Bank Failure That Rocked Tiny Kansas Town Began With Crypto Scam

Shan Hanes was desperate. It was early in the morning of July 5, and Hanes, the head of a tiny bank in Elkhart, Kansas, was meeting in his office with one of his wealthiest customers. And he had a strange request.

The chief executive officer of Heartland Tri-State Bank asked if the client would lend him $12 million so he could get his money out of a cryptocurrency investment. He promised he’d pay him back 10 days later, offering $1 million in interest to make it worth his while.

Hanes said he knew someone who was helping him invest in ...