Tuesday, August 30, 2011

2 former execs of bank hit with suit

Two former Arizona banking executives face a lawsuit brought by the Federal Deposit Insurance Corp. over their role in the 2008 collapse of Scottsdale-based First National Bank, from which the government agency is seeking to recover $193 million.

Gary A. Dorris, former president, CEO and vice chairman of Scottsdale-based First National Bank Holding, and Philip A. Lamb, executive vice president and director, are accused of sacrificing the company's safety and soundness by promoting shaky Alt-A loans.

These mortgages were typified by a lack of proper underwriting, no verification of borrower income or assets and terms that guaranteed high default rates, the lawsuit says.

"The directors and officers promoted this practice at the outset and continued to support the mortgage division's growth long after they should have known that the loans being made created a substantial risk of harm to the bank," according to the FDIC's complaint, filed Tuesday in U.S. District Court in Phoenix.

Although profitable initially, this unsustainable business model depended on real-estate values rising indefinitely with default rates remaining low, according to the FDIC.

When real-estate prices collapsed, the Scottsdale entity was left holding "millions of dollars of bad loans it could not sell," the suit says.

First National Bank, with operations in Arizona, Nevada and California and nearly 1,000 workers, mostly in Arizona, was closed by the Office of the Comptroller of the Currency in July 2008 at a loss of nearly $900 million.

It was the first and largest of 14 Arizona bank failures during the current down cycle.

It also was the first Arizona bank failure since 2002.

Mutual of Omaha Bank took over some First National operations.

Dorris, a Scottsdale resident, declined to comment on the lawsuit. So did Ronald Glancz, a Washington, D.C., attorney representing Dorris and Lamb.

Lamb, also of Scottsdale, couldn't be located for comment.

by Russ Wiles The Arizona Republic Aug. 25, 2011 12:00 AM

2 former execs of bank hit with suit

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