The state Senate banking chairman, accused in a federal lawsuit filed last month targeting insiders at a failed bank, is also being sued by an Alabama lender and regulators who allege he failed to repay loans secured by his bank stock.
State Sen. Jack Murphy, appointed in January to lead the Senate panel that oversees state banking legislation, owes more than $240,000 in outstanding balances on two loans secured by stock in Alpharetta-based Integrity Bank, according to two lawsuits filed in Forsyth County Superior Court.
Integrity failed in August 2008, making shares in the institution worthless.
The default lawsuits, filed in 2009 and 2010, respectively, are separate from a $70 million-plus gross negligence case that the Federal Deposit Insurance Corp. filed in federal court in January against Murphy and seven other insiders at Integrity.
Murphy, R-Cumming, has maintained the FDIC’s gross negligence case — which involved his role as an Integrity board member — does not affect his role on the bank panel.
He said last month that the accusations that he and other bank insiders failed in their fiduciary duties are just one side of the story and that a “clear understanding” of insiders actions “will come to light.”
On Friday, Murphy said in a brief statement that the defaulted loans “were business related, rather common in the business world and have nothing to do with my role as a legislator.”
Pete Eisemann, a finance professor at Georgia State University, said the default lawsuits against Murphy are “not an allegation of impropriety.”
The FDIC case alleging wrongdoing in his role as an Integrity director is more problematic, Eisemann said. Though he hasn’t been found liable by a court, the lawsuit questions his leadership at Integrity.
“From my perspective, there are other people in the Legislature that could take that position,” Eisemann said. “It doesn’t make a lot of sense for the leaders of the Legislature to keep someone in that position who is in that compromised situation.”
Tony Plath, a former banker and finance professor at the University of North Carolina at Charlotte, questioned whether Murphy could credibly lead the Senate committee over financial legislation given the three lawsuits.
“You can’t be responsible for promulgating bank law when you [have allegedly] disregarded debts and [banking regulations],” Plath said.
The General Assembly was not in session Friday, and Republican lawmakers who rallied to Murphy’s defense last month in the wake of his legal turmoil were not at the Capitol. Many could not be reached for comment.
Senate Pro Tem Tommie Williams, R-Lyons, a member of the powerful Senate Committee on Assignments, which appointed Murphy banking chairman, declined to comment about the defaults or lawsuits.
“I know nothing about this. I need to get informed before I can comment on it,” he said when reached at his home.
Senate GOP leaders said last month that they were unaware of Murphy’s looming legal problems. Williams said at the time that the Committee on Assignments reviewed each appointee’s skills, experience and personality and made what they believed to be the best assignments based on that information.
Williams has said that Murphy’s banking background and his experience in the Senate made him a good candidate. Being a member of a failed bank would not necessarily disqualify him from the position, Williams said.
Other Republicans were also hesitant to comment Friday on Murphy’s legal issues.
Ethan Underwood, president of the Forsyth County Republican Party, said: “I think the fair thing to do is allow Mr. Murphy a fair chance to respond. Unfortunately, you can sue anyone for anything. We ought to let him tell his side of the story and evaluate the situation, and then we can evaluate what impact it has politically.”
Murphy took out a $247,650 loan in April 2003 from the Bankers Bank of Atlanta, later known as Silverton Bank. He put up as collateral 30,000 shares in Integrity stock.
He took out another loan from Birmingham-based Nexity Bank in July 2007 for $75,000, backed by an additional 20,500 Integrity shares.
Integrity collapsed in August 2008, at a loss to the FDIC’s insurance fund of more than $200 million, shareholders were wiped out and, in Murphy’s case, his lenders were left in a lurch.
The Silverton lawsuit, which the FDIC took over after that bank failed in May 2009, alleges that Murphy defaulted on the Silverton loan and owed $193,000 in principle as of December 2008. The Nexity lawsuit alleges that the senator failed to make payments on his loan to that bank — with a remaining balance of nearly $50,000 — from July 2009 to October 2009, triggering default.
It is not clear from the lawsuits what the loans were used for, but both Silverton and Nexity actively lent to bank directors and investors who wanted to buy bigger chunks of stock in their banks. The stock itself often was pledged as collateral.
Investors in nonpublicly traded banks can borrow up to 75 percent of the value of their stock purchases under Georgia law, said Tom Powell, a banking attorney with Troutman Sanders.
Director stock loans were considered safe in the go-go bank formation days of the early- to mid-2000s. Privately held community bank stock often sold well above book value, so if a borrower defaulted, his lender would just claim the stock and liquidate the shares.
“Just like housing, back then nobody lost money [lending] on housing, nobody lost money [lending] to bank stocks,” Powell said.
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