House banking committee chair joins his Senate counterpart in the FDIC spotlight

Montgomery Bank & Trust in Ailey, just outside Vidalia, was chartered in 1926, but its roots go back to 1900. On Friday, the bank joined the ranks of those that survived the Great Depression but not the recent real estate bust and financial crisis.

That alone would make the bank’s failure worthy of a closer look, but there’s a lot more to this story.

Montgomery Bank & Trust was in deep trouble two years ago, but then it was seemingly saved by a “lifeline,” according to the AJC in January 2011:

But last week the 85-year-old South Georgia bank pulled itself back from the brink with a New Year’s Eve deal that industry observers say is a hopeful sign for the state’s battered banking industry.

An investor group with metro Atlanta and South Georgia ties teamed up with locals to pump $14.1 million into the bank and stave off failure. [. . .]

The investor group, PFGBI LLC, acquired a majority stake with a little more than $10 million. Seventy other local investors — including directors, employees and customers of the Ailey bank — invested an additional $4 million. [. . .]

Lee Price, general partner of PFGBI, said in a news release the investors are committed to returning the bank to profitability. As part of the deal, PFGBI also receive warrants for additional shares.

That lifeline now looks a little like a noose.

From the U.S. Securities and Exchange Commission on July 3, a few days before the bank failed:

The Securities and Exchange Commission announced today that it has obtained a court order freezing the assets of a Georgia-based investment adviser who has apparently gone into hiding after orchestrating a $40 million investment fraud.

The SEC alleges that Aubrey Lee Price raised money from more than 100 investors living primarily in Georgia and Florida by selling shares in an unregistered investment fund (PFG) that he managed. Price purported to invest fund assets in traditional marketable securities, but he also made illiquid investments in South America real estate and a troubled South Georgia bank. In order to conceal mounting losses of investor funds, Price created bogus account statements with false account balances and returns that were provided to investors and bank regulators. [. . .]

According to the SEC’s complaint, Price has sent a letter to some individuals dated June 2012 and titled “Confidential Confession For Regulators – PFG, LLC and PFGBI, LLC Summary.” In the 22-page letter, Price admits that he “falsified statements with false returns” in order to conceal between $20 million and $23 million in investor losses.

The scheme apparently required a level of control unusual even for a bank director. From the AJC today:

Federal authorities said Price, as a director for the bank, took control of investing the bank’s capital. Price allegedly wired funds to accounts he controlled at other banks, and provided false financial statements to bank management.

As I noted in a post Friday and as is now making national news, Price is missing — presumably on the run and perhaps out of the country.

But there’s even more to the story.

When Montgomery Bank & Trust was seemingly saved a year and a half ago, the new Board of Directors included vice-chairman Greg Morris, a state representative, according to Southeast Georgia Today. Morris, who remained a director until the failure, is chair of the Banks and Banking Committee of the Georgia House of Representatives. (The former Vidalia Democrat joined the Republican ranks in 2005.)

In 2011, Morris was fined by the FDIC for an improper transaction at the bank in 2006. From Southeast Georgia Today’s FDIC Fines Rep Morris:

State Representative Greg Morris of Vidalia says one of his accounts at Montgomery Bank and Trust, where he is a director, had insufficient funds to cover a $26,000 property tax check he wrote back in 2006. He later transferred money into the account, but the overdraft caught the attention of federal regulators when Montgomery Bank was being audited as part of a deal with new investors to keep the bank from failing late last year.

“This occurred in 2006. I wrote a couple of checks before I went out of a town on a hunting trip, I didn’t cover the amount of money in the account and before somebody from the bank could get to me before the banking day was over to put the money in the account, the account was overdrawn. I thought the fine was excessive, but it is the rule,” he says. [. . .]

Morris told an Atlanta reporter he has been cited by bank regulators for overdrafts before, but not fined.

Morris has now matched his Senate counterpart, Banking and Financial Institutions Committee chair Jack Murphy, who has also been a director at a failed bank and has also come under special FDIC scrutiny.

From Charlie Harper’s Jan. 2011 column Senate Banking Chair Jack Murphy Should Step Down:

Only days after receiving his appointment as Chairman of the Committee on Banking, Senator Jack Murphy (R-Cumming) is being sued by federal regulators for “Breach of Fiduciary Duty” and “Gross Negligence” from his service as a director of the now failed Integrity Bank. The FDIC is seeking $70 Million in damages from Murphy and 7 other directors and bank insiders.

Murphy’s reaction has been to classify this as a civil action, which is technically correct, and says it has no bearing on his ability to chair the committee which sets Georgia banking laws. Georgia currently leads the US in the number of bank failures since 2008. [. . .]

