Lawsuit alleges some bank fraud preceded ‘dead’ banker

A lawsuit alleges three insiders at a small Georgia bank — including one-time state Senate Majority Leader Pete Robinson — concealed exactly how troubled the bank was before Price and his clients invested $10 million to save it.

The failed Montgomery Bank & Trust is at the center of a bizarre financial potboiler that already featured missing millions, Price’s faked suicide and a New Year’s Eve arrest of Price, a most-wanted fugitive whose wife had him declared dead.

Price has pleaded not guilty to a federal criminal charge that he embezzled $21 million from the bank, which caused it to fail.

But in a new twist in civil court, lawyers trying to recoup money for jilted investors claim Price and his clients never would have invested in Montgomery Bank if they had known what Robinson and two top bank officers — former CEO Trae Dorough and former CFO Dee Ann McDaniel — knew.

An attorney representing Robinson, Dorough and McDaniel declined comment. Robinson, whose family owned Montgomery Bank for decades, is a former chairman of the bank and a nephew of the founder.

Guy Giberson, an attorney for the court-appointed receiver who is trying to return money to investors, filed the latest complaint in U.S. District Court in Atlanta last month after an initial lawsuit against additional bank officials was dismissed. He said he is hoping for Price’s cooperation.

The lawsuit is based in part on a purported suicide and confession note Price sent clients and authorities when he disappeared about a month before the bank failed. It also includes interviews with investors and bank reports.

In the rambling letter, Price admitted to defrauding his investors and falsifying financial reports at the bank. He claimed he traded money in the bank’s securities portfolio in a hapless attempt to recoup losses his investors had suffered, and that he did not know the depths of Montgomery Bank’s problems before he took control of the bank.

The lawsuit claims the three bank officials — Robinson, Dorough and McDaniel — concealed an outside auditor’s report that showed tens of millions of dollars in possible losses at the bank. The lawsuit and Price’s suicide note both claim Price didn’t know about the report until months after buying control of Montgomery Bank.

The complaint also alleges the three insiders knew or should have known that the money the bank set aside to cover expected loan losses wasn’t nearly enough, even though they told Price and investors that it was. The bank’s problem loans increased eightfold in a two-year period prior to Price’s investment, but the reserves remained so low it would cover just a fraction of potential losses, the suit says.

The amount of reserves to cover bad loans that the bank reported in its quarterly financial disclosures to regulators also was understated compared to the potential risk of real losses shown in the auditor’s report, the lawsuit states.

The auditor later told Price he “would have been better off investing his client’s funds in a lottery ticket,” the suit says.

Price poses credibility problems in contending he wasn’t told the extent Montgomery Bank’s troubles, said Tony Plath, a banking professor at the University of North Carolina at Charlotte. The former fugitive faces two federal indictments, and authorities also are probing his possible involvement in a marijuana growing operation in Florida during his time on the run.

“Why should we believe a guy who said he was dead?” Plath said.

According to the receiver, Price’s mismanagement of clients’ money started prior to his investment in the bank.

But purchasing the bank was the convoluted saga’s tipping point, Giberson said.

“I think everybody that I’ve come in contact with and knows (Price) well believes that everything changed when he bought the bank,” Giberson said.

Price became a director of Montgomery Bank after taking a majority stake in the bank in December 2010, and prosecutors said he took control of its securities portfolio.

The bank’s woes caused Price to mentally unravel and begin to use the securities in risky day trading to win back staggering losses, according to Price’s letter and plaintiffs’ assertions.

“Price’s risky investing increased dramatically” after he invested in the bank, the lawsuit states.

In the suicide note, Price wrote: “I am 100% responsible for the losses I created.” Though he admitted to keeping bank officials in the dark about his trading activities leading up to the bank’s failure, Price vented in the letter about full disclosure from bank insiders before he bought in.

Price penned that by the time he was aware of the auditor’s report, “it was way too late.”

“Looking back, it was like this report was hidden from us,” he wrote.

Montgomery Bank was one of the few businesses based in Ailey, a town of about 500 people about 170 miles southeast of downtown Atlanta.

Founded as Montgomery County Bank in 1926, the sleepy institution first got into trouble when its expansion last decade to the Georgia coast fizzled with the economic collapse. Robinson, the former lawmaker and a prominent lobbyist, took over as chairman to try to turn it around.

By the time Price and his clients invested, it was on the brink of failure.

Investors have said Price, who grew up not far from Ailey, initially told them Montgomery Bank was a good investment. But not long before he disappeared, Price gave a presentation to clients about the state of their investments and the health of the bank, said Barry Cooper, an investor from Griffin.

Price told his clients that bank officials didn’t tell him just how troubled the bank really was, Cooper said, adding: “He said the bank wasn’t doing very well.”