A former president and chief executive of a Tennessee bank is going to prison for bank fraud.

Stephen Henry was sentenced to two years in federal prison for helping a customer defraud Oakland Deposit Bank in Memphis, Tenn., the Federal Bureau of Investigation announced Tuesday. Henry will also pay $2.4 million in restitution.

Henry, whose family owned the bank, made numerous loans to local real estate investor Stephen Sims, and, startoing in 2007, helped Sims funnel cash from construction loans to hide losses on these loans. Henry also manipulated the bank's records to hide these losses.

In the end, Sims defaulted on more than $2.4 million dollars in loans. In July 2012, Sims was sentenced to more than seven years in federal prison and ordered to pay $2.4 million in restitution.

"The court found that while [Henry] did not personally benefit from the fraud perpetrated against the bank, [his] failure to follow proper banking procedure enabled the scheme to defraud the bank," U.S. Attorney Edward Stanton said in a press release.

Oakland Deposit Bank was bought by Farmers Bank of Lynchburg, Tenn., in June 2009. Farmers Bank failed last year and was sold to Clayton Bank and Trust in Knoxville, Tenn., in a sale assisted by the Federal Deposit Insurance Corp. The FDIC estimated that the failure cost its fund $28.3 million.

The case against Henry was investigated by the FBI and FDIC.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.