The Federal Deposit Insurance Corp. has sent a letter demanding that officers and directors of failed Community Bank pay $780 million in damages in what a bank analyst calls one of the first signs of a new "regulatory reign of terror."
Trade publication American Banker used the term "regulatory reign of terror" in 1993 during the last wave of regulatory seizures of banks.
Attorney Francis Grady, a former FDIC lawyer, declined to comment on the Community Bank matter but said the government agency has a history of suing officers and directors of failed financial institutions.
"This is absolutely par for the course," Grady said.
He recalled lawsuits that the federal government filed against officers and directors of savings and loan associations that collapsed during the 1980s.
FDIC spokesman David Barr said he was unaware of any lawsuits filed by the federal agency against officers and directors of seized banks since the current banking crisis started. However, Barr said the statute of limitations typically runs three years and the wave of bank failures only began to surge in late 2008. Regulators seized Community Bank of Nevada and an affiliated bank in Arizona in August 2009.
The FDIC last fall deposed executives at Silver State Bancorp, the Henderson-based holding company that regulators took over in September 2008, according to three sources who insisted on anonymity. Calls to two former executives at Silver State were not returned Wednesday.
In addition, Alabama-based Colonial Bank, which had 22 branches in Nevada, also appears to be in the legal sights of attorneys for the FDIC. FIG Partners, a brokerage that specializes on bank stocks, reported in January that Colonial officers were served with legal papers demanding payments.
The FDIC letter to Community Bancorp officers and directors may be part of the federal government's attempts to recover money from insurance policies that Community Bancorp, the Las Vegas-based bank holding company, had for executives and directors. The FDIC sent a copy of the letter to Progressive Insurance Co.
The FDIC could be seeking information from the former bank officers and directors, a source said.
Alternatively, the federal agency may intend to sue some of the executives and directors for sums in addition to the insurance policy.
Bank insiders say they are confident that Community Bancorp insurance coverage for directors and officers and for errors and omissions is much less than $780 million.
Although the FDIC is unlikely to recover all of the $780 million, the agency could reduce losses to its deposit insurance fund by getting judgments against some of the officers and directors who have "deep pockets."
The FDIC's letter, dated Feb. 11, said the bank's "directors and officers caused the bank to engage in numerous deficient, unsafe and unsound business practices, including speculative, high-risk, poorly underwritten lending."
In addition, the letter signed by FDIC counsel Manuel Ramos said: "The directors and officers ignored clear and repeated warnings from regulators, failing to address the bank's serious liquidity issues. These liquidity issues played a significant role in the decision regulators made to close the bank."
Former Community Bancorp Chairman and CEO Ed Jamison said it would be inappropriate for him to comment on the letter.
The government seems unwilling to forgive small community banks for ill-fated loans although it gave financial bailouts to big banks because the big banks were "too big to fail," real estate attorney Tisha Black-Chernine said. The country's network of several thousand community banks also is too big to fail, she said.
The FDIC letter was addressed to 42 individuals who held positions or had ties to Community Bancorp. They include Lawrence Scott, former CEO of Community Bank of Nevada; former chief financial officers Patrick Hartman and Cathy Robinson; and former Executive Vice President Barry Hulin, who served as CEO of Valley Bancorp before Community Bancorp acquired it.
Also letters were sent to former directors Jay Bingham, vice chairman at Community Bancorp and a former county commissioner; Noall Bennett; Gary Stewart; Jack Woodcock; and Dan Stewart.
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.