Senators need to ask themselves this question: Can a Senator who would not be allowed by the FDIC to serve as a banking officer or director be allowed to chair the committee who writes Georgia banking laws?

I spent 7 years as a banker as a branch manager and small business lender after I graduated college, and remember filling out compliance forms regarding the status of our officers and directors. I traded messages with some of my contacts at a large Atlanta law firm that previously served as our outside counsel yesterday to confirm today’s officer requirements are similar. I found that a person who has caused a loss to the FDIC is, by rule, not qualified to serve as a director or officer of a bank seeking a new charter. In addition, the FDIC does not look favorably upon such individuals serving in this capacity at established banks, and would usually note such during routine compliance audits.

An AJC piece from that same month included this quote from Sen. Murphy:

“I have served on the banking committee for eight years in the House and the Senate,” he said. The committee deals with legislation aimed at banking law in Georgia, he added, and “has absolutely nothing to do with the FDIC and their decisions.”

Georgia has had 82 bank failures since 2008 (if my count is correct). Among our neighbors, Florida has been hard hit too, but Alabama has had 7 failures, South Carolina has had 9, and Tennessee just 4. (Click here for the FDIC Failed Bank List.)

Clearly, Georgia needs to be looking hard at how state policies or enforcement failures exacerbated this ongoing crisis.

And it seems pretty clear that such inquiries are more problematic, to say the least, if the elected officials charged with banking oversight are themselves directly involved with failed institutions with such checkered stories.

18 comments

  1. fishtail says:

    The fellow that defrauded the Montgomery bank folks is still missing. He must have been a great con man, because he fooled Pete Robinson, Chair of the bank’s board of directors. Pete is a high-profile lobbyist, confidante of Governor Deal, and Partner at Troutman Sanders law firm. http://www.ajc.com/business/lifeline-for-troubled-bank-794021.html …another example of how the tentacles of power at the State Capitol are entwined. State Rep Greg Morris, Chair of the House Banking Committee, serves on the same bank board where a prominent lobbyist, Pete Robinson, is the Board Chair of the same bank. Makes you wonder what the heck can happen at the Gold Dome.

  2. Calypso says:

    And in other appointments by Senate leadership; Union Carbide will now run the DNR, Charles Manson is the new Director of Pardons and Parole, Marion Berry will head the DEA, and John Dillinger is the next Attorney General.

  3. seekingtounderstand says:

    Now ask yourself what they will do when there is a republican president with no oversight or any check and balances. Its a perfect storm for corruption and graft.
    GA- We are first in bad, bank fraud, home foreclosures, bank failurs, idenity theft, and last place in education, financial security, women in position of leadership, transportation, etc.

  4. saltycracker says:

    It would be naive to suggest this is the exclusive property of Republicans.

    The brazen behavior of Georgia’s House & Senate to fail to, at the least, suspend banking committee members involved in litigation or censure by the FDIC and financial institutions or the failure to meet fiduciary responsibilities, including payment of taxes or judgements.

    The number of legislators involved are beyond the pale. More than one “leader” does not care what a conflict of interest is, what a personal guarantee is or if they have paid their taxes or child support. They have no shame.

    Is our only option to have the Feds step in ?

  5. I Miss the 90s says:

    I think Bill did an excellent job covering this story. I have been out of the country for a couple of weeks and had not heard about this latest banking scandal, but I am happy to be on top of it.

    The only policy comment I will make is the very comment made by my father (you all knew him as Goldwater Conservative) for years before he passed away. It actually serves as one answer to saltycracker’s question (see above)?

    Having the Feds step in is not the only option. GA banking and finance regulations are basically non-existent and the conservative obsession with deregulation has become a naive desire for lawlessness in these industries. GA can step up is regulatory environment to match modern banking realities. The deregulated environment, or I should say the lawlessness of GA banking, is not attracting business as conservatives pretend deregulation will result. It is hurting our banking industry. Federal rules are not hurting banking, deregulation and the accompanying lawlessness is. If the Fed was hurting banks we would see seizures at comparable rates across the country. We do not. GA probably has not bank seizures than all of the other states combined at this point.

    Don’t get me wrong, not all deregulation is bad. In over-regulated industries is it good, but rank-and-file conservatives tend to believe that all regulations, like taxes, are bad and like the non-intellectual class they are they tend to be incapable of thinking about their beliefs, policy implications, and consequences. Now, this is not a blanket statement. It mostly applies to TeaPartiers and others on the far right that want the USA to become a 3rd world country.

