Two Georgia lawmakers in positions of power over state banking policy now share the same distinction -- seats on the boards of failed banks.
Backers of Rep. Greg Morris and Sen. Jack Murphy, and the legislators themselves, say their links to failed banks should not disqualify them from chairing the House and Senate banking committees, respectively, which weigh legislation involving Georgia banks and other financial companies.
Regulators have shut down a nation-leading 80 Georgia banks since 2008. Both state and federal examiners have stepped up oversight, but the state legislature has enacted few major changes to Georgia banking laws.
Murphy's chairmanship was never seriously questioned at the Capitol last year after federal regulators filed a civil lawsuit accusing him and seven other insiders at the failed Integrity Bank of gross negligence, accusations he and his co-defendants deny.
House Speaker David Ralston, R-Blue Ridge, said last week's failure of Montgomery Bank & Trust in the southeast Georgia town of Ailey, where Morris was an investor and director, hasn't made him reconsider Morris's position, either.
"Greg has done a great job as our banking chairman; he's still our banking chairman," he said of Morris, while noting investigations into details of the failure continue. "I know he's worked very hard to make that bank successful and serve that small community. He's personally taken some huge hits on this."
Federal regulators censured the bank in 2009, when Morris was on the board, in part for lax board oversight and lax internal controls. The bank already was facing financial troubles.
Morris, R-Vidalia, is not accused by regulators of any wrongdoing in the failure. But a fellow board member, Aubrey Lee Price, disappeared last month and is being sought by federal authorities for allegedly embezzling at least $17 million, and possibly more than $21 million, from the bank where he was once seen as a savior.
Morris defended himself and his board colleagues for battling for several years to save Montgomery Bank. Employees invested their retirement money and directors ponied up to keep it afloat.
"We didn't just walk away," Morris said. "We fought. We fought to the bitter end side-by-side."
While Price's disappearance has added an unusual twist to the story, Morris said his Montgomery Bank experience gives him insight into the plight of distressed banks, and what is needed to return the industry to health.
Tony Plath, a banking professor at the University of North Carolina at Charlotte, said Georgia lawmakers have done little to strengthen the state's regulatory regime.
In addition to the failed banks, scores are under some form of regulatory censure, which often fault boards for weak oversight. Nearly all were wounded by heavy bets on real estate.
"At the end of the day you need to reform state bank regulation in the state of Georgia," said Plath, a former banker. For starters, he said, the committees could press for greater staffing among state regulators, which has been cut by nearly half since the mid-1990s.
Morris is unopposed in his reelection bid this year, while Murphy faces a challenger in the July 31 Republican primary. Steve Voshall, a founder of the Forsyth County Tea Party, is running for Murphy's seat. Voshall has criticized Murphy's role in the failed bank.
Debbie Dooley, the Georgia-based national coordinator of the Tea Party Patriots, said both Morris and Murphy should step aside from their committee posts, even if only for appearance's sake.
"Both of those guys should step down on a temporary basis as chairmen of these powerful committees," Dooley said. "It sends the wrong message."
Murphy, R- Cumming, Morris' counterpart in the Senate, had left the board of Integrity Bank several months before it closed in August 2008.
Murphy said supervisory authority over Georgia banks falls to state and federal regulators.
"They don't call me up and ask my advice over whether they should close banks," Murphy said.
Laws related to financial institutions, real estate finance and corporate securities typically originate or are vetted in the the House and Senate banking committees.
Bank directors, meanwhile, are not day-to-day executives, but rather supervise management and approve significant actions or strategies.
As at any company they are chiefly accountable to shareholders. But bank directors have a secondary responsibility to taxpayers, who underwrite the fund that insures customer deposits, Plath said.
Montgomery Bank's failure is projected to cost the Deposit Insurance Fund more than $75 million.
The FDIC's 2009 censure of Montgomery Bank came after an expansion to the Georgia coast turned sour.
Price became involved in 2010 when he led an investor group that helped shore up the bank by investing $10 million. The Federal Reserve approved the investment, and Ailey locals, including board members, employees and customers, pitched in an additional $4 million.
In an unusual move, Price took over the bank's investor capital accounts after becoming a director. Now he is accused of embezzling from those accounts.
Price allegedly created false bank statements and artfully hid his scheme. But banking experts say other board members, bank auditors and regulators appear to have missed Price's alleged fraud for more than a year until he went missing last month.
Though Price is an investment adviser by trade, his takeover of the investment portfolio should have raised red flags with regulators and he should have fallen under strict bank controls, experts say. A lawyer for the failed bank declined to comment about the bank's workings or safeguards.
Don Coker, a Woodstock-based bank consultant and expert witness, said the board might have deferred to Price, as a "White Knight rescuer [who] knew best, and that they had better not interfere with whatever financial magic he was working."
A letter with Price's name was sent to some business associates just after his disappearance. The letter admitted misleading them about the fraud but claimed the scheme was aimed at covering investment losses rather than embezzlement.
It also suggested Price planned to kill himself, though authorities say he may be on the lam and possibly in South America.
Staff Writer Aaron Gould Sheinin contributed to this report.
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