Insurer accuses ex-director of conflicts

By Tim McGlone

The Virginian-Pilot

NORFOLK

Lawyer Richard Tavss, a former director and chairman of Bank of the Commonwealth, is accused in a lawsuit of gross negligence and conflicts of interest in handling loans to several of the bank's troubled borrowers.

Tavss is president and owner of the Tavss Fletcher law firm in Norfolk. He was a longtime director of the bank and its parent, Commonwealth Bankshares, and was one of its largest shareholders.

Following the bank's failure in September 2011, the Federal Deposit Insurance Corp. stepped in as receiver and has attempted to recover a reported $334 million in losses.

The FDIC sent Tavss a letter in February demanding $11.9 million in repayment of bad loans Tavss signed off on while serving on the bank's board and its loan committee.

The FDIC cites "grossly negligent acts" by Tavss and his firm in connection with legal services they provided the bank. The agency also accused Tavss of "inherent conflicts of interest" in his representation of the bank.

"Tavss continued to act in many irreconcilable and conflicting capacities - as a director approving risky and improvident loans for which he received compensation, as a lawyer whose firm closed these same risky loans and received compensation, and as a lawyer responsible for working out the same troubled loans when they became delinquent," the letter states.

Tavss has not responded to phone messages from The Virginian- Pilot left at his office and at his home at the Virginia Beach Oceanfront. His lawyer did not respond Friday to phone and email messages but has previously said that Tavss was not involved in any wrongdoing.

The lawsuit stems from Tavss Fletcher's submission of the FDIC's$11.9 million claim to its malpractice insurer.

Minnesota Lawyers Mutual Insurance Co. filed the suit in federal court this week seeking to absolve itself of having to pay the FDIC. It was in that suit that the FDIC's letter to Tavss was disclosed.

The suit maintains that the insurance coverage of Tavss and his firm excludes damages resulting from conflicts of interest.

The FDIC cites three loans totaling $11 million to former used- car magnate Charlie Falk that it says never should have been allowed.

Tavss and his firm closed on the loans while knowing that the bank's board of directors had not approved them, the letter says. Falk defaulted on the loans within six months.

Former bank President and CEO Edward J. Wood-ard Jr. was convicted in May of federal bank fraud charges that were in part related to the Falk loans. A jury found that Woodard had fabricated documents showing that the board had approved the loans. The board eventually did approve the loans but well after the closing.

Tavss Fletcher was paid $161,000 in legal fees for the Falk transactions, the FDIC letter says.

The FDIC also criticized Tavss for his handling of loans for a condominium project at Pretty Lake Village in Norfolk.

Tavss, whose firm handled the transactions, should have known that the developers had no ability to pay back new loans, the letter says.

The firm "aided and abetted a scheme whereby the bank traded one bad debt for another," the letter says.

The property has equity that can be used to pay off some of the bad debt, but the FDIC said it will lose $900,000 as a result.

The FDIC also took issue with Tavss's relationship with two of the bank's largest, and most troublesome, borrowers, Eric Menden and George Hranowskyj. The two had obtained more than $40 million in loans from the bank to redevelop downtown Norfolk office buildings and apartment houses in Ghent and elsewhere.

Tavss knew as early as 2010 that Menden and Hranowskyj were delinquent in paying city taxes and late in paying vendors, the FDIC letter says. He was aware of six lawsuits against the developers yet never advised the bank to cease lending to them, the letter contends.

The loans were approved, the letter says, "despite the fact that he knew they could not possibly ever repay any of their loans to the bank."

Unlike Woodard and former bank Executive Vice President Stephen Fields, Tavss has never been accused of criminal wrongdoing in his dealings with the bank.

Woodard is serving a 23-year prison term. Fields is serving 17 years. Menden and Hranowskyj also are in prison.

Tim McGlone, 757-446-2343, [email protected]