The chairman of the state Senate Banking Committee and three others targeted in a federal lawsuit say regulators are the ones to blame for the collapse of their Alpharetta bank, according to documents filed in federal court.
State Sen. Jack Murphy, R-Cumming, and three other Integrity Bank directors asked a judge to reject the government's claims, including gross negligence. The insiders claim federal regulators engaged in “Monday morning quarterbacking of the worst kind" in their suit and ignored the government’s own “lax oversight” and other shortcomings that led to the bank's August 2008 failure.
Separately, four other Integrity defendants say Georgia’s business judgment rule protects them from claims of wrongdoing in a suit filed against them in January by the Federal Deposit Insurance Corp.
The FDIC suit accuses eight former Integrity officials, including Murphy, of various breaches of fiduciary duties, among other things. The suit seeks more than $70 million in damages.
The FDIC has criticized the bank’s governance, claiming it overloaded on risky loans to real estate developers. The FDIC also alleged Integrity violated state lending limits to individual borrowers.
But Integrity was given high marks for its asset quality by third party evaluators and by regulators as late as 2006, according to a response filed on March 25 by former directors Murphy, Joseph Ernest, Donald Hartsfield and Gerald Reynolds.
Regulators approved of the bank’s business plan and “tacitly approved” of the defendants' decisions on loans the FDIC now criticizes, the response contends. The FDIC’s evaluation of the institution only worsened, the four directors say, when the industry was hit by the unprecedented meltdown of the real estate market.
Under pressure for failing to predict the depths of the crisis, the directors claim the FDIC "unjustly reversed its prior approval” of operations, asset quality and other factors to “deflect responsibility” for its lax oversight of the industry. Further, certain FDIC enforcement actions, including requiring the bank write off $100 million in loans, many for borrowers who hadn't missed payments, depleted the bank’s reserves.
Labeled as unsafe and unsound, Integrity was unable to convince interested investors to save the bank, they contend.
In separate responses, Steve Skow, the former CEO, Clint Day, a bank ex-chairman, former bank officer Douglas Ballard and former director Alan Arnold seek dismissals and contend among other things they are shielded by state law from liability for business decisions made in good faith.
A spokesman for the FDIC declined comment.
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