Lawsuit claims Iowa bank aided fraud

An entrepreneur forced from his Des Moines business by unpaid debts now faces a federal racketeering lawsuit — as does the West Des Moines bank accused of helping him and others misspend as much as $2 million of a construction loan.

Des Moines Register
April 4, 2009

Lawsuit claims Iowa bank aided fraud
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By JEFF ECKHOFF moc.germd|ffohkcej#moc.germd|ffohkcej

Michael Stessman, former manager of the inPlay entertainment arcade in Des Moines, is accused of pocketing at least $624,000 from the building fund for a planned hotel, banquet and entertainment facility north of Chicago.

The lawsuit was filed in Illinois this week by Stessman's former partners in the Fox Lake Lifestyle Development. According to the lawsuit, Stessman also helped Nebraska contractor James Tiemann take $842,000 for construction of a building that doesn't exist and funneled about $300,000 more to a Des Moines construction company that's now bankrupt.

The lawsuit is filed under a civil portion of the federal Racketeering Influenced and Corrupt Organizations Act.

The petition also names Bank Iowa of West Des Moines as an alleged party to the thefts.

Court papers allege — based on statements made at a January meeting with Stessman's former partners — that Bank Iowa officials broke the law during a recent federal inspection by failing to show Fox Lake as a bad loan on their books. The bank denied the allegation.

"Nothing could be further from the truth," said John Bouslog, attorney for Bank Iowa. "As the lawsuit goes forward and the true facts come out, I believe the true facts will support the bank 100 percent."

Stessman, whose Dallas County home is assessed for tax purposes at $536,840, could not be reached for comment.

New management at the Des Moines inPlay, now called AllPlay, said Stessman was removed from that business in December because he wasn't paying rent. Polk County court papers show Stessman has lost or settled at least five major debt-related lawsuits in the past year, including a $540,597 judgment obtained against him and his company by a Coralville food services company in November.

Stessman's partners won a $314,900 judgment last month after he failed to make good on a promise to buy out their shares of the debt-laden inPlay company.

Court papers and news accounts say the Fox Lake, Ill., development was slated to include an 80-room hotel, a 450-seat banquet facility, significant improvements to a nearby marina and an inPlay — the combination arcade, banquet hall and sports bar franchise that Stessman helped found in Peoria, Ill., before he moved to Des Moines.

According to the lawsuit, construction money for the largely untouched development was supposed to come from a $5.2 million loan from Bank Iowa, which is based in West Des Moines.

Court documents claim that Bank Iowa "completely botched" the $5.2 million Fox Lake loan by giving Stessman money without checking to see whether construction work had taken place or requiring any documentation of the money's use.

According to the lawsuit, Bank Iowa "repeatedly and continuously authorized cash disbursements directly into" a Stessman-controlled bank account and allowed him to use $361,175 from the first installment of that money "to pay off Stessman's personal debts."

Gary Meyers, a consultant hired by Fox Lake's remaining partners, said bank officials made little effort to secure their investments and violated common-sense rules of real-estate development.

"It appeared that they were paying out money from the get-go for things that have nothing to do with the project," Meyers said. "The bank at best behaved in a negligent fashion."

Court papers allege that Bank Iowa improperly paid $101,000 to John Vratsinas Commercial Builders of Des Moines to settle a lawsuit. The Fox Lake plaintiffs say John Vratsinas Commercial Builders had sued to obtain payment for work it never did.

The company, which filed for bankruptcy in January, recently obtained a judgment for another $194,000 after a Stessman-paid lawyer failed to answer a second lawsuit.

Stessman's former investors are seeking a court order to block a scheduled April 19 sheriff's sale of the Fox Lake land to satisfy that judgment.

Note: Due to incorrect information in a federal lawsuit, an earlier version of this story contained incorrect information about two Iowa banks. Bank Iowa, based in West Des Moines, was sued this week for its alleged poor oversight of a $5.2 million loan for an Illinois construction project. BankIowa, originally founded in Independence, is an unrelated company and not involved with either the lawsuit or the controversial loan.

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