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Banking and Finance

FDIC Files Civil Suit Against Former Integrity Bank Officials

More banks have failed in Georgia than any other state as part of the current bank failure wave, but the FDIC had not yet filed a civil action against the former officials of a failed Georgia bank - that is, until now. On January 14, 2011, in what is the third FDIC lawsuit overall against former officials of a failed bank as part of the current round of bank failures, the FDIC filed a lawsuit against eight former officials of the failed Integrity Bank of Alpharetta, Georgia. The FDIC's complaint can be found here.

UPDATE: As discussed further below, in addition to the Integrity Bank case, the FDIC also filed a separate lawsuit on January 14, 2011 in the Central District of California against former directors and officers of the failed 1st Centennial Bank of Redlands, California.

Including one bank closed already in 2011, there have been 52 bank failures in Georgia since January 1, 2008. Integrity Bank was one of the first in Georgia to fail when it was closed on August 28, 2008.  

In some ways, it may come as no surprise that the FDIC filed its first failed bank lawsuit in Georgia against officials from Integrity Bank. As noted here, the FDIC had successfully intervened in a derivative lawsuit brought by the trustee of the bank's bankrupt holding company. In moving to intervene in the trustee's lawsuit, the FDIC had said that it intended to file its own lawsuit against former Integrity bank officials.

In addition, two former Integrity officials have already drawn criminal charges involving activities at the bank, as discussed here. One of the two indicted Integrity officials, Douglas Ballard, is also named as a defendant in the FDIC's civil lawsuit. As noted here, in July 2010, the two individuals entered criminal guilty pleas in the case.

As noted in Scott Trubey's January 18, 2011 Atlanta Journal-Constitution article about the FDIC's civil suit, among the former Integrity Bank officials names as defendants in the FDIC's lawsuit is Georgia State Senator Jack S. Murphy,   who was only recently named as Chairman of the Georgia Senate Banking Committee. Another defendant, Clinton M. Day, a former bank chairman, previously was a state senator and was at one time the Republican Candidate for lieutenant governor, and also once served on the Senate Banking Committee

The FDIC, which filed the lawsuit in its capacity as Integrity Bank's receiver, seeks to recover "over $70 million in losses" that the FDIC alleges the bank suffered on 21 commercial and residential acquisition, development and construction loans between February 4, 2005 and May 2, 2007.

The 56-page complaint, which names as defendants eight former directors of the company who also served on the bank's director loan committee, alleges one count of negligence and gross negligence, and one count of breach of fiduciary duties.

Read the article in its entirety at the D&O Diary, a blog by Kevin LaCroix.