FDIC still fighting to recoup losses from Naples-based Orion Bank

Nov. 16--The Federal Deposit Insurance Corp. isn't giving up on recouping losses from the collapse of Naples-based Orion Bank.

Just shy of the sixth anniversary of the failed bank's shutdown, the FDIC filed a federal lawsuit in Fort Myers against two of Orion's insurers, and could seek more than $6 million.

The suit, filed Nov. 10, is against U.S. Specialty Insurance Co. and The Hanover Insurance Co.

DOCUMENT: Read the lawsuit.

David Barr, an FDIC spokesman, declined to comment.

Across the country, the FDIC has filed 108 "professional liability" lawsuits, naming 826 former directors and officers, in connection with banks that have failed since 2008. It has filed an additional 69 suits with other claims, such as those it has brought against Orion's insurers.

"We let the complaints speak for themselves," Barr said. "They are usually very detailed."

In the complaint, the FDIC alleges breach of contract and demands a jury trial, saying the insurers have failed to reimburse it for losses resulting from a fraudulent scheme involving Orion Bank's former president, CEO and chairman, Jerry Williams, and two of his employees.

The FDIC claims that Orion Bancorp Inc. and its subsidiary bank held fidelity bonds from U.S. Specialty and Hanover that covered the wrongful acts of the trio of employees at the time of the fraud. Each bond carried a $3 million policy limit.

Williams is still serving out a six-year sentence at a prison camp in Montgomery, Alabama, for his crimes. His release date is Oct. 30, 2017.

Williams admitted to orchestrating a complex scheme that involved illegally raising more capital for Orion and selling off bad loans to a borrower to make his failing community bank appear in better financial shape to regulators to avoid a shutdown.

More than $80 million in loans were made to a borrower, Francesco Mileto, who was over his loan limit, with $15 million returned to the bank for the illegal purchase of stock. The stock purchase was designed to appear to regulators like a fresh infusion of capital as the bank teetered on the brink of collapse.

The scheme sent two other Orion employees to prison, Thomas Hebble, an executive vice president, and Angel Guerzon, a loan officer, who got lighter sentences. Mileto, the borrower, was sentenced to 65 months in prison.

Doug Busker, director of investor relations for HCC Insurance Holdings Inc., the parent company for U.S. Specialty Insurance, said his company's policy is not to comment on pending litigation. Emily Trevallion, a spokeswoman for Hanover, said the same.

The Hanover bond provided excess coverage for losses above the policy limits of the U.S. Specialty bond. The FDIC could seek the full payout on both policies, plus interest, attorneys' fees and other court costs. The amount owed is to be proven at trial, the lawsuit states.

The U.S. Specialty Insurance bond provided coverage "for losses resulting directly from dishonest or fraudulent acts committed by an employee acting alone or in collusion with others," but there are conditions attached to the policy, according to the lawsuit. The coverage is triggered only when the employee does the acts with an intent to cause the bank to lose money, or to gain a financial benefit personally, or for someone else.

Williams benefitted personally from the capital infusion into the bank. After making the bank appear stable, he sold 23,925 shares of his personal stock for $765,600. He gave $50,000 of it to a restaurant group he co-owned, used $276,230 to pay down a personal loan, and wrote himself two checks for $175,000 and $250,000, according to the lawsuit.

At his sentencing, Williams agreed to pay more than $5.7 million to Orion shareholders he sold stock to months before the bank failed. But that restitution left out hundreds of other investors, who lost millions. Many of them were bank employees.

Orion bank itself lost more than $20 million.

The community bank concentrated too heavily on commercial real estate acquisition, construction and development loans, many of which"were made in violation of good banking practices and in violation of Orion's internal policies," the lawsuit states. When the real estate boom went bust in 2006, Orion suffered big losses that left it reeling.

On. Nov. 9, 2009, regulators directed the bank to dismiss Williams. Four days later, the Florida Office of Financial Regulation closed the bank and appointed the FDIC as the receiver. The latest estimates put the FDIC's losses from the failed bank at $760 million.

A judge ordered Williams to pay more than $31 million in restitution to the FDIC for his leading role in a bank fraud conspiracy, which was based on the losses the agency suffered when it took over the bank's fraudulent loans after selling most of Orion's assets to IberiaBank.

The FDIC, which insures bank deposits, covers it losses with the premiums it receives from its member banks and thrifts. It receives no government money.

The FDIC has settled two other professional liability suits involving Orion Bank:

In August 2014, the FDIC reached an agreement with a West Palm Beach-based law firm, Nason, Yeager, Gerson, White & Lioce P.A., and two of its attorneys, who it alleged approved the fraudulent loans to Mileto despite "a slew of glaring red flags." The FDIC collected almost $2.5 million.

In October 2014, the FDIC struck a compromise with James Aultman, Earl Holland, and Brian Schmitt, three of the bank's former directors, who it alleged allowed Williams to "drive the bank into failure." The FDIC received more than $1.22 million from the directors, and more than $2.48 million from their insurer, Progressive Casualty Insurance Co., as part of a $3.71 million agreement.

In July 2015, the FDIC also negotiated a settlement with Crowe Horwath LLP, an outside public accounting firm that did business for the bank, avoiding a lawsuit. The FDIC received $2 million.

More than 70 banks failed across the state and hundreds more collapsed around country after the housing bubble burst and the Great Recession followed. Small community banks took the biggest hit.

From Jan. 1, 2009 through Oct. 23, 2015, the FDIC authorized suits in connection with 150 failed institutions against 1,207 individuals.

Of the 108 professional liability lawsuits the FDIC has brought, naming 826 former directors and officers, 70 have settled and one has ended with a favorable verdict by a jury.

"Only one has gone to trial," said Barr with the FDIC. "It's most common for settlements to happen."

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