Former bank execs settle with FDIC for $20 million each

Former executives of First National Bank have settled a lawsuit brought by the Federal Deposit Insurance Corp., alleging the two "sacrificed safety" and promoted risky loans that caused the bank's failure.

Ex-CEO Gary A. Dorris and former Director Phillip A. Lamb agreed to settle for $20 million each while denying all allegations in the FDIC's complaint.

Dorris and Lamb were insured through Lloyd's of London, which denied coverage of the settlement and legal fees. As part of the settlement, Lamb, Dorris and other former First National Bank of Arizona officers and directors agreed to let the FDIC have the right to pursue all future claims against Lloyd's of London.

The settlement, which includes former officers and directors of the bank, has not been released publicly by the U.S. District Court in Phoenix.

Ronald Glancz, an attorney with Venable LLP in Washington, D.C., said his clients, Lamb and Dorris, would not comment on the settlement agreement. Glancz said Friday his clients also "appreciated the FDIC's cooperation in settling this case."

First National Bank of Arizona was one of three banks owned by Scottsdale, Ariz.-based First National Bank Holding Co., including First National Bank of Nevada and First Heritage Bank.

In its original complaint filed Aug. 23, the agency sought to recover more than $193 million in damages resulting from the officers' breaches of fiduciary duties, including "gross negligence."

In its complaint, the FDIC alleged the First National Bank created a wholesale mortgage division within the bank to purchase and market billions of dollars in nontraditional mortgages known as "Alt-A" loans.

Although these "risky loans" returned record short-term profits, the FDIC claimed that they produced losses when the real estate market softened and ultimately caused the bank to fail.

Alt-A mortgages typically lacked proper underwriting, had no income verification and carried terms that guaranteed high default rates. Dorris and Lamb promoted the risky mortgages "long after they should have known the loans being made created substantial harm to the bank," the FDIC said.

In their response to the original complaint, Dorris and Lamb argued that they had complied with their fiduciary and management duties and did not have any personal responsibility for the wholesale mortgage division.

The former executives also said the bank was "properly capitalized" and operated with a prudent business model regarding the purchase and sale of mortgage loans.

"The bank eventually failed, not because of any negligent conduct ... but as a result of the sudden collapse of the secondary mortgage market, the unprecedented disruption of the real estate market, the resulting steep decline in home values, and the deterioration of the mortgage assets held by the bank at the onset of what is now referred to as the Great Recession," they said in the response.

First National Bank of Arizona closed its mortgage business in 2007. In 2006, the bank's mortgage division peaked at $7.2 billion, the FDIC said.

First National Bank of Nevada acquired the bank in June 2008, less than a month before the bank was seized by regulators and sold to Mutual of Omaha Bank. At the time, the FDIC estimated the closure would cost the FDIC's Deposit Insurance Fund about $862 million.

Contact reporter Chris Sieroty at
csieroty@reviewjournal.com or 702-477-3893.