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The banking crisis in Georgia has spread to the state capital, as several lawmakers, including the governor, have personal ties to some of the state’s failed banks.
August 18 -
WASHINGTON — Nearly three years to the day of seizing IndyMac Bank, the Federal Deposit Insurance Corp. launched formal action against its former chief executive, saying he "negligently" allowed the thrift to keep making risky loans despite signs of market stress.
July 7
One private plane wasn't enough for executives at Silverton Bank, say regulators.
At a time when the bank's financial condition was seriously impaired, management at the failed Georgia bank bought not one but two new airplanes, built a massive hangar in which to store them and hired eight private pilots to ferry directors and prospective clients to lavish corporate retreats.
Those are just a handful of the allegations of waste and mismanagement in a lawsuit filed Monday by the Federal Deposit Insurance Corp., which is seeking $71 million in losses from the bank's former executives.
"This case presents a text book example of officers and directors of a financial institution being asleep at the wheel and robotically voting for approval of transactions without exercising any business judgment in doing so," the suit said.
The lawsuit names 17 former directors, including former chief executive Tom Bryan, former chairman Michael Carlton, and Christopher Maddox, another former chairman. Bryan and Carlton did not respond to requests seeking comment. Attempts to reach Maddox were unsuccessful.
The suit accuses those directors of gross negligence, breaches of fiduciary duty and waste that resulted in the $71 million of losses to the bank and its ultimate failure, which cost the FDIC $386 million.
This is at least the third lawsuit filed against the correspondent bank, whose May 2009 failure was the largest in Georgia's history.
What makes the case unusual, the lawsuit said, is that Silverton's board was made up of CEOs or presidents of other community banks who should have had specialized knowledge and expertise.
"Instead, Silverton's board and management were reckless and completely failed in discharging the duties they owed to Silverton causing substantial loss to the Bank and ultimately leading to its failure," the suit said.
The purchase of the two airplanes, which resulted in a $4.85 million loss, was just the tip of the iceberg.
Between 2002 and 2009, Silverton spent nearly $4 million on an annual board meeting on Amelia Island and an executive conference for its correspondent bank customers at the Ritz-Carlton. And it spent $62,000 a year on its annual shareholder meeting at the Cloister resort hotel on Sea Island, Ga.
The FDIC said the cost for the board meeting and conference "was incredible and amply demonstrates the cavalier attitude of the board when it came to spending the bank’s money on luxuries."
In 2007, Silverton built a "palatial" new office building, known as the Medici, which had 26 conference rooms and cost the bank $2.6 million a year in lease payments. Yet the bank still owed 20 months of rent for its old offices, which sat vacant, costing the bank nearly $2.5 million from February 2008 until it failed in May 2009.
As for the planes, those purchases were financed by the bank, but the titles were held by the bank's holding company, Silverton Financial Services Inc. When the planes were sold, it was a total loss to the bank, according to the FDIC.
"The defendants failed to exercise any business judgment in this regard or even exercise a slight degree of care," it said. "There was a complete disregard for the interests of the bank."
The swanky retreats, airplane purchases and new office buildings were part of a broader effort to promote a major expansion strategy, according to the FDIC.
The bank nearly doubled its assets from $1.7 billion in 2005, to $3 billion in 2008. Total assets increased 32% in the first quarter of 2009, to $4.2 billion.
During this time, the bank relied heavily on brokered deposits, and aggressively pursued acquisition and construction loans outside of Georgia, in markets where Silverton had little or no experience or market awarness, the suit said.
It pursued these actions despite warnings from regulators encouraging the bank to reevaluate its strategic plan — including capital and risk management — to handle the challenges of expansion, according to the FDIC.
The bank also focused heavily on commercial real estate lending, and ignored guidance from the Office of the Comptroller of the Currency to limit its CRE lending. The lawsuit claims the bank consistently made loans without complying with its own internal policies and without proper underwriting, resulting in loans being made to borrowers with no real ability to pay.
It also accused Silverton's directors of ignoring clear signs that the economy was taking a turn for the worse, and failed to correct their behavior when it did start to decline.
"Ultimately this led to the failure of the bank," the lawsuit concluded.
