FDIC seeks $62 million from operators of failed Florida Community Bank

The defendants in the case are Stephen Price, the bank's former chairman, CEO and president, and its six other directors: Beauford Davidson, Patrick Langford, Jon Olliff, James O'Quinn, Bernard Rasmussen and Daniel Rosbough.

— The former directors of Florida Community Bank, including its CEO and longtime president, face a multimillion-dollar lawsuit brought by the Federal Deposit Insurance Corp., accusing them of being "grossly negligent" and "reckless" in operating the local bank.

The FDIC, which became the receiver for the Immokalee-based bank after it failed in January 2010, seeks damages of more than $62 million based primarily on losses from eight loans, which it says violated the bank's own lending rules.

One of those was a personal loan to Jerry Williams, the embattled ex-CEO of the failed Orion Bank in Naples, who has pleaded guilty to bank fraud and faces up to 15 years in prison. The loan was never repaid.

The other problem loans cited in the lawsuit were risky commercial real estate loans, mostly made to borrowers for the acquisition and development of property.

In its lawsuit, the FDIC alleges the bank's former directors "created an environment in which unsafe and unsound lending practices abounded."

"We don't comment on active litigation," FDIC spokesman David Barr said. "We let our complaint speak for itself."

The FDIC has filed similar lawsuits against other directors who oversaw failed banks. More than 400 banks have failed in the U.S. since 2008.

"So far we have brought 27 suits, but in total our board has authorized lawsuits for a total of 54," Barr said.

As part of its growth strategy, Florida Community Bank, historically an agriculturally focused bank, started making commercial real estate loans outside of its four-county market in 2003. By the end of 2006, it had an "extreme concentration" of acquisition and development loans that was "quadruple that of the average bank in its peer group," according to the lawsuit.

With commercial real estate loans, banks take a security interest in the property. The loans are risky because they're to developers, builders and speculators who often have several projects at once and whose incomes are tied to changing real estate values.

"Each of the defendants caused or permitted loans to be made to borrowers who were known to be or should have been known to be not creditworthy, or who had demonstrated a lack of ability to repay," the lawsuit states.

The defendants in the case are Stephen Price, the bank's former chairman, CEO and president, and its six other directors: Beauford Davidson, Patrick Langford, Jon Olliff, James O'Quinn, Bernard Rasmussen and Daniel Rosbough.

They are fighting the lawsuit, filed in U.S. District Court in Fort Myers.

"These gentlemen proudly served the community for over 30 years as directors of Florida Community Bank," said Mary C. Gill, one of their attorneys based in Atlanta, Ga., in an email. "They faithfully fulfilled their responsibilities and at all times acted in the best interest of the bank. The claims made by the FDIC are without merit and we look forward to defending their reputations and good names in this case."

"These gentlemen proudly served the community for over 30 years as directors of Florida Community Bank," said Mary C. Gill, one of their attorneys based in Atlanta, Ga., in an email. "They faithfully fulfilled their responsibilities and at all times acted in the best interest of the bank. The claims made by the FDIC are without merit and we look forward to defending their reputations and good names in this case."

A federal review of the bank after it failed blamed its collapse on its weak management and its risky commercial real estate loans. The review concluded that as the CEO and only inside director, Price operated the bank as a "classic one-man show."

"The noted loan underwriting deficiencies and problems are indeed serious, especially the personal loan to Williams based on what happened to him and Orion," said Ken Thomas, a Miami-based banking expert and economist.

In 2008, Williams got a loan for more than $5.9 million from Florida Community Bank, approved solely by Price when the bank was in a "critically dangerous condition" and at risk of failure, according to the lawsuit.

The personal loan was approved despite being over the bank's lending limit of $5 million for this type of loan. On his own, Price didn't have the authority to authorize a loan for more than $2.5 million and the loan violated the bank's lending rules because it was secured by Williams' shares in Orion, which weren't "readily marketable," the suit states.

Orion's privately held stock lost all of its value after Orion failed in November 2009.

Additionally, Price got a loan from Orion after he approved Williams' loan, "creating the appearance of impropriety and self-dealing," the FDIC contends.

The lawsuit outlines other questionable loans. Among them, according to the FDIC:

■ Two acquisition and development loans were made to Lake Eve Development LLC for more than $4.4 million in 2005, then increased by another $1.6 million in early 2006. Continued extensions and renewals of the interest-only loans violated the bank's policy.

■ A $17.6 million acquisition and development loan was made to Bermont Loop LLC between August 2005 and April 2006. It was authorized as an interest-only loan, though the borrower had no immediate plans to develop his property.

■ A $25.6 million acquisition and development loan was made to Arboretum Development LLC in February 2006, despite a failing real estate market. The loans exceeded the bank's lending limit on secured loans.

After Florida Community Bank failed, it cost the FDIC more than $350 million.

"Any loss to taxpayers is significant," banking analyst Thomas said. "The FDIC should have zero tolerance for losses that come out of our pockets."

The FDIC is blaming the bank's directors for less than 20 percent of the total losses, Thomas pointed out. "Who is responsible for the other 82 percent?"

He questions why state and federal regulators didn't step in sooner to stop the "grossly negligent loan underwriting and loan administration" at Florida Community Bank.

"Where were the regulatory cops when you needed them?" he asked. "Regulatory 'warnings' are not enough. Rather, they should have taken earlier enforcement and other actions to change unwanted behavior. If the cops keep pulling you over for speeding on I-75 and letting you off with warnings, is that going to change your behavior?"

The warnings by regulators date back to 2005. But it wasn't until Oct. 7, 2008, that they issued a cease-and-desist order against the bank, requiring tighter controls over its financial practices and an outside review of the bank's management.

The FDIC prefers to try to reach a settlement in cases, based on the cost of litigation. In many cases, a settlement won't come close to the damages sought by the FDIC.

"That is mainly because individuals don't have the resources and there isn't sufficient liability insurance that we can tap," Barr said. "It's really based on the ability of the defendants to pay."

© 2012 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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