The former CEO of a chain of northern Minnesota banks has been sentenced to 18 months in federal prison for using his position to issue unauthorized letters of credit to buy into an African gold and diamonds scam.

Robert John Hager, 71, also was sentenced to two years of probation upon his release, and will be required to take part in a substance abuse program and psychiatric counseling. He will be required to comply with any searches of his financial records, and will be prohibited from incurring new charges or opening new lines of credit without the approval of his probation officer.

Throughout his legal proceedings, Hager's defense has argued that although he made many criminal decisions, he ultimately was the victim of a dupe, and fell prey to a scam because of his own naivete. However, federal prosecutors argued that Hager has a history of questionable financial transactions as recently as last January, which they likened in their investigation to playing "whack-a-mole."

Hager's attorney told the court that Hager had no knowledge of the January transaction, when his wife allegedly shipped $40,000 in cash to Sacramento, Calif., via UPS despite Hager telling presentence investigators that they were broke.

"Mr. Hager, in our view, remains quite a threat, because Mr. Hager knows how to talk the talk," federal prosecutor Amber Brennan said in a sentencing hearing Tuesday, March 2, in federal court in Minneapolis. "He knows how to get on the phone with banks. He knows how to say, 'Oh, I didn't really understand that, I'm trying to cooperate, I'm going to forward you all these emails I got that explain this, and oh, am I being duped?' And then goes to the next bank and tries to muddle through it."

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Hager was the CEO of Greenbush, Minn.-based Border State Bank from 1993 until 2018. Greenbush is located in northern Minnesota, about 85 miles northeast of Grand Forks and 26 miles southwest of Roseau, Minn.

Court documents allege that sometime in 2015 or early 2016, Hager solicited a loan from a bank customer for investment in what was represented to him as gold and diamond transactions in Liberia, Ghana and Kenya for a promised quick return. Around this time, having depleted his personal funds to invest in the scam, he began soliciting a number of loans from customers, shareholders, directors of the bank and other friends and acquaintances, documents state.

In 2016 or 2017, bank customers took out loans in their own names or drew from loans they already had and transferred the funds directly or indirectly to Hager, according to documents. In May 2016, in order to recover his personal funds, he used his position to issue three unauthorized Standby Letters of Credit worth $1.6 million to facilitate the purchase and delivery of diamond and gold from Africa, then concealed his actions so the letters of credit would not appear on the bank's general ledger.

Hager pleaded guilty last year to making false entry in bank records related to a $750,000 Standby Letter of Credit he issued in May 2016.

A presentence investigation report – which took into account the amount of money involved in the crime, Hager's prior criminal history, the fact that he abused a public position of trust, and the fact that he took responsibility for his actions and entered a guilty plea – recommended that he be sentenced to 41 to 51 months in federal prison.

"To be clear, Mr. Hager was mostly the victim and not a perpetrator of this fraudulent scheme, albeit not a terribly sympathetic victim," U.S. District Judge Patrick Schiltz said during sentencing. "Mr. Hager was so eager for riches and so arrogant about his own abilities that he ignored one warning sign after another that he was being swindled. Where Mr. Hager crossed the line and the reason he's here today is that after he sunk everything he had and everything he could legally borrow into this fraudulent scheme, Mr. Hager, in a desperate attempt to recoup his own investment, began to abuse his position as the CEO of this bank."