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Former Wyoming bankers banned from industry

Pine Bluff, WY
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The Federal Reserve Board has announced it has executed Orders of Prohibition against Frank E. Smith and Mark A. Kiolbasa former institution-affiliated parties of Farmers State Bank, Pine Bluff, Wyoming, for breach of fiduciary duties and engaging in unsafe or unsound practices.

Smith's and Kiolbasa's actions are detailed in a Final Decision of the Board in the Matter of Frank E. Smith and Mark A. Kiolbasa, which was before the Board following a recommended decision by an administrative law judge. Smith and Kiolbasa were both formerly employed by Central Bank & Trust, a Wyoming state nonmember bank. From about 2010 until his departure in September 2014, Kiolbasa had served as a loan officer and president of Central's Cheyenne, Wyoming, branch, with a loan portfolio of about $17.5 million. From about 2008 through his departure in March 2015, Smith was Central's chief financial officer, and acted as Central's customer information security officer from about December 2013 until his departure.

Smith and Kiolbasa conspired to relocate to Farmers State Bank, a member bank, by opening a Farmers loan production office in Cheyenne in direct competition with Central, and convincing Kiolbasa's lending clients to move their business via the LPO to Farmers, going as far as sharing a detailed list of key borrowers and their loan information with Farmers then president and chairman, John Gross. Smith and Kiolbasa did not inform anyone at Central of these actions, knowing that doing so could have jeopardized their employment at Farmers. After Kiolbasa left for his new job at Farmers, Smith assisted the movement of loans from Central to Farmers by giving Kiolbasa exact payoff figures so that Central had little, if any, warning of impending payoffs and no opportunity to contact their borrowers to entice them to stay. Smith and Kiolbasa even pirated loan-related forms from Central to create similar documents at Farmers.

In March 2015, Smith and Kiolbasa executed a stock purchase agreement to purchase, respectively 7.76% and 19.04% ownership in Farmers' holding company, Commercial Bancorp. One of Central's board members discovered the Federal Reserve Notice of Change of Control application for the stock acquisitions, and Smith resigned from Central and became Farmers' president and CEO and a board member.

Central sued Smith and Kiolbasa and other Farmers-affiliated defendants in September 2016. Cent. Bank & Trust v. Smith et al., No. 186-671 (Wyo. 1st Jud. Dist.) Three claims went to trial -- misappropriation of trade secrets, breach of fiduciary duties, and tortious interference with contract or prospective economic advantage. On March 23, 2018, the jury found both Smith and Kiolbasa (and no others) liable for all three claims, awarding Central over a million dollars in damages. In addition, the jury awarded punitive damages after finding Smith and Kiolbasa's conduct willful and malicious on the first count and willful and wanton on the latter two counts (assessing $25,000 against Kiolbasa and $50,000 against Smith). Once the court entered final judgment, Smith and Kiolbasa appealed the verdict and Central appealed the earlier dismissal of the other Farmers defendants. While the appeals were pending, the parties entered into a global settlement, after which the trial court vacated its judgment in the Central Litigation just before the ALJ hearing.

Following the administrative hearing, the administrative law judge recommended that the Prohibition Orders be issued. The Board agreed.

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