ORLANDO (CN) – The Federal Deposit Insurance Corp. can sue the former directors of a shuttered bank for irresponsible lending policies, a federal judge ruled.
As directors for Florida Community Bank, Stephen Price; Beauford Davidson; Patrick Langford; Jon Olliff, DDS; James O’Quinn; Bernard Rasmussen and Daniel Rosbough made lending decisions that were not in the best interest of the corporation, according to a the complaint filed by the FDIC as the bank’s receiver.
The FDIC sought to hold the directors liable for negligence in approving a series of loans that were not repaid, costing the bank tens of millions of dollars.
Despite the deteriorating real estate market, the directors gave loan approval for projects with the minimum required scrutiny, according to the complaint. The projects allegedly suffered from insufficient collateral, excessive loan-to-value ratios and questionable appraisals, all in violation of bank lending policy.
Regulators warned about oversight, but the directors failed to take heed, the FDIC says.
In a motion to dismiss, the directors said that the allegations do not rise to the level of gross negligence, as necessary under Florida law for recovery against them.
Though this standard requires dismissal of an ordinary negligence allegation, U.S. District Judge Gregory Presnell found that the other allegations are sufficient to state a claim for gross negligent.
In “just a sampling of the allegations raised by the FDIC,” Presnell noted that the directors are accused of exceeding policy for loan-to-value ratio, loaning to borrowers who had not demonstrated sufficient liquidity to pay down the amount borrowed, and exceeding an institutional 25 percent lending limit on secured loans.