The FDIC filed its ninth lawsuit against directors or officers of failed financial institutions since the onset of the current economic downturn.  On July 14th, the FDIC filed a civil complaint against the directors and three senior officers of Haven Trust Bank (Duluth, Ga.), which was placed into receivership in December 2008.  The FDIC estimates the failure of Haven Trust Bank will cost the Federal Deposit Insurance Fund approximately $248 million. We have posted a copy of the complaint.

Some of the core allegations in the FDIC’s complaint are very familiar by now.  The FDIC alleges that the Haven Trust defendants implemented an unsustainable business model focused on rapid asset growth heavily concentrated in high-risk commercial real estate (“CRE”) loans.  It further contends that the defendants failed to maintain adequate internal controls, loan underwriting policies, and sufficient credit administration procedures necessary to oversee and manage the operations of the bank.  The FDIC alleges that the defendants continued to pursue an aggressive CRE lending strategy throughout most of 2008, after regulators had cautioned them about the bank’s poor asset quality and rapidly deteriorating capital ratios.

The unique allegations in the complaint center on the influence the FDIC contends was exercised by two of the directors, R.C. Patel and Mike Patel, who collectively owned a controlling interest in the bank.  Specifically, the FDIC contends that the bank made numerous imprudent insider loans (exceeding $7 million) to the Patels or their relatives, all for the Patels’ personal benefit.  The FDIC also alleges that despite the bank’s rapidly declining capital-to-asset ratios, the defendant directors authorized dividend payments to the bank holding company in the months prior to the receivership.

The FDIC’s complaint asserts state law claims for negligence and breach of fiduciary duty, and an additional claim for gross negligence under FIRREA.  The total amount of the damages sought is estimated to exceed $40 million.