FDIC sues failed Illinois bank’s execs over losses

* Ex-Heritage Community officials accused of negligence

* FDIC plans to sue over 50 officials at multiple banks

By Jonathan Stempel

NEW YORK, Nov 1 (BestGrowthStock) – The FDIC sued 11 former
executives and directors at a failed Illinois bank on Monday,
part of the regulator’s efforts to recover more than $1 billion
of losses in its deposit insurance fund.

The lawsuit accuses former officials at Heritage Community
Bank of negligence, gross negligence and breach of fiduciary
duty.

The Federal Deposit Insurance Corp is planning to sue more
than 50 officers and directors of failed banks to help
replenish its deposit insurance fund, a spokesman for the
regulator said.

On Oct. 19, the FDIC said bank failures would cost the fund
$52 billion from 2010 through 2014. So far this year, 139
lenders have failed, compared with 140 in 2009.

In its complaint filed in U.S. District Court in Chicago,
the FDIC accused Heritage officials including former Chief
Executive John Saphir of trying to mask problems in the bank’s
commercial real estate portfolio by making new loans, causing
more than $8.5 million of losses.

It also accused the officials of awarding $11.08 million of
dividends and incentive payments, including to Saphir and other
senior management, rather than conserve cash that the Glenwood,
Illinois-based lender needed.

“Defendants failed to preserve the bank’s capital and
provide sufficient reserves to absorb losses that would
inevitably result when poorly underwritten commercial real
estate loans went bad,” the complaint said.

It is unclear whether any of the defendants has retained
counsel. Saphir could not immediately be reached for comment.
He lives in Chicago, according to the complaint.

In July, the FDIC sued to recover $300 million from former
executives of IndyMac Bancorp Inc (IDMCQ.PK: ), a large
California mortgage lender prior to its July 2008 failure.

Heritage had roughly $232.9 million of assets and $218.6
million of deposits prior to failing. MB Financial Inc (MBFI.O: )
acquired most of the assets and assumed all the deposits. The
FDIC at the time estimated the failure would cost its deposit
insurance fund $41.6 million.

The case is FDIC v. Saphir et al, U.S. District Court,
Northern District of Illinois, No. 10-07009.
(Reporting by Jonathan Stempel in New York; Additional
reporting by David Clarke in Washington; Editing by Richard
Chang)

FDIC sues failed Illinois bank’s execs over losses