FDIC sues directors of failed F’ville bank for $10.3M
The Federal Deposit Insurance Corporation has sued the former board of directors of the failed Southern Community Bank in Fayetteville, which it took over in June 2009.
The lawsuit is seeking $10.3 million in damages from the defendants including lost operating capital, lost profits and lost investment opportunities.
The lawsuit names former bank officer and director Gary D. McGaha of Suches, Ga. along with former bank directors James S. Cameron of Pensacola, Fla., George R. Davis Sr. of Fayetteville, Robert B. Dixon Jr. of Newnan, Richard J. Dumas of Fayetteville, William W. Leslie of Senoia, Jackie L. Mask of Fayetteville, Thomas D. Reese of Senoia and William M. Strain of Fayetteville.
The lawsuit claims the directors were negligent by “approving loans that violated the bank’s internal policies, regulations and/or prudent banking practices.”
Among specific violations, the lawsuit accuses the board of directors of failing to follow FDIC regulations by exceeding a loan limit of $100,000 to former bank chairman Reese on several occasions. The bank ultimately lost $1.64 million on a series of loans and credit extended to Reese and his companies, according to the suit.
According to the lawsuit:
• A $500,000 loan to Reese in July 2004, to secure debt on more than 20 acres of property in Fayette County, was approved by bank directors Dixon, Dumas, Leslie, McGaha and Strain.
• Five months later, in January 2005, a $400,000 loan was approved for Reese to buy 221 acres in Meriwether County. That final loan increased the bank’s total direct exposure to Reese above $2.3 million and was later increased by an additional $300,000 “for the purpose of providing Reese with additional working capital.”
• In April 2005, a $250,000 loan was approved for Reese Family Properties by bank directors Cameron, Davis, Dixon, Dumas, McGaha and Strain to build a boat dock and common facilities at a residential development in Hayesville, N.C. Bank director Reese was an owner and the chief executive officer of RFP and personally guaranteed the loan. This particular loan increased the bank’s exposure to Reese above $3 million.
• In May 2007, bank directors Davis, Dixon, Dumas, McGaha and Strain approved a $350,000 loan to Reese Developers Inc. to provide working capital. The company was completely owned and operated by Reese, who also personally guaranteed the loan. The loan was made despite a credit memorandum that indicated the company was experiencing financial stress, and the bank’s loan did not seek an appraisal of the Meriwether property used as collateral.
• A loss of $485,000 tied to a total of $5.77 million loaned to an unnamed borrower for construction of speculative homes in a residential subdivision despite a failure to demonstrate financial strength to service the loan or pay it off. No cash flow or debt service analysis of that borrower was conducted, and the loan committee learned of additional deficiencies yet subsequently approved an additional $485,000 to the same borrower. The collateral for this loan, listed as 2.5 acres of commercially-zoned land, was never appraised.
• A loss of approximately $2.7 million was tied to a $5 million line of credit in April 2006 issued to United International Mortgage Corp which was guaranteed by a another bank customer whose liabilities had surpassed $10 million.
• A loss of more than $2.6 million stemmed from a $4.5 million loan in October 2005 to refinance the existing debt of Vision 278, LLC despite multiple deficiencies of bank loan policy and prudent banking practices.
• A loss of approximately $1.9 million was the result of $4.75 million in funding to an unnamed corporation in September 2006 to purchase and develop 59.1 acres of property.
The FDIC also claims that the bank failed to adhere to regulations requiring written appraisals of property prior to advancing loan proceeds.
The lawsuit claims that the defendants’ actions and inactions “exhibit such a degree of carelessness and/or inattention as to constitute gross negligence under Georgia law.”
The trial is also seeking unspecified damages on top of the $10.3 million in specified damages.