FDIC Wants $18M From Failed Bank’s Honchos

     TACOMA (CN) – Irresponsible lending drove American Marine Bank into insolvency at a cost to taxpayers of $61 million, and the FDIC claims in court that 10 of the bank’s officers are personally responsible for $18 million of it.
     By violating their own policies and “closing their eyes to known risks,” the bank directors are personally on the hook for $18 million, the FDIC claims in its federal complaint.
     American Marine Bank, of Bainbridge, Wash., was closed by the FDIC on Jan. 29, 2010, at a cost to the Federal Deposit Insurance Fund of $61 million, according to the complaint. The bank was founded in 1948.
     The Federal Deposit Insurance Corp. sued the 10 former bank officers, as receiver for the failed bank. It claims the officers breached their fiduciary duties and were “grossly negligent” in granting loans that violated the bank’s own policies.
     “Defendants, 10 of AMB’s former directors and/or officers, caused damages by failing to approve loans in the manner required under the applicable loan policies and by approving loans that did not warrant approval,” the complaint states. “Collectively, the defendants were charged with, among other responsibilities, the responsibility of operating and managing the lending function of AMB. But, rather than manage AMB’s lending function in a safe, sound and reasonable manner, the defendants took unreasonable risks with the bank’s loan portfolio; allowed irresponsible and unsustainable rapid asset growth concentrated in high-risk and speculative acquisition, development and construction (‘ADC’), and commercial real estate (‘CRE’) loans, disregarding regulator advice and criticisms regarding lending activities; and violated AMB ‘s loan policies and reasonable industry standards.”
     The defendants include former president and CEO Rex Townsend, chief credit officer Barbara Kaye, executive vice president and CFO Renzo Lucioni, and executive vice president and chief credit officer Gary Winter.
     “In committing numerous breaches of their duties, the defendants demonstrated a want of slight care under the circumstances known to them at the time, and otherwise abdicated their corporate responsibilities by closing their eyes to known risks,” the complaint states.
     It lists 11 loans approved between May 15, 2005 and Dec. 6, 2007 which “violated safe and sound lending practices and the bank’s own loan policy.”
     The loans all had numerous deficiencies, including lack of collateral, improper appraisals, missing financial statements and insufficient analysis, the FDIC says.
     It cites a $4 million loan for residential land development in Colorado, “outside the bank’s normal lending area – and in an area with which the Bank was unfamiliar.”
     No analysis of the feasibility of the project was performed and the borrowers offered “illiquid and limited support compared to the size of the loan,” the complaint states.
     The bank approved another $4 million for construction of a mixed-use residential project in Orem, Utah, which was again outside the normal lending area, according to the complaint. The FDIC says the bank failed to perform due diligence on the project or get an appraisal before funding it, and the loan exceeded the loan-to-value limitations.
     Townsend personally wired the money for one “risky” loan without obtaining committee approval, the FDIC says.
     “The Western Pennsylvania Senior Living Limited Partnership (‘Western PA’) loan was a $4.5-million participation loan. AMB was to be the lead lender of the Western PA loan in the amount of $3 million, and the remaining $1.5 million was to be participated to another bank. The purpose of the loan was to allow borrowers to purchase three mortgages at a 22 percent discount on the face amount, secured by two assisted-living facilities and raw land in New Stanton, Pennsylvania. Despite the deficiencies discussed below, Townsend ‘crammed down’ this loan and personally wired the funds on or about December 28, 2006, without obtaining loan committee approval,” according to the complaint.
     The FDIC says the failed bank funded the loan without obtaining another bank’s commitment to participate in it, and that “the guarantees were circular, as the guarantors’ net worth was substantially tied to the very assets being borrowed against.”
     The FDIC seeks recovery of $18 million in losses on the 11 loans under the Financial Institutions Reform, Recovery and Enforcement Act (FIRRA). FIRRA holds directors and officers of financial institutions personally liable for damages caused by “gross negligence.”
     “As loan committee members, officers and/or directors, defendants owed AMB a duty of care to carry out their responsibilities by exercising the degree of care, skill and diligence that ordinarily prudent persons in like positions would use under similar circumstances,” according to the complaint.
     Also named as defendants are Bess Alpaugh, Carl Berg, Jeffrey Goller, Thomas Kilbane, Andrew Mueller and Alice Tawresey.
     The FDIC is represented by Walter Barton, with Karr Tuttle Campbell, of Seattle.

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