Hedge funds that backed CertusBank, an institution formed after the financial crisis to buy up failing and struggling banks in Georgia and other Southern states, have sued the company’s former founders alleging lavish spending and efforts to conceal poor performance, according to a report in American Banker.
The six investment funds allege the founders used money from investors to enrich themselves and that a half-dozen former bank directors failed in their duty to oversee the executives. Certus effectively wound down its operations in recent months, selling off branches to rivals, as its losses mounted.
The lawsuit was filed last week in a Delaware court, the Banker reported. It accuses former Certus executive Milton Jones, Walter Davis, Angela Webb and Charles Williams of breach of fiduciary duty and other failings, the Banker report said.
The Atlanta Journal-Constitution could not immediately reach an attorney for the executives.
Jones is a former market president for Georgia for Bank of America. He was a leader of a group of former BofA and Wachovia executives that got a “shelf charter” from regulators that allowed them to bid for and purchase failed banks from the Federal Deposit Insurance Corp.
Certus’ creation was a major story in banking circles during the recession. It boasted a senior management team of respected and experienced minority bankers and it won one of a relative few shelf charters issued by federal regulators. The management team managed to draw about $500 million from major investment firms who saw opportunity in rolling up failed banks with lucrative “loss-share” deals with the FDIC that guaranteed against certain losses on bad loans.
The bank was based in Greenville, S.C., but it counted 16 branches and more than $800 million in deposits in Georgia as of June, according to the FDIC. Certus acquired the failed Hometown Community Bank, First Georgia Banking Co. and Atlantic Southern Bank in Georgia following the financial crisis.
The bank also bought institutions or had operations in Florida, North Carolina and South Carolina.
“When we sat down and strategized what we wanted to do, these are the markets we knew,” Jones told the AJC in 2011.
But the bank was mired in fights with investors and the executives left the bank following an American Banker report that detailed lavish spending by executives on their offices and themselves.
The Banker said Certus racked up losses of $21 million in the first six months of 2015, and $166 million in total from 2012-2014.