Federal banking regulators are demanding changes to a proposed $1.5 million settlement between Colonial Bank's former parent company and ex-leaders of the failed bank, including Bobby Lowder, the Auburn University booster who once served as chief executive.
The deal between the bank's corporate parent, Colonial BancGroup Inc., and former executives, trespasses on claims the Federal Deposit Insurance Corp. has a right to assert, lawyers for the federal agency said in papers filed in an Alabama bankruptcy court.
Colonial Bank's corporate parent also faces opposition to the settlement from four law firms that said they laid the legal groundwork for the pact, and will assert a lien against the cash.
Scott+Scott LLP, Doyle Lowther LLP, the Law Offices of Greg L. Davis and the Robinson Law Firm P.C. say they sued Colonial's leaders six months before the company filed for bankruptcy, accusing them of gross mismanagement, including squandering an opportunity to reel in $550 million in bailout funds.
After the bankruptcy filing, the plaintiffs firms say, they, rather than the company, protected the right to sue company executives.
Now Colonial BancGroup wants to use the settlement cash to fund its long-running litigation against the FDIC over who gets to claim more than $250 million in tax refund cash. The lawyers who first raised the hue and cry at Colonial Bank said it's unfair to leave them unpaid.
In January, a federal judge handed Colonial Bank's former parent a setback, upsetting a bankruptcy-court order that allowed the company to tap some $38 million in a disputed bank account to cover its bankruptcy expenses.
The FDIC is receiver for creditors of Colonial Bank, which failed in the collapse of the housing market in 2009., Mortgage lender Taylor Bean & Whitaker Mortgage Corp. also went under. Taylor Bean was hit with a Federal Bureau of Investigation raid of its Ocala, Fla., offices after the company's accounting firm halted an audit upon uncovering evidence of massive fraud.
The head of Taylor Bean, Lee Farkas, was sent to prison for fraud connected to a scheme to get federal funds to save Colonial Bank. Two officials connected to Colonial's mortgage warehouse lending division also received prison sentences for their role in the crime.