Two former bank execs, businessman indicted on fraud charges

By Bill Rankin and Péralte C. Paul

The Atlanta Journal-Constitution

A fraud scheme orchestrated by a "dirty insider" and a Florida hotel developer contributed to the collapse of an Alpharetta bank that had assets totaling more than $1 billion, federal authorities said.

An indictment unsealed Friday alleges bribery, insider trading and enough money in fraudulent loans that the developer could buy his own private island in the Bahamas. It says Integrity Bank, in one of Georgia's largest bank failures, suffered $80 million in losses because of the scheme.

The hotel developer, Guy Mitchell, 50, of Coral Gables, Fla., was the bank's largest borrower. He and Douglas Ballard, 40, of Atlanta, who was once Integrity's executive vice president, are accused of conspiracy, bank fraud and bribery. Ballard, who is also accused of securities fraud, not only authorized tens of millions of dollars in loans for Mitchell's speculative real estate ventures, he accepted more than $230,000 in kickbacks from the developer, the indictment said.

Integrity's former executive vice president of risk management, 42-year-old Joseph Todd Foster of Atlanta, is accused of securities fraud. In 2006, when Foster learned that Integrity lacked substantial liquid security to cover a risky $20 million loan to Mitchell, he unloaded 30,000 shares of his bank stock for more than $350,000, the indictment said.

Mitchell voluntarily surrendered to authorities Friday. He was led handcuffed by marshals into court, where he pleaded not guilty. He was released on $2.5 million bond, partly secured by his Miami home and an Atlanta property.

Mitchell was "just another real estate developer crushed by the economy," and he received proper loans from Integrity, his lawyer, Ed Garland, said after the hearing.

"The liberal lending policies of the bank and the inflated economy resulted in those losses to the bank," Garland said. "The losses to the bank were not the result of any improper conduct by Mr. Mitchell."

Atlanta attorney Aaron Danzig, who represents Ballard, declined to comment. Foster did not return phone calls seeking comment. Both men are expected to make their initial court appearances next week.

Integrity was founded in 2000 with a faith-based theme -- "In God We Trust." Bank employees regularly prayed before meetings and in branch lobbies with customers. In August 2008, the bank was shut down by the Federal Deposit Insurance Corp. and state regulators. When it failed, Integrity had $1.1 billion in total assets and cost the FDIC's insurance fund $211 million. It marked Georgia's fourth-largest bank failure in two decades.

U.S. Attorney Sally Yates said Integrity's two executives did not live up to the bank's name.

"After passing out $80 million to the developer like it was monopoly money, both officers dumped their Integrity stock before the failed loans came to light," she said. "While the developer was living the good life, even buying a private island with Integrity's money, and the bank's senior loan officer was making huge commissions and taking payoffs from the developer, the bank was dying a slow death."

When asked whether the alleged fraud caused Integrity's failure, Yates said: "Certainly it was a substantial contributing factor to the collapse. ... More than $80 million was given away from a dirty insider who was taking payoffs from the developer. That's more than the average bank has had to deal with."

According to the indictment, Mitchell and his companies began receiving loans from Integrity in 2004. Most were business loans, and the largest, $29 million, was for the purchase of the Casa Madrona in Sausalito, Calif., an elegant 63-room hotel and spa overlooking San Francisco Bay.

The loan included $12 million to finance Mitchell's purchase of the hotel. Most of the rest was to be used for construction and renovation work to convert Casa Madrona into a condominium-hotel complex. Ballard was the primary bank executive handling Mitchell's loan.

In 2006 and 2007, Mitchell received nearly $30 million in loans from Integrity, with about $7 million to be used for construction expenses. But little if any of this money was used for that, said the indictment, which accuses Ballard of misleading the bank's board by reporting substantial work had been done at the hotel.

Ballard also authorized millions of dollars in drawdowns to be made to a personal bank account Mitchell shared with another family member, and Mitchell spent lavishly on himself from this account, the indictment said. Also during this time, Ballard began lending Mitchell money so he could pay interest due on older loans. As a result, the amount lent to Mitchell grew quickly, eventually reaching almost $80 million, the indictment said.

Some of these loans wired directly to Mitchell's personal bank account were used to pay kickbacks to Ballard, the indictment said. Some of the payoffs were made in cash, some in cashier's check, the indictment said.

Neal Reynolds, a member of Integrity's board from 1999 to 2009, said most of the loans were never approved by the board.

"Most of the loans that were made were made illegally," said Reynolds, who now owns Ad Shop, an Atlanta bank marketing firm. "The loan committee didn't approve them. We never saw them."

The bank, he said, would have never authorized $80 million to a single borrower. Reynolds, who noted the bank's failure wiped out his $3 million investment, said that the bank was subject to routine audits by regulators who did not find a problem.

Yates, the top federal prosecutor in Atlanta, said authorities are investigating other failed Georgia banks and added that her office's probe into Integrity's collapse is continuing.