It was bad enough when Georgia reached the top of the heap (or bottom, depending on your view) of states in the number of FDIC civil lawsuits against former officers and directors of failed banks. Now, it appears that Georgia may be leading in a race to become the state with the most former bank officers and directors who've been indicted.
The former president and six other officers of First National Bank of Savannah on Friday were indicted by a federal grand jury in Savannah, accused of defrauding First National Bank and other banks out of millions of dollars.
The indictment comes on the heels of the 2011 prosecution of Savannah real estate developer Richard Guerard for scheming with First National Bank officials and employees to defraud the bank and others to cover loan shortfalls for two of his companies.
He pleaded guilty in May 2011 and was sentenced to 52 months in federal prison in August 2011.
The First National Bank indictments arise out of an alleged scheme by the defendants to hide losses from shareholders, directors, and the regulators that the bank suffered from soured commercial real estate loans through an alleged witches brew of straw borrowers, side deals, "hidden promises," "recruiting other banks to fund non-performing loans based on fraudulent misrepresentations about the quality of the loans," and falsifying and fabricating bank records and other documents. Other than that, everything appears to have been upfront and above-board.
There's a sense of "deja vu" to the allegations, in that other community banks that have failed due to CRE loans that went bad have been alleged by the FDIC to have gone to some lengths to conceal the nature of the losses by the use of similar techniques. Not many of those allegations have resulted in criminal indictments, but these indictments may signal that more of those are on the way.
Of course, indictments present only the government's side of the case. We haven't heard yet from defense counsel. I'm sure their response will paint a different picture.
Nevertheless, lawyers who represent banks that are "in distress" some times find it necessary to point out to bank officers, and occasionally to bank directors, as well, that attempting to mask losses can subject responsible officers and directors to allegations that, among other things, they have filed false financial records, including their quarterly CALL Reports. These types of indictments are a lesson. I hope those who might benefit from such a lesson are paying attention. For some, the time for paying attention has passed. For them, the best approach at this time might be fervent prayer.