Posted on: December 18, 2023 03:00 PM

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Founder of tax lien investment firm charged with bank fraud and wire fraud

Damian Williams, the United States Attorney for the Southern District of New York, and James Smith, Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest of JOHN ARTHUR HANRATTY for charges in connection with a fraudulent scheme to steal money from a Federal Deposit Insurance Corporation (“FDIC”)-insured bank through lines of credit totaling $20 million granted to HANRATTY’s municipal tax lien investment firm.  HANRATTY was arrested this morning and is expected to be presented today before a U.S. Magistrate Judge in the District of Puerto Rico.

FBI Assistant Director in Charge James Smith said: “Fraudsters are very good at what they do. They are extremely convincing and will jump at every opportunity to defraud a new pool of potential victims. John Hanratty allegedly prioritized his own greed over decency and respect for the laws of our country. The FBI and our law enforcement partners remain dedicated to investigating and holding accountable those who flagrantly disregard our laws by seeking to enrich themselves at the expense of their victims.” 

According to the allegations in the Complaint unsealed today in Manhattan federal Court.

HANRATTY was the Founder and Managing Director of Ebury Street Capital, LLC (“Ebury Street Capital”), an investment firm with a portfolio primarily comprised of municipal tax liens.  At all relevant times, HANRATTY served as the Managing Director and Principal for Ebury Street Capital, which manages two different funds known as Ebury Fund 1 and Ebury Fund 2.  HANRATTY has been an attorney licensed to practice law in the State of New York since 2002 and has previously held legal and compliance positions at well-known investment firms and financial institutions, including serving as the Chief Compliance Officer and General Counsel for a trading broker dealer. 

Between 2017 and 2021, HANRATTY participated in a fraudulent scheme to steal money from an FDIC-insured bank (“Victim Bank-1”) by drawing down on $20 million in commercial lines of credit that had been extended to Ebury Street Capital.  Specifically, HANRATTY made materially false statements on spreadsheets (known as “borrowing base certificates”) submitted to Victim Bank-1 summarizing the value of the municipal tax liens that Ebury Street Capital was offering as collateral for its commercial line of credit.  As a result of these false statements on Ebury Street Capital’s borrowing base certificates, Victim Bank-1 paid Ebury Street Capital large sums of money to which it was not entitled.  The false statements on Ebury Street Capital’s borrowing base certificates included, among other things, listing large quantities of municipal tax liens on the borrowing base certificates that Ebury Street Capital did not actually own and double-counting municipal tax liens by listing the same liens on multiple borrowing base certificates. 

Additionally, although Ebury Street Capital was contractually required to use money from Victim Bank-1 either to purchase municipal tax liens or for ordinary business expenses, HANRATTY actually used portions of the money obtained from Victim Bank-1 to pay off Ebury Street Capital’s investors who were threatening to sue and who, in fact, ended up suing Ebury Street Capital and HANRATTY after Ebury Street Capital was unable to pay investors who were seeking to pull out their investments from the fund. 

Ebury Street Capital’s commercial line of credit has now been completely exhausted, and the entity owes over $20 million in principal and interest to Victim Bank-1.

HANRATTY, 49, of San Juan, Puerto Rico, is charged with one count of wire fraud affecting a financial institution and one count of bank fraud, each of which carries a maximum sentence of 30 years in prison. 

(From the US Attorney's Office)