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FDIC files response in Peoples First suit

PANAMA CITY — The government has filed a more specific complaint against the directors of a failed local bank, but the details of specific loans the defendants are being sued over are still largely undisclosed.

Judge Richard Smoak ordered the Federal Deposit Insurance Corporation (FDIC) to file a new complaint detailing more specifically how the defendants’ alleged gross negligence caused the FDIC to lose money. In response to Smoak’s order, the FDIC filed an amended complaint that mirrors the first complaint with a few exceptions.

The amended complaint adds details about a loan Peoples First Community Bank issued to a borrower referred to in court documents as “PQH.” PQH received $12.2 million in late 2005, and then defaulted without paying a balance of nearly $4.5 million in principal and interest.

After the collateral and other recovery avenues had been exploited, the losses to the FDIC were estimated at $3.9 million. According to court records, the loan was to finance a development of 239 single-family homes in Polk County and was to be repaid when the homes sold.

The PQH loan is the only one detailed in the court records, and the FDIC uses it to illustrate the problems with each of the 11 loans it claims were not vetted properly by the eight defendants in the lawsuit: Panama City Mayor Greg Brudnicki, Joseph Chapman, Henry Futrell, Philip Griffitts, John Middlemas Jr., Rodney Morris, John Wilson and Raymond Powell.

Powell, because of his dual role as both a member of the board of directors and the president and CEO, is not afforded the same protection from claims of negligence as a director. Smoak dismissed the FDIC’s negligence claims against all the defendants except Powell last month.

Powell approved nine of the 11 transactions totaling $63.9 million. When the borrowers defaulted, a total of $33.18 million went unpaid, and the FDIC had to take the hit.

After documented attempts to restore Peoples First to fiscal health, regulators took over the bank in December 2009 and seized the bank’s records. The government’s case relies now on thousands of pages of those records, filings indicate.

The FDIC says it’s ready to begin sharing its evidence against the defendants with them, but the defendants are demanding confidential information that will require the FDIC to review hundreds of thousands of pages of documents on a line-by-line basis.

The most relevant records relate to the underwriting, credit and collateral documentation of the borrowers in the 11 transactions — which the FDIC argues it has a duty to protect from public disclosure — and there are 18,000 pages of those documents. The defendants have demanded more documents dating back to, in some cases, the opening of the bank in 1983.

“Such a process is inefficient and will delay discovery,” the FDIC argues in a filing asking for an “umbrella protective order.”

Charles Wachter, an attorney representing the defendants, fired back that the FDIC seeks “to hide its documents under a blanket of secrecy,” according to court filings.

“The FDIC is hampering the defendants’ ability to defend themselves from the overreaching and abusive allegations in this case,” Wachter wrote.

A hearing will be conducted over the phone next week to iron out the issue.


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