.

“The family at one time owned many of the stores and commercial entities in Fremont," neighbor James Lowry told the Fort Wayne Journal Gazette. "Each year, at the end of the season, they would have a drawing for people and give away a free Oldsmobile. They were very community oriented.”

McNaughton's community orientation also apparently included an obsession for collecting antiques, particularly those originating in his area, and extended to the saving of local historical buildings. The Fort Wayne Journal Gazette reports almost 10 percent of the value of the First National Bank of Fremont was in antiques and fine art, at the time the bank was sold. The average amount similarly sized banks hold in “other assets” is half this amount, according to the FDIC. He collected land and buildings as well, although the property was sold to pay back loans or brought up at auction to satisfy debts.

In addition to the employee loans, he received loans that he later defaulted on, using land that he owned and stock shares in his bank’s holding company, American Heritage Banco (AHB), as collateral. The Fort Wayne Journal Gazette reports that, according to court documents concerning the repayment of debts, he also pledged stock that didn’t exist. Some 30,000 shares of the 69,000 AHB shares pledged had never been issued. The funds from these loans, like that from employee loans, were used to purchase more antiques and property as well as to support his generous lifestyle.

Obsessive collecting is “a universal and primordial need…to gather as many of the prized possessions as possible.” The Collector Café wrote, “Collecting can be a substitute for certain human interactions of which you may be frightened. If someone has been hurt as a child, they turn to objects because objects can’t hurt you back.”

The Collector Café continues, “The individual intrinsic worth of one piece is minimal in comparison to the value it provides to the total collection. When collectibles or antiques are grouped together and thoughtfully arranged, they become a work of art.”

Delving further into the subject, Dr. Werner Muensterberger, author of the book, Collecting: An Unruly Passion, told interviewers, “I’ve seen a number of people, who after a severe trauma, turn to collecting. You could say they were traumatized and lost their faith in the world, in people and reliance in general and turned to something tangible. There is little question that collecting is more than the simple experience of pleasure. If that was the case, one butterfly or one painting would be enough. Instead, repetition is necessary,” according to the Collector Cafe.

What trauma, if any, began McNaughton's obsession with collecting is not known. What is know is that his collecting played a significant role in landing him in his current traumatic situation.

Ultimately, the sale of the seven branches of the First National Bank of Fremont to Farmer State Bank was completed in October 2005, Farmer State Bank president and CEO David Morrison, told AccountingWEB.com. Farmer State Bank is headquartered in La Grange, Indiana.

Earl McNaughton and his wife, Pam, appear to have escaped to his Blue Mountain Ranch in Faywood, N.M., although that cannot be confirmed. Ironically, the town of Faywood is located near another town named Truth Or Consequences. In the course of legal events, McNaughton has received several orders to appear in court, as well as two “body attachments” after his lack of court appearances in the wake of the collapse of the First National Bank of Fremont.

Earl McNaughton’s disappearance is best summed up by a friend of his, speaking with the Fort Wayne Journal Gazette, “That Earl would ever leave this area is the last thing I would ever have imagined. What happened to him is beyond me. It absolutely baffles me.”

You may like these other stories...

Hertz and Icahn make peaceThere won’t be any nasty, protracted proxy battle between Hertz Global Holdings and activist investor Carl Icahn. The rental car chain agreed last Thursday to give Icahn – who has...
For bitcoin users, the taxman cometh. And you best know how to calculate taxes owed on what the IRS calls convertible virtual currency.In March 2014, the IRS issued Notice 2014-21, which declares virtual currency will be...
Majority of House of Representatives urges leadership to preserve cash method of accounting for tax purposesA bipartisan majority of the House of Representatives – 233 members – has signed a letter urging House...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.