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.

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Comments

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1. Big Julie Sep. 10, 2011 | 6:20 p.m. Report Abuse

   If each of youse guys cough up 20 million we'll let it slide.
   Sooo the moral of the story is you can get away with all manner of hooliganism if you cough up a portion of your swag to "the oufit" (government)?
   Silly me I thought if someone was actually guilty of a crime they would actually be prosecuted.
   But on second thought I realize these guys could afford better lawyers than the feds could and apparently the feds realized this also.
   (sigh) miller time

2. Roger Sep. 10, 2011 | 4:49 p.m. Report Abuse

   So is the government making an example of these 2 realtively small time bankers? I'm not sticking up for these guys, but they get punished while the bigger banks get bailed out? There isnt a person involved with mortgage lending who didnt know alt-a were high risk loans yet loan officers across the country made substantial incomes pushing this crap...what irks me the most is all the lost equity and losses being absolved by mid class america is offset by a ton of cash in someones pockets..

3. Southside Teddy Sep. 10, 2011 | 4:19 a.m. Report Abuse

   Every one was making money, its called Greed,

4. VinceW Sep. 10, 2011 | 12:11 a.m. Report Abuse

   This has got to be the stupidest thing I have ever heard!! Now your actually punishing someone for doing their job, while under the scrutiny of audits and regulators at all times, and making profits? The government actually says to every other business industry that their failures are due to the economy, but lets blame punish the bankers we told "every american should own a home" and ease lending and be creative to make that happen. Is it also the bankers fault that many in the auto industry, retailers, resturants, publishers, even our own governments went upside down? If you want to sue someone for gross negligence, start with all the politicians that promoted and allowed this to happen on their watch.

5. BarbVe Sep. 9, 2011 | 9:14 p.m. Report Abuse

   John-- That's not what happened in this instance (nobody is saying that these guys lied about anything). The government alleges that the bank executives were negligent in not seeing the mortgage market crash. There is no allegation that they lied to anybody nor did they "get money". This is monday morning quarterbacking on the part of the regulators.

6. Bredo Sep. 9, 2011 | 8:56 p.m. Report Abuse

   Tell the FDIC to go after James A. Johnson. He is the one that started this problem!!!

7. John.Turkovich Sep. 9, 2011 | 8:44 p.m. Report Abuse

   Where is the mention of the criminal charges that should be pursued, if you or I lied to a bank to get money I'm sure we would face a criminal penalty.

8. BarbVe Sep. 9, 2011 | 7:08 p.m. Report Abuse

   FNB had received the highest asset quality ratio possible from its regulators as late as 2006. The mortgage market crashed in 2007. Virtually every mortgage company went out of business during that time frame (the exceptions are those that received govt support--e.g., BofA, Wells Fargo, etc...). While bankers should take some responsibility for the crash, it should be shared with regulators, policy makers (e.g., the Fed's low interest rates, numerous incentives to promote home ownership), and yes, homeowners themselves. These mortgages went bad because the borrowers stopped paying.

9. Bob_Realist Sep. 9, 2011 | 6:41 p.m. Report Abuse

   When are the members of Congress and the FED going to be charged for making the banks approve risky loans? If Congress had not threatened sanctions most of the banks would not have participated.