FDIC Wants $13 Million From Bank Execs

     LAS VEGAS (CN) – The FDIC demands more than $13 million from three top officers of the defunct Security Savings Bank, claiming they “wholly abdicated” their responsibilities before the bank in suburban Henderson, Nev. failed in 2009.
     The FDIC, as receiver for the bank, sued former CEO Kelly Jones, former president and Chief Credit Officer Stephen Dervenis, and former senior vice president of compliance and operations Thomas Procopio, in Clark County Court.
     They approved at least seven high-risk commercial real estate loans in violation of the bank’s lending policies, the FDIC says.
     The bank was chartered in April 2000 as an industrial loan company. It was acquired in 2004 by Stampede Holdings, a closely held company of 41 private investors. The Nevada Department of Business and Industry closed it in February 2009, and the FDIC was appointed receiver. It was the first bank to fail in Nevada that year, but already the 15th that year in the country.
     “Defendants’ roles as underwriters of the bank’s loans required that, before recommending a loan for approval, they ensured the loan was properly documented, complied with the loan policy, was adequately supported, and demonstrated a strong likelihood of repayment,” the complaint states. Defendants were further required to provide accurate and full disclosures to the Loan Committee members to enable them to make informed decisions regarding the requested credits. As approvers and recommenders of the loans, defendants had a duty to ensure compliance with the bank’s loan policies and safe and sound banking practices, and to make informed decisions that were in the best interests of the bank. Specifically, defendants were required to ensure that the borrowers were credit worthy, that there was a clear source of repayment, and that the loan would not result in unnecessary risk to the bank.
     “Defendants wholly abdicated each and every one of these responsibilities by repeatedly disregarding the bank’s loan policies and safe and sound banking practices, including causing the bank to loan millions of dollars to borrowers who had no adequate means to repay the loans in the event the proposed projects failed or underperformed. Each of the Loan Transactions was a loan participation – i.e., a loan that was originated by another bank, but funded by two or more banks. Although these loans required independent underwriting, defendants failed to conduct complete, independent underwriting on a single loan, instead relying extensively on the underwriting of the lead bank.
     “Defendants knew or should have known that such reliance was reckless and represented indifference to their duties to the Bank. By these acts and omissions, defendants created obvious risks of injury to the bank from specific loans that they knew or were reckless for not knowing were extremely unlikely to be paid back.
     “Each of the loan transactions suffered from multiple and egregious deficiencies that made the high risk of loss clear. In particular, each loan lacked adequate repayment sources and was undercollateralized, information that defendants knew or to which defendants chose to turn a blind eye. Moreover, Jones, Dervenis, and Procopio withheld information about these deficiencies and provided exaggerated information to the other members of the Loan Committee and the Board of Directors regarding these loan transactions, thereby making the transaction appear less risky than they, in fact, were. …
     “During the relevant period, between December 2004 and December 2005, the bank’s percentage of ADC [acquisition, development and construction] loan concentrations as a percentage of total capital grew from 17 percent to 136 percent, and by December 2006, it was 306 percent, which was more than three times the bank’s peer group average,” the complaint states.
     The FDIC claims the defendant directors negligently approved loans to Winchester Properties, WSG Key West LLC, Winners LLC, Corinthian Communities, Northshore Center and Hisey LLC.
     It claims they failed to perform an independent underwriting of each loan, failed to analyze the borrowers’ loan repayment sources, and that the loans for construction projects were in “overvalued markets,” which increased the likelihood of loss to the bank, “and warranted increased caution, strict adherence to loan policies, and steps to minimize risk.”
     “Instead of taking such steps, defendants’ took the opposite tack, ignoring the bank’s lending policies and disregarding basic principles of safety and soundness to enable them to forge ahead with unsuitable loans,” the complaint states.
     The FDIC seeks $13.1 million plus interest from the three defendants, for breach of fiduciary duties and gross negligence.
     It is represented by Robert McCoy with Morris Law Group.
     One hundred forty U.S. banks failed in 2009; 157 in 2010; 92 in 2011; and 41 in 2012.

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