ATLANTA — Federal bank regulators filed a lawsuit Friday against 10 former directors and officers of a failed Georgia bank that collapsed and led to a wide-ranging criminal investigation and prison time for two of its top officials.
The Federal Deposit Insurance Corporation's complaint accuses the former Omni National Bank officials of negligence and loose lending policies that led to the bank's March 2009 collapse. It seeks to recover more than $37 million in losses that included loans targeting low-income properties.
It names several defendants who have already been charged criminally with their role in the bank's collapse. Jeffrey Levine, the bank's former vice president, was sentenced to five years in prison in 2011 after pleading guilty to cooking the bank's books. And Karim W. Lawrence, another Omni executive, was sentenced to almost two years in prison on charges of taking bribes at the bank.
An attorney for former bank president Irwin Berman, who was also named in the complaint, said his client would be exonerated.
"The claims asserted against Mr. Berman are completely unfounded," said his attorney David Balser. "Mr. Berman has an impeccable reputation as a banker of the highest degree of skill and integrity, and we intend to vigorously defend against these claims."
A lawyer for two of the defendants said he hadn't seen the lawsuit so could not comment on the specifics.
"Whatever the claims, we will demonstrate that each of my clients, Mr. Klein and Mr. Lawson, diligently fulfilled his responsibilities and is not liable for any of the losses claimed by the FDIC," Tod Sawicki said in an email statement.
Several of the other defendants could not be reached for comment or declined to comment.
The lawsuit claims Levine, Lawrence and five others approved loans for low-income properties despite "numerous, repeated and obvious violations" of the bank's loan policies and procedures. It said the lenders allowed the use of straw borrowers, didn't get proper appraisals and didn't make sure the borrowers had proper credit scores or the ability to repay the loans.
The other five lenders the complaint named were Benjamin Cohen, Jules Greenblatt, Eugene Lawson III, Shannon Livengood and Gregory Patten.
It accused Berman and former Omni chief executive Stephen Klein of failing to supervise the loan officers despite numerous "red flags," such as reports of prior misconduct by Levine. And it said Klein, Cohen and Constance Perrine, the bank's chief financial officer, approved wasteful expenditures on low-income real estate in September 2008.
Omni focused mostly on residential projects in struggling urban areas. Between 2003 and 2008, the Atlanta-based bank expanded into seven states and its assets quadrupled to almost $1 billion, fueled mostly by a surge in real estate lending.
Its biggest portfolio was a unit led by Levine that doled out high-interest, short-term loans to borrowers with lackluster credit who promised to renovate houses in struggling neighborhoods. But when the economy collapsed, many of the loans ended up defaulting, costing the bank millions of dollars.
Prosecutors later accused Levine of trying to boost the bank's bottom line by altering financial records to inflate the value of the loans. The FDIC complaint also accuses Klein and Berman of failing to properly supervise Levine even though he had been reprimanded in 2002 for making a loan to a delinquent borrower so he could inflate his bonus.
Many of the loans ended up defaulting when the real estate market collapsed in 2008, helping to speed the bank's downfall. But it also said officers ignored reports warning of the bank's liquidity problems and instead spent more than $12 million between September 2008 and March 2009 to maintain or improve low-income properties.
"These expenditures further depleted Omni's already critically deficient capital which hastened the Bank's failure and increased its losses, ultimately paid by the Deposit Insurance Fund," the lawsuit said.
The investigation of the bank hasn't stopped with the company's officers. At least four of the bank's customers also faced criminal charges.
Delroy Davy was sentenced in 2011 to 14 years in prison for giving kickbacks to a bank officer and participating in a house-flipping scheme. Mark Anthony McBride is serving a 16-year prison sentence after pleading guilty to fraudulently obtaining millions of dollars in mortgage loans from Omni and other banks.
Christopher Loving was sentenced to three years in probation for making false statements to investigators in connection with kickbacks he paid Lawrence. And Brent Merriell, another bank customer, was sentenced to three years in prison for making false statements to investigators regarding short-sales of Omni-funded properties.