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.