Asheville attorney indicted in $1.6M bank fraud case

Abigail Margulis | The Citizen-Times

ASHEVILLE - A local attorney was indicted by a federal grand jury Tuesday on charges of defrauding three area banks out of about $1.6 million, according to the indictment.

David R. Payne, 52, of Fletcher, was charged in connection to multiple counts of bank fraud and making false statements to a bank, said Jill Westmoreland Rose, U.S. Attorney for the Western District of North Carolina.

Allegations in the eight-count indictment stem from incidents from 2007-09.

“Payne allegedly went on a bank fraud spree, and, using his law license as a conduit to the fraud, he caused substantial financial harm to individuals and to financial institutions,” Rose said Wednesday.

He was charged with four counts of bank fraud and four counts of making false statements to a bank, according to the federal charges listed in the indictment.

He is accused of defrauding Pisgah Community Bank, Mountain First Bank & Trust, and the Bank of Asheville, according to court documents.

Payne denies the allegations brought against him, according to a media statement issued by his law office, David R. Payne, which is on Wall Street.

"Mr. Payne vehemently denies the allegations brought against him Wednesday in federal court — allegations which may be part of a veiled response to his professional efforts against the banking system," according to the statement. "Conspicuously, these charges involve loan transactions that occurred nearly a decade ago, during the height of the national mortgage crisis."

The statement says Payne is a respected lawyer and a good person.

"(He) has built a career around protecting the underdog," according to the statement. "Many of his clients and colleagues are well aware that Mr. Payne has long been a staunch advocate for those victimized by banks, and he has worked aggressively to hold financial institutions accountable for their predatory practices."

The indictment alleges that Payne defrauded the banks of at least $1,607,000, by making false statements and material misrepresentations about his financial condition on a series of loan applications he submitted to the banks.

Payne applied for fraudulent loans in his personal capacity and through other corporate entities he controlled, including Provision 08, LLC, and Shire Properties, LLC, the indictment states.

According to allegations in the indictment, in February 2007, Payne executed two promissory notes to NC Four C’s, LLC, a North Carolina limited liability company, in exchange for their disbursement of two loans totaling $800,000.

Payne ceased making payments in 2009 to NC Four C’s, LLC, when he allegedly began to have serious financial problems.

Payne entered into a transfer agreement through Provision 08 with a victim identified in the indictment as J.E. in December 2008, the indictment states. He had acted as an attorney for J.E. and for J.E’s charitable and business enterprises in the past.

The indictment alleges that, according to the terms of the transfer agreement, Payne agreed to pay to J.E. and J.E.’s heirs $4.38 million in exchange for the transfer of four properties to Payne, referred to as the Properties.

J.E. never received a single payment from Payne or Provision 08, LLC, according to the court document.

Investigators found that when Payne acquired the Properties from J.E. he began using them to obtain bank loans to benefit himself and his corporate entities, according to allegations in the indictment. To secure the bank loans, Payne allegedly made numerous misrepresentations, false statements, and omissions, all with intent to defraud the banks.

For example, the indictment states in December 2008, Payne used the acquisition of the Properties to secure a $735,000 bank loan from Pisgah Community Bank.

During the loan application process, he lied about Payne’s acquisition of the Properties, telling the loan officer that J.E. had gifted Payne the Properties in recognition of previous services provided to J.E.

The indictment also alleges that Payne failed to disclose to Pisgah Community Bank his personal liabilities, including the $800,000 personal debt to NC4Cs.

Payne continued to use the Properties as collateral in subsequent loan applications throughout 2009, according to the indictment. He was able secure loans from two additional banks based on similar misrepresentations and omissions.

In at least one of those instances, the indictment alleges that Payne’s own law firm served as the closing attorney for the loans, and that Payne was able to hide information from the bank regarding existing encumbrances on the property, which he used as collateral for the loan.

He received two loans in the amount of $250,000 and $522,000, respectively, according to the indictment.

Payne had his initial appearance Thursday before U.S. Magistrate Judge Dennis Howell.

In a statement issued from Payne's law firm it states, "Regardless of what motivated these claims, Mr. Payne remains confident in the sanctity of the justice system and, in particular, the truth-finding power of the jury. In due time, we believe that this process will completely vindicate him of any wrongdoing, whether criminal or otherwise."

Payne is an Asheville native, who for over 20 years has enjoyed working within the courtrooms of North Carolina, according to his bio on his law firm's website.

He grew up in the construction industry and has extensive trial experience, the website states. He enjoys the challenges of a legal battle and is focused on the right and truthful outcome for his clients.

There are three attorneys at the DRP firm who specialize in personal injury, traffic violations, criminal defense, real estate and deed transfer and worker's compensation. They have a second office in Marshall.

The charges of bank fraud and making false statements on a loan and credit application each carry a maximum prison term of 30 years in prison and a $1,000,000 fine per count, according to Rose.

The investigation was led by the FBI and FDIC-OIG. Assistant U.S. Attorneys Don Gast and Daniel Bradley of the U.S. Attorney’s Office in Asheville are in charge of the prosecution.