Colonial BancGroup Seeks to Retain Control of Bankruptcy Case

Colonial BancGroup Inc. is seeking to keep sole control of its bankruptcy case while it battles with the Federal Deposit Insurance Corp. over the regulatory agency's $1 billion claim against the bank holding company.

Colonial BancGroup, the parent of Colonial Bank until banking regulators seized it last year, wants a three-month extension, through Nov. 18, of its exclusive right to file a plan detailing how it intends to liquidate its remaining assets to pay back its creditors.

In papers filed Friday in U.S. Bankruptcy Court in Montgomery, Ala., the holding company said it is "not in the best interests of the estate" to file such a plan as long as its legal dispute with the FDIC is pending before the court.

The FDIC was appointed receiver of the estate of Colonial's bank upon its collapse last August, after which Colonial filed for Chapter 11 bankruptcy protection and regulators sold substantially all of the bank's assets to BB&T Corp.

Since the sale, Colonial has battled the FDIC and BB&T, as well as Alabama state taxing authorities, over the ownership of various assets.

The FDIC says Colonial owes it about $1 billion, which represents the gap between the amount of capital its banking subsidiary was required to have and the amount it actually had when the bank was seized.

Colonial disputed the FDIC's claim and, in turn, sued the regulator to recoup nearly $900 million in funds it transferred to the bank in the months before the collapse to shore up the bank's capital. According to Colonial, banking regulators encouraged the transfer of the funds while they knew or should have known that the troubled bank was likely to be seized.

Colonial's failure came amid problems with mortgage lender Taylor Bean & Whitaker Mortgage Corp., which is also in bankruptcy. The two firms had a close relationship.

Colonial, based in Montgomery, has acknowledged it is the target of a criminal probe by the U.S. Justice Department in relation to its mortgage warehouse lending division and alleged accounting irregularities.

Meanwhile Lee Farkas, Taylor Bean's former chairman, is awaiting trial on charges that he orchestrated a seven-year, multibillion-dollar fraud that contributed to Colonial's collapse. Farkas has pleaded not guilty to the charges and demanded a jury trial, which is slated to begin in November.

As Colonial floundered, Taylor Bean and a group of other investors had sought to pump $300 million into Colonial, which would have enabled Colonial to become eligible for a $550 million federal bailout. But the two sides failed to get regulatory approvals, and that plan was scuttled.

Taylor Bean filed for bankruptcy protection in August 2009, shortly after federal authorities raided its Ocala, Fla., offices amid allegations of massive fraud.

Colonial Bank, which had $25 billion in assets and $20 billion in deposits, was the biggest bank failure of last year. The FDIC estimates Colonial's collapse will cost its insurance fund $3.8 billion, making it one of the most expensive bank failures in U.S. history.