FDIC files suit against directors of another Georgia bank

December 16, 2013 9:00 am

by Bill Dawers · 6 comments

From the Savannah Morning News’ Darby Bank & Trust Co. officers ‘grossly negligent’ in managing loans, feds say

The former director and CEO of the now-defunct Darby Bank & Trust Co. and 15 former bank officers have been sued by a federal agency in a bid to recover at least $15.1 million in losses from bad real estate and other loans over a two-year period.

The 117-page suit filed by the Federal Deposit Insurance Corp., as receiver for the Lyons-based bank, in U.S. District Court in Savannah alleges bank officials ignored repeated warnings of poor management of commercial real estate and acquisition, development and construction loans between Nov. 17, 2007, and Oct. 26, 2009.

Residents of Vidalia, nearby Lyons, and Savannah are among the defendants. According to the SMN article, one defendant had been involved with the bank for half a century.

Darby was founded in 1927, so it survived the Great Depression but not the so-called Great Recession.

Darby undertook a strategy of aggressive growth beginning in the 1990s and apparently received its first warning from regulators in 2004. Given the fact that Darby’s failure cost the FDIC over $164 million, it wouldn’t be surprising if the feds were going after far more than the $15.1 million mentioned in the lawsuit.

In other news, a federal judge ruled last week that the FDIC suit filed in late 2012 against directors of Buckhead Community Bank can continue. From Courthouse News Service:

The former directors of a failed Georgia bank cannot dismiss claims that they caused the bank’s collapse by approving risky loans without adequate information or review, and despite regulators’ warnings, a federal judge ruled.

The Atlanta-based Buckhead Community Bank failed in December 2009, after trying to implement an “aggressive growth strategy” that did not yield the expected results.

Beginning in 2005, the bank opened three new branches and expanded its loan portfolio, actively pursuing commercial real estate, development and construction loans.

In the cases of both Darby Bank & Trust Co. and Buckhead Community Bank, the FDIC took about three years from the time of the failure to file lawsuits. More than three dozen Georgia banks have failed since Darby, so we should probably expect more suits as the FDIC builds cases against directors and officers.

It might be fair to say that the Georgia banking crisis is over (more on that in a post on Tuesday), but the hangover from that crisis is going to continue for awhile. Not only are we likely to see more lawsuits, but many cities are also still dealing with excess capacity, poor planning, and other issues related to over-building and excessive speculation during the boom years.

peachpundit (@peachpundit) December 16, 2013 at 9:00 am

New post: FDIC files suit against directors of another Georgia bank http://t.co/3tm7LQQOfj #gapol

saltycracker December 16, 2013 at 10:33 am

The problem has been pervasive from the US senate (e.g. Barney Frank) to the state Senate (e.g. Jack Murphy) , through the regulatory oversight and corporate world of the rating agencies (e.g. Moody’s) to the financials (Goldman Sachs and the too big to fail banks).

Perhaps what the local legislators can consider:
require that top bank execs sign personal guarantees in the event of a failure,
Require that loans on real property are non- recourse based on the deeded property value and the ability of the borrower to repay (including attaching other assets).

saltycracker December 16, 2013 at 10:53 am

P.S. the non-recourse level of property is not the fire sale value nor does it need to be the appraised tax value. If the legislators can’t figure it out they should not be imposing a property tax on it.

Bill Dawers December 16, 2013 at 4:10 pm

I don’t disagree that the problem has been “pervasive” but it’s worth keeping in mind that some states like Georgia have been particularly hard hit. Other states in the South and Southeast were not nearly so hard hit by bank failures, which suggests that the state-level policies really do matter — and that oversight of Georgia banks was especially ineffective. I’ll have some numbers on all this tomorrow.

Ron Daniels December 16, 2013 at 5:00 pm

The FDIC has been filing such suits against Directors and Officers since, at least, 2010. A list can be found here: http://www.fdic.gov/bank/individual/failed/pls/

Notably, 22 of the suits have been filed in/against failed Georgia Banks. The FDIC’s method of filing these suits is interesting, as it seems several were filed outside of the applicable statute of limitations. Also interesting is that if a consumer files suit against the Directors and Officers of a failed Bank, the FDIC can step into the consumer’s shoes at any time and take the suit away from them.

Another issue is that the failed banks are sold to receiver banks. The receiver bank is essentially immune from most claims, even if the failed bank perpetrated a fraud on a customer.

Dave Bearse December 16, 2013 at 9:05 pm

22 banks out of 84 total suits. I didn’t check the home states of the other 62 banks, but it looks like Georgia is No.1 on yet another list.

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