DOJ Links Kansas Bank Collapse to Staggering $225M ’Pig Butchering’ Crypto Scam Seizure

Another day, another bank failure—but this one’s got a crypto twist.

The DOJ just tied a Kansas bank’s collapse to a $225 million seizure from a 'pig butchering' scam. Because nothing says 'financial stability' like mixing traditional banking with crypto-fueled fraud.

How it happened: The scam—a classic 'pig butchering' play—lured victims with fake investment platforms, drained their wallets, and funneled the loot through the now-defunct bank. Pro tip: If your bank’s compliance team can’t spot $225 million in shady crypto flows, maybe don’t bank there.

The fallout: Regulators are scrambling, victims are furious, and crypto skeptics are smugly nodding. Meanwhile, the rest of us wonder: When will banks learn that ignoring crypto risks is like ignoring a chainsaw in a balloon factory?

Largest victims

In total, the DOJ says there were 434 victims and has identified 60 of them who lost a combined $19.4 million.

The largest of these victims was Hanes, with the DOJ identifying $3.3 million of the $47 million he embezzled in this seizure.

Hanes embezzled the money between May 30, 2023, and July 7, 2023, according to both the DOJ complaint and the Federal Reserve’s report into the collapse of Heartland Tri-State Bank, one of the banks to collapse in the aftermath of the 2023 U.S. banking crisis.

During this six-week period, Hanes initiated 10 wire transfers totaling approximately $47.1 million from Heartland Tri-State Bank, a small community lender focused on agricultural loans, to a crypto wallet he controlled.

These wire transfers occurred between the bank’s quarterly regulatory reporting periods, allowing the activity to go initially undetected.

At the time, Heartland was well-capitalized with $13.7 million in capital and $139 million in assets, but Hanes' actions depleted its liquidity, triggered $21 million in emergency borrowing, and left the bank with a $35 million capital hole, forcing regulators to shut it down in July 2023.

According to prior reporting from CNBC, Hanes also stole $40,000 from the Elkhart Church of Christ, $10,000 from the Santa Fe Investment Club, $60,000 from his daughter’s college fund, and liquidated nearly $1 million in stock from a firm called Elkhart Financial to send to pig butchering scammers.

He was sentenced to 24 years in prison in August 2024.

The DOJ complaint referred to him as both a perpetrator and a victim.

Seized crypto likely going to Fed stockpile

Crypto seized by the U.S. government, such as in this case, is likely to be earmarked for a not-yet-established stockpile ordered by President Donald Trump.

The Bitcoin BTC reserve and the stockpile of other cryptocurrencies haven't yet been formally established, but the Treasury Department has been leading an audit of governmental digital asset holdings to determine what needs to be gathered.

Once established, the long-term crypto holdings will likely put seized bitcoin in one fund and other types of tokens in another.

The holdings in this case appear to be in significant amounts of USDT, according to the filing. It's unclear what funds may eventually be returned to victims, as only a relatively small percentage of those directly harmed have been identified.