Colonial BancGroup Inc.'s officers and directors are seeking to tap additional insurance proceeds from the bankrupt holding company in an effort to defend themselves from a wave of lawsuits filed by investors angry over the collapse of the company's bank.
Founder and former chief executive Robert E. Lowder and 20 other current or former Colonial BancGroup officials are asking for an additional $1.5 million to defend themselves, having already exhausted that much, according to papers filed Thursday in the U.S. Bankruptcy Court in Montgomery, Ala.
The insured officials are facing numerous lawsuits, including one from shareholders alleging "fraud, deceit … unjust enrichment and breach of fiduciary duty" and another asserting that officials lied to shareholders about the bank's receiving federal bailout funds. The officials are subject to civil damages alleged to exceed $115 million.
Current and former members of Colonial's board and management team are also looking to use the funds to pay legal bills connected to a continuing federal criminal probe.
The bankruptcy court initially allowed the group to tap proceeds from the Federal Insurance Co. policy in November 2009. But that money is gone, and the officials say they need more.
Colonial BancGroup was the holding company for Colonial Bank until regulators closed it in August 2009 after the parent failed to raise the funds needed to keep it afloat.
The company had suffered losses on commercial real estate lending, and it filed for Chapter 11 bankruptcy protection shortly afterward.
Now, the bank holding company and certain of its current and former officers and directors are "responding to various government investigations of it and others," the officers and directors said in the court papers.
Colonial, based in Montgomery, has acknowledged it is the target of a criminal probe by the Department of Justice regarding its mortgage warehouse lending division and alleged accounting irregularities.
Attorneys for the company could not immediately be reached for comment Friday.
Colonial's financial woes came amid problems with the mortgage lender Taylor Bean & Whitaker Mortgage Corp., which is also in bankruptcy. The two companies had a close relationship.
As Colonial foundered, Taylor Bean and a group of other investors had sought to pump $300 million into the Alabama bank, which would have made it eligible for $550 million in federal bailout money.
But the two entities failed to get regulatory approvals, and the plan was scuttled. Taylor Bean filed for bankruptcy protection in August 2009 after federal regulators froze its accounts and suspended its authority to make loans insured by government agencies.