Ex-Directors Sued In Bank Failure

By Michael Hall, The Brunswick News, Ga.

McClatchy-Tribune Information Services

Feb. 04--The Federal Deposit Insurance Corp. is seeking through a federal civil lawsuit to be repaid $9.8 million it claims it could not recover in its takeover of a failed Glynn County bank because of the banks' negligent lending practices and wasting of assets on unnecessary perks for directors.

The 11 former board members of the now defunct Oglethorpe Bank, which included outside directors who were not employees and some bank officers who were employees, caused the FDIC'sDeposit Insurance Fund to lose the money by having to take over and sell the troubled bank, the lawsuit alleges.

Board members failed to monitor lending, leading to "improperly approving millions of dollars in facially deficient loans" and encouraging an "excessive and irresponsible" concentration of questionable residential and commercial loans in what became a poor local real estate market, the 80-page lawsuit alleges.

The lawsuit sites 24 specific loans the FDIC says are the reason for the loss of the $9.8 million it hopes to recover from the former directors, who were covered by directors liability insurance.

Oglethorpe Bank opened in Glynn County in 2003 and was shut down in January 2011 by state and federal regulators before being sold to Bank of the Ozarks.

The questionable loans were made despite several warnings from bank examiners that underwriting deficiencies at Oglethorpe Bank led to 65 percent of loans in its portfolio being made as interest-only, without a requirement for principal payments. In 2005, nearly 30 percent of the loans lacked important credit documents, the lawsuit alleges.

From 2007 to 2009, examiners warned that the bank's rapidly growing loan portfolio relied too heavily on risky commercial real estate lending to developers, making the bank vulnerable to collapse if the commercial real estate market tanked, the lawsuit says.

Some loans were made with guaranteed payback amounts that were less than the total borrowed, the lawsuit says.

During 2007 and 2008, the bank's portfolio "skyrocketed" by more than $40 million, pushing its adversely classified assets -- or loans that are in doubt of being repaid in full -- to dangerous levels, the suit says. It goes on to say that by 2008, the bank was in serious financial trouble.

"Despite this worsening trend, defendants continued to make loans to non-creditworthy borrowers," the lawsuit says.

During the same period, the suit says the bank's directors wasted assets by giving themselves perks, such as a $30,000 expense-paid weekend retreat at the Ritz-Carlton hotel on Amelia Island, Fla., $278,000 paid to themselves in director's fees, Brunswick Country Club memberships for all directors and Sea Island Club memberships for Chief Executive Officer Laura Cross-McKinley and Chief Lending Officer Robert Strange III.

The lawsuit filed Jan. 9 in U.S. District Court at Brunswick also includes statements attributed to some board members who indicated they thought the board of directors was left out of the loop in the lending process and often approved loans based on trust placed in the bank's officers.

Then board of directors member Diane C. Bailey is quoted in the lawsuit saying that she "many times felt that loans were skimmed over and (the board was) given fast and surface information. I had a little of a blind trust. Perhaps if (the board) had been given more in-depth info, different decisions might have been reached. It was always presented that they (loans) couldn't possibly fail."

She went on to say in her statement that "too much money was spent on unnecessary perks and benefits for the officers, employees and board members," the lawsuit says.

Former board member Ronnie E. Perry said in a statement cite in the suit there was often very little group discussion about approving loans. Instead, the "executive committee made most of the decisions and their meetings were not reported to the whole board," the lawsuit says. The board would then follow orders of the committee "with little input from others," according to the lawsuit.

Board member John Bradley Stroud in his statement in the complaint concurred with Perry and said he only "sometimes" got the proper amount of information to make informed decisions, the lawsuit says.

Atlanta lawyer Scott Sorrells, who represents eight of the 11 defendants, said in an email to The News Monday that the FDIC's allegations "are without merit and we look forward to demonstrating that in court. The directors and officers of Oglethorpe Bank fulfilled their responsibilities in good faith and acted in the best interest of the bank. The bank was overtaken by the worst economic crisis since the Great Depression, a catastrophe that was particularly devastating for Brunswick and the Golden Isles."

Former board member Frank DeLoach III, who is represented along with former director Strange by lawyer Tracy Klingler of Atlanta, declined to comment on the lawsuit Monday.

Steve Parham, an Atlanta lawyer representing Cross-McKinley, did not return a telephone call from The News Monday.

Cross-McKinley previously sued the FDIC for severance pay, as a former employee of Oglethorpe Bank, after it was shut down. That suit ended with a summary judgment in favor of the FDIC by U.S. District Judge Lisa Godbey Wood in March 2013.

The defendants named in the lawsuit against Oglethorpe Bank are among 1,071 named in similar professional liability suits filed by the FDIC since 2009, according to the FDIC website.

-- Reporter Michael Hall writes about public safety, environment and other local topics. Contact him at [email protected] or at 265-8320, ext. 320.

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