Federal bank regulators sued 17 former directors and officers of Silverton Bank on Monday, accusing the officials of gross negligence and corporate waste in the biggest bank failure in Georgia history.
The Federal Deposit Insurance Corp., in a 102-page civil lawsuit, accuses the bank of slipshod lending practices that violated its internal controls, and for spending lavishly as the bank’s condition worsened and the economy teetered on the brink of collapse.
Among the spending, a posh $35 million Buckhead headquarters building called The Medici, complete with 26 conference rooms. The bank spent millions more for an aircraft hangar and two new airplanes, according to the lawsuit.
The suit also contends the bank’s former CEO glossed over problems and that the bank “ignored ominous warning signs in the economy,” pursuing growth in real estate loans into 2009 as the economy fell into the nation's worst ever recession.
The FDIC seeks $71 million in damages, according to the suit filed in an Atlanta federal court. The Silverton case is the third liability lawsuit filed against the insiders of a failed Georgia bank since the crisis started.
More are expected as the FDIC tries to recoup losses to its Deposit Insurance Fund, which protects depositors in failed banks. The FDIC said it lost $386 million from Silverton’s failure.
Among the Silverton insiders named are: Tom Bryan, a former chief executive; former chairman Michael Carlton; and Christopher Maddox, another former chairman and interim CEO whose father helped found the bank
Fourteen other insiders also are named, as well as two insurance firms — Federal Insurance Co. and Westchester Fire Insurance Co. — that formerly provided liability insurance for directors and officers.
The Atlanta Journal-Constitution obtained the suit late Monday and attempts to reach several of the defendants were not successful.
Georgia leads the nation with 68 bank failures since mid-2008. Silverton was the state’s largest collapse, and in many ways, pain from its May 2009 failure continues to ripple through the banking industry.
Formerly known as The Bankers Bank, Silverton didn’t bank regular folks, but did business with about 1,400 community banks nationwide.
Banks locked in no-growth areas often linked with Silverton to take part in loans in hot real estate markets like California, Arizona, Florida and metro Atlanta. Silverton made loans and sold off chunks called participations to other, smaller institutions.
Silverton pursued a high-growth strategy, and did much of its lending business in real estate development, trying to become the largest banker’s bank in the country, the suit says.
The FDIC alleges loan officers were paid bonuses for quantity of loans produced, not quality.
The regulator lists several real estate development loans issued that the FDIC alleges violated internal lending policies, including instances where the borrower had questionable ability to repay.
Among the largest is Merrill Ranch, a proposed 6,100-acre residential and commercial development 60 miles from Phoenix by metro Atlanta speculator W. Harrison Merrill.
Dozens of banks, including many in Georgia, took a piece of the $100 million loan, approved as Arizona’s housing market was crumbling. All suffered heavy losses.
The analysis of the loan was incomplete and inaccurate because borrowers provided incomplete financial statements, the suit said. Appraisals of the property fell from $420 million in February 2006 to $250 million just seven months later. The value of the land, essentially raw desert, dropped to $4.6 million by March 2009.
Silverton insiders, all seasoned bank presidents and CEOs, “should have fully understood” their responsibilities to the bank, the suit contends.
The FDIC’s suit largely follows another breach of duty case filed in December by Silverton’s defunct parent company versus Bryan and the bank’s former auditor, seeking $65 million.
Bryan and the auditor have strongly denied the accusations. That case is pending.