    • Calypso says:

      I enjoyed reading the comments of Goldwater Conservative and was thinking about him recently. I remember he said he was not well. My condolences to you.

      • saltycracker says:

        Reasonable regulation keeps the wolves off the sheep. I remember GWC, very smart limo liberal, made us all think it through. He kept my blood pumping and I miss him here.

    • I Miss the 90s says:

      Thank you. It has been a few months now. He had a good run (lived to 83!).

      He was the epitome of the limo liberal. In matters of business he was very much like a “Gordon Gekko,” but in political scenarios my father always wanted to protect the public from people like himself.

      • Dave Bearse says:

        I was heartened that your father after returned with a few comments after not having commented for an extended time, presumably because of illness. I’ve feared the worst when he again discontinued his comments. I miss him here. You have my sympathy.

    • Bill Dawers says:

      Sorry for your loss and thanks for this comment. There are some other states hard hit by bank failures, but Georgia leads the pack.

      One of these days, some ambitious young economists are going to write dissertations about how Georgia got into this mess and about the ongoing damage being done to a state economy with so many troubled banks trying to stave off closure.

    • analogkid says:

      Sorry for your loss. GC was smart, eloquent, and feisty to the very end. I miss his commentary.

  6. Dixie Dawg says:

    On a mundane note: Montgomery Bank & Trust is, even as I write this, covered wall to wall with more black suits than Montgomery County or maybe south Ga has ever seen.

    They are here with a full compliment of security people. Easily fifty cars fill the parking lot. A handful of customers inside. Phone ringing and ringing and ringing. Quiet a show for little Ailey, GA.

    ( p.s. It appears there there might be an audit in progress. But, I’m just guessing what all those computers are for.

    • Bill Dawers says:

      The FDIC usually brings quite a team anyway, but I’ll bet there are more accountants this time plus plenty of FBI agents looking for any details they can find about Price and his possible whereabouts.

  7. saltycracker says:

    One more reason to reject Darwin’s theory in Georgia and believe in the devil:

    “State Representative Greg Morris of Vidalia says one of his accounts at Montgomery Bank and Trust, where he is a director, had insufficient funds to cover a $26,000 property tax check he wrote back in 2006.”

    Doggone it, forgot to move some money round ‘fore the huntin’ trip…….done it a few times….

    Good ole boy just can’t keep those $26,000 property tax checks puzzled out…..Did he inherit the land and drop out of school at 16 ?

    How the heck did he get that much property, get elected, become a bank director, made chair of a state banking committee and still be unable to balance a checking account ? At least revoke his hunting & gun license for being inept and dangerous to himself & others.

    Banks would do well to hire a company to check out their directors prior to appointment. This one got at least two doozies !

  8. Dixie Dawg says:

    fishtail, thanks for reminding me of Pete Robinson’s presence on the Montgomery Bank & Trust’s Board. Lobbyist and a State Rep. Mmmmm.

    I’m guessing the average age of that Board could push fifty- five maybe older. You’d think “judge of character” could trump “too good to be true” by that time in a person’s life. Unless…..

    Anyway, I bet this thing could get real interesting if the Feds locate Price upright and walking. You know a person who likes to negotiate and trade would be up for a plea bargain. Especially, if it turned out to be a duet, trio or even a quartet rather than the assumed solo performance.

    Forgive me. I can’t help myself……….
    Religious charmer turned financial guru fleeces the fleecers, then flees to a South American villa to sip margaritas and work on his tan. Then comes a knock on the door.

  9. Backwoods Philosopher says:

    The Montgomery Bank & Trust fiasco is very interesting, to say the least. State Representative Greg Morris is related to a young lady by the name of Janice Knowles who was indicted
    last year for embezzling MB & T for over three years. She embezzled approximately $160,000. She is now serving time in a federal prison in Florida.

    Indictment List – Janice Knowles on 3/3

    To add further interest (in a small town family way), Wendell Dixon is a VP at MB & T. ……..and who is Wendell? He’s the brother of the Mayor of Vidalia, Ronnie Dixon. In addition, the Mayor’s wife is an employee for MB & T. Should we name this story, “Family Ties”?

    It’s very interesting that when you start looking at the MB & T employees, directors, VP’s, and Georgia government officials, etc., there is a strong link between a lot of them, either by family, business relationships or in state government.

  10. fishtail says:

    The logo for Montgomery Bank & Trust……INCEST IS BEST……or, perhaps…THE CLOSER KIN, THE DEEPER IN…but I think the latter logo has already been in use for awhile by Casey Cagle…

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