The president and six former officers of a failed Savannah, Ga., bank were indicted on Jan. 11 on charges of fraud and conspiracy related to failed commercial loans.
The indictment claims that Heys Edward McMath 3rd, founder and former chief executive of First National Bank of Savannah, along with six former bank officials, issued fraudulent loans and made secret side deals to convince borrowers to take over soured loans following the market downturn in 2007. It also says bank management falsified documents during a review by the Office of the Comptroller of the Currency in 2009.
In 2010, First National became the first failed bank in the Savannah region. It was taken over by the Federal Deposit Insurance Corporation that June and sold to the Savannah Bank, costing the FDIC approximately $90 million.
The conspiracy charges against McMath and the other defendants carry a maximum sentence of five years and a fine of $250,000, while the fraud charges carry a maximum of 30 years per charge and a fine of $1 million, according to James Durham, the lead attorney for the state.
First National Bank rapidly expanded its loan portfolio in the mid-2000s, ballooning from $40 million of total assets in 2004 to over $200 million in 2008. Many of these loans were made "in an unsafe and unsound manner, often without regard to the bank's own internal controls and policies," the indictment alleges.
When the loans started to go bad, in 2007, McMath and his co-defendants began entering into a series of side deals in which they offered banks and real estate developers loans at favorable rates on the condition they took on its nonperforming loans. The officers also allegedly used the proceeds from certain loans to cover cash shortfalls.
The indictment names the Montgomey Bank & Trust of Ailey, Ga. as one lender the defendants made false statements to in an effort to induce it take on a delinquent loan.
First National management also falsified documents and lied to the OCC during a March 2009 call report, according to the indictment. The OCC designated the bank in "troubled condition" following the call report. The bank's board removed McMath as CEO in 2009.
In 2011, in a related case, a Savannah real estate developer was sentenced to four years in prison and given a $2.4 million fine for deals involving First National. Richard Guerard used false documentation to receive over $1 million in loans from the bank, and then, in order to prevent the loans from going bad, conspired with bank officers to make fraudulent loans to cover the shortfall.
The defendants should make their first appearance in court in the next month, Durham said. American Banker could not reach McMath for comment.
The case results from a joint investigation by the Board of Governors of the Federal Reserve Office of Inspector General, the FDIC Office of Inspector General, the U.S. Department of the Treasury office of the Inspector General; the U.S. Secret Service; and the United States Attorney's Office.