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Regulators filed suit Thursday in Las Vegas against four officers of the failed Silver State Bank, demanding more than $86 million in damages for “gross negligence and breaches of fiduciary duty.”
The Federal Deposit Insurance Corp. filed suit in U.S. District Court to recover loan losses at Silver State, which failed in 2008 at an estimated cost to the FDIC of more than $550 million.
Silver State was known for making aggressive and risky commercial real estate loans that later went into default during the recession. With 17 branches in Nevada and Arizona, it had loans and other assets of $1.887 billion.
Thursday’s lawsuit was filed against Corey Johnson, who was CEO of the bank; Douglas French, an executive vice president heavily involved in real estate lending; Gary Gardner, a senior vice president and loan officer; and Timothy Kirby, a vice president.
In earlier enforcement actions, the FDIC reached settlements with French and Gardner in which they paid $35,000 and $1,000, respectively, and agreed not to work in the banking industry again.
Thursday’s detailed, 76-page lawsuit claims the former bank officers were negligent in originating, approving and administering several unsound real estate loans.
Chairman and CEO of Silver State Bank Tod Little is shown in 2002 outside company offices at 400 North Green Valley Parkway.
The lawsuit also said that under the leadership of co-founder Tod Little, the bank’s growth was “steady and controlled, with conservative lending focused on Small Business Administration loans.”
But in January 2006, “Little was forced out of the bank when Johnson used Little’s marital problems to convince the board to remove him” — at which time Johnson became CEO of the Henderson-based bank.
“Johnson abandoned the bank’s prior conservative lending strategy in favor of a high-risk ADC (acquisition, development and construction) lending strategy funded by (high-cost) brokered deposits,” the FDIC suit says. “Both Johnson and French pursued this program aggressively despite indications and other warnings, beginning in mid-2005 and continuing until the bank failed, of declining real estate markets in the bank’s principal lending areas — Las Vegas and Phoenix.”
The suit went on to say:
“French has testified that he knew that the Las Vegas market was a speculative bubble and that the economy was a ‘house of cards.’ Moreover, French has admitted that Silver State should not have made any new loans on Las Vegas residential real estate developments after mid-2007.
“Contributing to the risks inherent in loans of this nature, the bank’s pay structure for loan officers provided a strong incentive for them to make loans without regard to quality or risk. Loan officers (including French), in addition to their regular salary, earned a commission equal to 10 percent of the bank’s fee income on all loans they originated.”
Requests for comment were placed with the defendants.