Federal banking regulators are suing the officers of the failed Superior Bank of Tampa, claiming they broke their own internal rules and made many improper loans that helped doom the bank.
The Federal Deposit Insurance Corporation filed the suit in the U.S. District Court for the Middle District of Florida, as that agency ultimately had to take over the bank. The FDIC is now trying to recover at least $44 million in damages due to what it claims are “highly speculative and poorly underwritten commercial real estate loans,” that “ignored the risks.”
The suit lists loans for projects stretching from Tallahassee to Panama City to Tampa. Two loans included in the suit went to finance projects in the Tampa area. The first was a loan made July 7, 2008 for $8 million, plus a $400,000 term loan to construct a 20,000 foot conference center and corporate offices for the Mainsail Conference Center. The FDIC claims that loan contained “insufficient equity” from the borrower, no personal guarantees and “inadequate financial documentation.” That conference center was completed in 2009.
Officials with Mainsail issued a statement, saying, “Like so many other banks and businesses, Superior was struggling in the downturn and we assume elected to sell the conference center note at a discount in order to raise immediate capital.”
The FDIC also listed a $3 million line of credit and $12 million loan made on November 26, 2008 for “Taipan Property II LLC” which went to complete student housing near the University of South Florida. The project, the FDIC claims, was initially funded by another bank, which ceased funding “about halfway through” after the borrower changed the purpose of the project. The “prevailing economic environment” amid the steepest part of the economic crisis “greatly increased” the chances the loan would fail.
The federal court docket does not list any response yet from the defendants. The two highest-ranking officers listed in the suit were Chief Executive Officer and Chairman of the Board C. Stanley Bailey and President and Director C. Marvin Scott. Neither could be reached for comment.
The FDIC sold the assets of Superior Bank in the spring of 2011 to Birmingham-based Cadence Bank.
The FDIC counts this present action as a “Professional Liability” suit, where the FDIC is the receiver of a bank that’s being liquidated. “You can kind of think of it as a Chapter 7,” said FDIC spokesman David Barr. The FDIC files such suits when “they are both meritorious and cost-effective,” according to FDIC guidelines.
Before that step, the FDIC conducts an investigation that can take 18 months, and FDIC staff try to make a settlement with potential defendants. If that doesn’t work, the FDIC files a lawsuit, typically in federal court.
From January 1, 2009, through April 10, 2014, the FDIC authorized suits against 136 failed institutions and 1,102 individual directors and officers. Of that, 21 were settled and one went to trial, with a jury verdict for the FDIC. On top of that, the FDIC filed dozens of suits for other bank and loan problems, including 69 residential mortgage malpractice suits that are pending.
According to FDIC data, it’s been a good return on investment. From 1986 through 2012, the FDIC and former Resolution Trust Corporation (1989-1995) spent $1.9 billion on professional liability claims and investigations, and collected $6.8 billion.