LOS ANGELES (CN) - The FDIC sued 11 directors and officers of the failed First Regional Bank for $72.5 million - a pittance of the $522 million they cost the Deposit Insurance Fund by violating their own policies, according to the federal lawsuit.
The directors violated "safe and sound" banking practices by approving risky loans with little chance of repayment for projects with insufficient collateral, the Federal Deposit Insurance Corp. claims in Federal Court.
It's the latest of many lawsuits in recent years in which the FDIC seeks to claw back money bank executives lost during the financial meltdown.
Suing as receiver for First Regional Bank, the FDIC claims the bank's directors caused losses of $72.46 million by approving "ten poorly underwritten acquisition, development and construction and commercial real estate loans between December 8, 2005 and April 5, 2007."
The 10 loans had a value of $139 million.
The directors "repeatedly disregarded First Regional's Loan Policy and approved loans to borrowers who were not creditworthy and/or for projects that provided insufficient collateral. These loans had little chance of repayment and thus compounded the bank's risk exposure. Defendants pushed to grow loan production despite substantial warnings that a significant downturn in the market was imminent and, in some instances, after that decline was already well underway," according to the complaint. The FDIC not does seek to collect on the outstanding loans, but to collect damages for the directors' alleged negligence and breaches of fiduciary duties.
The California Department of Financial Institutions closed First Regional on Jan. 29, 2010. The FDIC estimates the losses to the Deposit Insurance Fund from the bank's collapse to be $522 million.
Named as defendants are Fred Edwards, H. Anthony Gartshore, Thomas McCullough, Carolyn Zarro Nicholson, Colleen Carson, Klaus Schilling, Richard Schreiber, Lawrence Sherman, Jack Sweeney, the Estate of Marilyn Sweeney, and Steven Sweeney.
The FDIC is represented by Rita M. Haeusler with Hughes Hubbard & Reed.
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