Federal bank regulators have sued two former officers of a failed North Georgia bank, claiming improper handling of loans and bank policy violations that resulted in more than $11 million in losses.
The suit, filed last week in a U.S. District Court in Gainesville, alleges Trent D. Fricks, a former senior vice president at Cornelia-based Community Bank & Trust violated bank lending policies on high-risk, short-term loans to real estate investors. Many of the loans were allegedly used to buy and refurbish low-end houses in Atlanta, which was outside CB&T’s territory.
The Federal Deposit Insurance Corp. contends Charles M. Miller, Fricks’ boss and a former CB&T president and chief executive, failed to properly supervise Fricks and correct loan policy violations and loan underwriting deficiencies that had been brought to his attention starting in 2006.
The two officers are accused of negligence, gross negligence and breach of fiduciary duty.
The lawsuit is the fifth such case against the insiders of a failed Georgia bank. The state leads the nation in bank failures since mid-2008.
The FDIC alleges underwriting deficiencies by Fricks, such as failing to collect borrowers’ compete financial statements, or lending more money on a loan than he was personally authorized to lend.
The suit contends another bank officer brought potential policy violations to Miller’s attention starting in 2006. The suit said Fricks told the bank’s board in 2007 that he would stop violating policy, but he allegedly approved 119 similar loans that violated policy after saying he would stop.
“The lawsuit against our clients has no merit for a number of reasons, but particularly in light of very recent court orders that Georgia bank directors and officers cannot be liable for negligence,” said Robert R. Long, an attorney for Miller and Fricks with Alston & Bird. “We intend to defend against it vigorously.”
Fricks was referring to a recent ruling in an FDIC suit involving insiders at the failed Integrity Bank, in which a judge said that Georgia’s business judgment rule protects bank directors and officers against claims of ordinary negligence in the course of business. The rule essentially protects insiders from liability for business decisions made in good faith that eventually went bad.
The Integrity defendants also were sued for gross negligence and breach of fiduciary duty.
Community Bank & Trust failed in January 2010. It was seized and sold to SCBT Financial Corp. and continues to operate under the CB&T name.
A report published in 2010 that detailed the bank’s demise criticized CB&T for many things, including a lack of internal controls over its lending operations.
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