The FDIC filed a complaint (the “Complaint”) against the former directors (the “Directors”) and certain former officers of Silverton Bank, N.A. (“Silverton”), a national bank with its main office in Georgia. The suit was filed in the U.S. District Court for the Northern District of Georgia (docket number 1:11-cv-02790-JEC). Silverton was originally organized as a “bankers’ bank” to serve the needs of community financial institutions, and the Directors of Silverton were all chief executive officers or presidents of other community banks, which was a requirement to serve on the Silverton Board of Directors. The FDIC alleges that the Directors’ extensive experience and knowledge of the banking industry should have meant that they were more skilled and knowledgeable about banking matters than an average corporate director and, accordingly, the FDIC states, the Directors should have been aware that their actions violated their fiduciary obligations to Silverton. On May 1, 2009, the OCC declared Silverton to be insolvent and appointed the FDIC as receiver of Silverton.
In the Complaint, the FDIC seeks to recover damages in excess of $71 million for losses incurred by Silverton in connection with transactions that were allegedly caused by the negligence, gross negligence, breaches of fiduciary duties and/or waste committed by the Silverton Directors and/or the named officers of Silverton. The FDIC alleges that at the time when Silverton’s financial condition was seriously impaired and when the Directors should have been aware of the downturn in economic conditions, the Directors wrongfully approved certain transactions specified by the FDIC (including the purchase of two corporate airplanes, the building of a massive airplane hangar, the hiring by Silverton of eight private jet pilots to transport the Directors and prospective clients to lavish corporate retreats, the holding of lavish annual shareholder meetings and conferences, and the construction of a palatial new bank office building). Moreover, during the period when Silverton was under financial stress, the FDIC alleges that the Directors allowed Silverton to pursue a rapid growth strategy that relied on a high level of brokered deposits and expanded Silverton’s commercial real estate acquisition and construction loans both in Georgia and outside of Georgia, where Silverton had little experience and an inadequate understanding of the local market, and also broadened Silverton’s commercial real estate lending activities, which, the FDIC alleged, were conducted without proper underwriting standards and without adequate credit administration.
The FDIC alleged in the Complaint that the Directors and the other defendants “failed to exercise any business judgment [with respect to the criticized transactions] or even exercise a slight degree of care. There was a complete disregard for the interests of the bank.”
The FDIC stated that the Silverton Directors were “asleep at the wheel” and “robotically voted” to approve transactions without using their business judgment.