KEYSTONE — The city of Keystone doesn’t look much like it did 16 years ago when it was one of the top stories in newspapers in the U.S., through several European countries and among Pacific Rim nations.

On Sept. 1, 1999, the federal Office of the Comptroller of the Currency declared the First National Bank of Keystone insolvent, claimed the bank was fraudulently carrying $515 million in loans that had already been securitized or sold on its books and named the Federal Deposit Insurance Corporation as receiver of the failed bank’s $1.1 billion in reported assets.

On Friday, Sept. 18, Terry Lee Church, the failed bank’s de facto chief executive officer, was released from federal prison. Church, now 62, and the late John Knox McConnell who died on Oct. 27, 1997, had orchestrated and operated FNB Keystone’s loan securitization program from 1992 until the bank failed. The two hid the losses of the securitization program which falsely inflated the bank’s assets. An on-going adversarial relationship with bank examiners and some pretty blatant behavior from the bank’s leadership kept the fraud a secret until the bitter end.

“I remember it well,” Robert E. “Bob” Holroyd said. Holroyd had been appointed fiduciary commissioner of McConnell’s estate, and was sorting through a fraudulent, red herring laced codicil to McConnell’s will that re-routed McConnell’s wealth to his long time associate, the late Billie Cherry who died in prison on Dec. 29, 2006. Before the posthumous codicil was added to McConnell’s will, McConnell’s college alma mater, Waynesburg College in Waynesburg, Pa., stood to inherit McConnell’s $19-million plus estate. The codicil changed all that.

“I had a call from a young lady who was with the insurance company down in Texas that handled the insurance on the bank for the FDIC,” Holroyd said. “She said she wanted to file a lien against McConnell’s estate, and she did not know how to do it. She said the lien was for $500 million.

“She said it was a sum that was a little larger than they usually have and added: ‘We’ve never filed a claim that large before.’ I told her that the size of the lien didn’t matter,” Holroyd said. “In order to simplify it for her, I told her I would send her a letter stating the claim and all she had to do was sign it in blue ink and send it back to me. It wasn’t even worth me charging her anything for it.”

The bank collapse spawned two criminal trials resulting in convictions for Church, Cherry, Michael Graham and four others. Graham cooperated after the first criminal trial, and Church got her sentence reduced after assisting the government in unraveling some of the complexities of the federal cases that emerged after the collapse.

Civil cases included the Gariety case brought by investors who were falsely enticed into investing in the bank months before the collapse; the Coast Partners case involving the California loan securitization group led by Harald Bakkebo and Daniel Melgar; and the biggest of the civil complaints, Grant Thornton LLC, versus the FDIC, as well as Mercer County civil litigation brought against McConnell’s estate by Waynesburg College and Hargrave Military Academy.

Bakkebo, one of the Coast Partners, had swindled New Orleans investors out of $200 million before jumping into FNB Keystone’s loan securitization program. He was found liable for $161 million in losses at Keystone, fled to Norway and was shot and killed by an associate in a rare-by-Norwegian standards, shooting death.

The FDIC still classifieds the losses sustained by the collapse of FNB of Keystone as one of the top 10 most costly bank failures in U.S. history.

— Contact Bill Archer at

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