The State of Georgia is among the national leaders in banks closed by state and federal agencies. So far in 2011, six Georgia banks have been closed, with the latest two being Habersham Bank and Citizens Bank of Effingham. Since late 2008, when the banking crisis hit, a total of fifty seven Georgia banks have been closed. Friday afternoons have become a death watch in the Georgia banking industry, as closings are generally announced on Friday afternoons. Many of the holding companies related to these banks have chosen to file Chapter 7 bankruptcy petitions as a way to wind up the affairs of the entities.
It is no surprise that legal disputes have arisen in the last several weeks, as the FDIC, and in come cases Chapter 7 Trustees, have pursued various causes of action against officers, directors, and professionals employed by the banks. In some cases, there has been a dispute between bankruptcy trustees and the FDIC over who owns the claims (which could be the subject of another post).
Here are only a few of the many recent cases filed against officers, directors and professionals of closed banks. Whether the lawsuits ultimately lead to recoveries for the creditors of the bankruptcy entities, or replenishes the reserves of the FDIC remains to be seen.
Silverton Financial Services, Inc., by and through its Chapter 7 Trustee, Jeffrey K. Kerr, v. Porter Keadle Moore, LLP, Inserra and Bryan, Case No. 2010-CV-199891 (filed December 29, 2010, Superior Court of Fulton County, Georgia (click here for the Complaint).. Silverton Bank, a "banker’s bank" rather than a bank that did business with the public, is Georgia’s largest bank failure to date. It failed in early 2009, although at one point it was metro-Atlanta’s second largest bank with $2.9 billion in assets.
In June 2009, Silverton Financial Services, Inc. ("SFSI"), the holding company of Silverton Bank and other entities, filed a Chapter 7 petition in the Northern District of Georgia. In the 148 page Fulton County lawsuit, the plaintiff trustee alleges that SFSI’s accounting firm and lead audit partner breached their duties to SFSI, and that SFSI’s chief executive officer breached his fiduciary duties as an officer and director of the company. The complaint seeks $57 million in damages.
Scarver, as Ch. 7 Trustee of Haven Trust Bancorp., Inc. v. Desai, et al., Adv No. 11-5105 (N.D.Ga. filed February 22, 2011) (click here for complaint) and Scarver, as Ch. 7 Trustee of Haven Trust Bancorp., Inc. v. Patel, et al., Adv N. 11-5103 (N.D. Ga. filed February 22, 2011) (click here for complaint). Haven Trust Bancorp. was the holding company whose sole asset was its ownership interest in Haven Trust Bank, which was closed by the FDIC in December 2008. On February 23, 2009, Haven Trust Bancorp filed a Chapter 7 petition. In these lawsuits, the Trustee is suing to recover fraudulent transfers to insiders of the debtor entity, including the payment of the insiders’ personal income tax obligations. The Complaints also reference the scathing FDIC report on Haven Trust Bank, as discussed in this AJC article.
Other related Haven Trust cases include a complaint filed by shareholders against Haven Trust officers and directors. Patel v. Patel, et al, Civil Action No. 09-cv-03684 (N.D. Ga. filed December 31, 2009) (click here for complaint). The case was dismissed in this January 14, 2011 Order.
FDIC, as Receiver for Neighborhood Community Bank v. Smith Welch & Brittain, LLP, Civil Action No. 11-cv-00372 (N.D.Ga filed February 7, 2011) (click here for complaint). The FDIC sued a law firm for the closed Neighborhood Community Bank for negligence in the handling of loan transactions. Click here for an AJC article on the lawsuit and click here for an article in the Atlanta Business Chronicle. Other lawsuits have been filed in Georgia against other law firms that the FDIC claims caused losses to the closed banks.
FDIC, as Receiver for Integrity Bank, v. Skow, et al., Civil Action No. 11-cv-00111 (N.D. Ga. filed January 14, 2011) (click here for complaint). The FDIC in this lawsuit seeks to recover over $70 million in losses related to loans approved by Integrity Bank’s officers and directors. The FDIC alleges that the losses were due to the negligence and breaches of fiduciary duties of the insiders. Defendants include Jack Murphy, a state senator. This lawsuit is discussed in more detail in an article in the Atlanta Journal and an article in the Atlanta Business Chronicle.