In the late spring of 1975, the National Bank of Georgia under the newly installed leadership of Bert Lance granted loans totaling some $250,000 to a North Georgia bank official named Bill L. (Bill Lee) Campbell.
The two men knew each other well. Both were in their mid-40s. Both worked at the Calhoun First National Bank in Calhoun, Ga., where Campbell was vice president in charge of agricultural loans and Lance was still chairman of the board.
The purpose of the NBG's loans to Campbell, at least in part, was to clear up his overdrafts at Bert Lance's coutnry bank, overdrafts that at one point reportedly exceeded $197,000.
Less than three months later, Campbell was fired at a special meeting of Calhoun First National's board of directors for embezzling an estimated $1 million from the institution over a four-year period.
"It was run like a piggy bank," says Assistant U.S. Attorney Jeffrey Bogart of Atlanta. Bogart prosecuted Campbell last year and was in the process of investigating overdrafts on behalf of Lance himself when he was abruptly called off last Dec. 1 - two days before Lance's designation by President-elect Jimmy Carter as director of the Office of Management and Budget.
Lance and other top officials of the Calhoun bank claim to have been completely unaware of the bewildering array of forged and fictitous loans that Campbell initiated over a four-year period.
"I trusted him up to the last moment," Lance has said. "That's what friends are for."
But according to records generated by an obscure civil suit in Rome, Ga., which was quietly settled out of court last February. Lance had had some warning about Campbell's lending judgements.
On May 17, 1971, while still president of the Calhoun bank, Lance was sent a memo dealing with a number of questionable loans that Campbell had approved.
"It was not complimentary," recalls Cathy Powers Harrison, another bank official at the time, who wrote the note to Lance. "It was my job to keep watch over certain items such as loans . . . I felt he Campbell was making loans that were more of a benefit to him that to the bank."
As Harrison, who is now city clerk in Calhoun, Ga., remembers it, "action was taken by officers of the bank." Campbell, she told The Washington Post, was taken aside "by the top officers." She doesn't know just what was said, but she is certain that "they discused the matter with him."
If any disciplinary steps were taken, they were not noticeable. Campbell, who pleaded guilty to 20 counts of embezzlement last September, misappropriated the money over the next four years from 1971 to 1975, sometimes in collusion with others, often by simply faking names. The phantom borrows at the Calhoun bank included fictitious persons, dead people and at least one illiterate who is said to have laughed unproariously when asked to identify his signature.
Another loan for $28,299.50, ostensibly went to the Blackwood Baptist Church where Campbell was known for his Sunday evening lessons. According to Government officials, some of the money from the fake church account helped pay off a debt on the bank executive's showcase cattle ranch, Campbell Farms.
By one account, the small town scandal began to unfold publicy when Calhoun bank president Y. A. Henderson Jr. (Lance moved up to chairman of the board in 1974) approached one "borrower" to ask why he was in default on his loan.
"What loan? I never got any such loan," Henderson was reportedly told in reply.
A vice president and agricultural loan officer of the bank since 1969, Campbell was confronted next. On July 31, 1975, Lance, an old friend of Campbell, went to see him at his house along with bank presidnet Henderson and another bank director, Calhoun attorney James B. Langford.
According to the bank's lawyers, Campbell "admitted he had entered several fictitious names upon the books of the bank and admitted several other irregularities in his actions as an officer of the bank."
He was fired at a special board of directors' meeting the next day. The bank's hierarchy professed shock and surpirse. Lance has said he was "terribly dumbfounded."
In the same vein, the bank's management confidently reported in a Feb. 16, 1976, proxy statement to shareholders that if had filed "a proof of loss" with its insurance company for $994,004 as a result of the "irregularities" which had been discovered.
"In the opinion of bank management and legal counsel, the claim will be sustained," Calhoun First National shareholders were assured in the bank's annual report for 1975.
But doubts crept in. In a more guarded report to the comptroller of the currency of Feb. 10, 1976, the bank said simply that management expected to collect "a substantial portion" of its claim.
The insurance company, Hartford Accident and Indemnity, disagreed. On March 16, 1976, it filed a federal court suit against the bank, demanding a jury trial and charging that the terms of the "banker's blanket bond" it had issued some three years earlier had been abused.
For one thing, the Hartford company's lawyers asserted, "the defendant bank [Calhoun First National] had actual knowledge of such fraudulent and dishonest acts" on the part of Campbell.
In addition, the insurance company lawyers charged, "in making application for said bond, defendant bank failed to disclose a plaintiff (Hartford Accident and Indemnity) that said Campbell had been making illegal loans to himself and others with the knowledge of his superiors, including thaboard of directors of defendant bank."
The pleadings that followed produced a number of statements from the bank including the fact that Lance and Henderson were the "managing executives" in charge of day-to-day operations of the bank and in that capacity "periodically reviewed many" new loans, loan applications, problem loans and the like.
The bank also said without elaboration that sometime during the summer of 1974, both Lance and Henderson "became aware that Bill L. Campbell was having cash flow problems with his cattle and farming operations." Beyond that, the two top bank officers knew of Campbell's debts to Calhoun National, "principally in overdrafts" on his checking account, and knew "to some extent, of his indebtedness to others."
Indeed, the bank had what it called "liberal overdraft policies" for bank officers, insiders and others and did not even start charging interest on overdrawn accounts until July of 1974 when it says it was forced to do so because of "substantial abuse" of the practice.
As for loans, according to the bank's lawyers, Calhoun national had "no definitive or strict" policy regarding the dollar amounts an official such as Campbell could approve on his own authority. But in the spring of 1973, all loan officers at the bank were told that "any loan in excess of $15,000 would have to be approved by Thomas Bertram Lance or Y. A. Henderson Jr." The threshold was reduced to $5,000 in the fall of 1974.
Despite all that, Calhoun National protested that "no officer or employee . . . had actual or constructive knowledge" of the phony signatures on the Campbell loans before July 31, 1975. The bank's attorneys added that "no directors's examinations and no audits by outside accountants ever revealed any deficiencies, irregularities or exceptions relating to Bill L. Campbell."
In fact, there appears to have been no outside, independent audit of Calhoun National for many years until 1975 in the wake of a critical inspection of the bank's books by examiners for the comptroller's office. (According to Westbrook Murphy, deputy U.S. comptroller for administration, federal banking authorities did not get around to requiring external audits of national banks such as Calhoun's until that year.)
The Harford company lawsuit never came to trial. It was dismissed Feb. 18 in Atlanta as the result of an out-of-court settlement. Lawyers for both the casualty company and the bank refused to comment on the terms, but several sources said the bank had to content itself with some $400,000 and the thought that it might be able to recover some more by lawsuits against other parties involved in the illicit loans.
Lance was on vacation in Sea Island, Ga., and could not be reched directly for comment on the Campbell case. Campbell is serving an eight-year sentence at the federal penitentiary in Atlanta.
According to the lawsuit filed by Hartford Accident and Indemnity, Campbell was even permitted to continue making overdrafts on his "various checking accounts" at the Calhoun bank "through July of 1975," several weeks after bank examiners uncovered the persistent practice. Lance, in his 1974 gubernatorial campaign, and reportedly his wife LaBelle, also made substantial overdrafts.
"I suppose maybe he was getting a note or two," Lance's press secretary, Robert W. Dietsch, said yesterday of the 1971 memo from Harrison. "But he still trusted the guy. It was one of those unfortunate things."
"He went astray," Lance told reporters from Atlanta last fall. "That's one of the problems of being in the banking business."