What is pig butchering, the crypto scam that hit a Kansas bank? Here’s what to know.
Jack HarvelThe former CEO of Heartland Tri-State Bank in Elkhart pleaded guilty to embezzling $47 million in bank funds to funnel into a cryptocurrency scam.
Shan Hanes, the former bank executive, could be sentenced to a maximum of 30 years, fined up to $1 million and be forced to pay up to $60.5 million in restitution. Hanes fell for what cybersecurity experts call a “pig butchering” scheme.
What is pig butchering?
In a pig butchering scam the victim — or “pig” — is lured into making what they think is a legitimate investment opportunity into a specific cryptocurrency. The perpetrator promises bigger returns for more investments, and gradually solicits more money over time.
The victim is often investing in cryptocurrencies through apps controlled by the scammers, or deposits their money into accounts that the scammers have access to.
The gradual increase in funds is likened up to the fattening of a pig before slaughter, while the butchering refers to when the scammer eventually steals the money and cuts ties permanently.
The Federal Bureau of Investigations said the form of online scamming originated in China in 2019 but has since spread throughout Southeast Asia.
What we know about Shan Hanes case
An unidentified scammer contacted Hanes through the messaging app WhatsApp about investing in cryptocurrency. Hanes then initiated wire transfers from Heartland Tri-State Bank into his digital cryptocurrency wallet on the exchange website Kraken.
Hanes made 11 transfers, often due to scammers saying it would "unfreeze" the previously deposited funds.
Hanes lied to bank employees, its board of directors and investors about the wire transfers while dispersing the funds to a handful of cryptocurrency accounts controlled by other unidentified parties. Overall bank shareholders lost between $9 million and $13 million.
The U.S. Attorney’s Office charged Hanes in February, and he signed a plea deal admitting his guilt on May 23.
What happened to the Kansas bank?
The Kansas Office of the State Bank Commissioner announced that Heartland Tri-State Bank was insolvent in July 2023, but shared few other details at the time. The news came shortly after the failure of Silicon Valley Bank and Signature Bank, but Kansas officials said the failure wasn’t indicative of broader problems in banking.
The Federal Deposit Insurance Corporation assumed the banks assets after it was declared insolvent, and insured customers could access money despite the bank’s closure. Dream First Bank in Syracuse, Kansas, acquired Heartland Tri-State and assumed responsibility over its operations. Former Tri-State customers’ accounts automatically rolled over into Dream First’s system.
