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FDIC Sues Former Bears QB Jim McMahon

CHICAGO (CN) - Former Chicago Bears quarterback Jim McMahon is one of nine former directors and officers of Broadway Bank the FDIC sued in Federal Court, claiming reckless lending led to the bank's collapse and cost the FDIC $104 million.

The Federal Deposit Insurance Corp., as receiver for Broadway Bank, sued McMahon, six other former board members and two bank former officers.

McMahon led the Bears to their Super Bowl title in 1985.

The FDIC says McMahon served on Broadway's Board of Directors from 2003 through 2008.

"As a member of the Board, McMahon approved the $28 million loan to Normandy Shores, LLC, which caused over $19 million in losses to the Bank. Despite his Board responsibilities, McMahon repeatedly missed critical Board meetings," the FDIC says in its complaint.

It added: "As members of the Board of Directors and the Bank's Loan Committee, the director defendants and officer defendants recklessly implemented a strategy of rapidly growing Broadway's assets by approving high-risk loans without regard for appropriate underwriting and credit administration practices, the Bank's written loan policies, federal lending regulations and warnings from the Bank's regulators."

The FDIC claims: "Broadway Bank was an institution driven by a disregard for risk and a willingness to lend millions of dollars to uncreditworthy borrowers for speculative commercial building projects not only in Illinois, where the Bank was located, but in New York, Florida, California and other locales."

Despite multiple warnings from the FDIC that the bank's financial performance was deteriorating, "the director defendants approved two of the worst loss loans on June 24, 2008, after a meeting earlier that same day with the bank's regulators in which the regulators specifically warned the director defendants about the risks that these types of loans posed to the bank," the complaint states. "That day, the regulators also discussed with the director defendants the need to enter into a Memorandum of Understanding with Broadway which would impose restrictions on the bank designed to stop this type of high-risk lending. In all, the defendants approved three loss loans on or after June 24, 2008, which caused over $20 million in losses to the bank, and were among the largest loss loans approved by the defendants.

"On April 23, 2010, the Illinois Department of Financial and Professional

Regulation ('IDFPR') closed Broadway and appointed the FDIC as Receiver. At failure, the Bank's assets were $1.06 billion. The estimated loss to the FDIC's Deposit Insurance Fund from the Bank's failure is $391.4 million."

Also named as a defendant is Demetris Giannoulias, former president of the bank and brother of the Illinois State Treasurer Alexi Giannoulias.

The FDIC claims that "defendant members of the Board of Directors were grossly inattentive to the affairs of the Bank - deferring excessively to the whims of the Giannoulias family. As a consequence, reports were not closely read, little or no due diligence into the Bank's condition was done, regulatory criticisms were discounted, and, for defendant McMahon, important Board meetings frequently were missed or ignored. Further, the director defendants' monitoring of internal controls was lax and their oversight of financial reporting was deeply flawed."

In a written statement quoted in the Chicago Sun Times, McMahon said, "With the advantage of 20-20 hindsight, the FDIC now blames Broadway's former officers and directors for not anticipating the same unprecedented market forces that also surprised central bankers, national banks, economists, major Wall Street firms and the regulators themselves.

"I am proud to have served as an outside, independent director for a brief part of the bank's history. The allegations in the complaint are utterly without merit, and I expect to be fully vindicated."

The FDIC seeks $104 million plus interest for gross negligence, breach of fiduciary duty, and negligence.

It is represented by Thomas Hecht of Ungaretti & Harris LLP.

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