Willetts, Cooperative directors sued by FDIC
September 15, 2011By The Business Journal Staff
Former Cooperative Bank president and CEO Fredrick Willetts III is being sued for $33.3 millions dollars and the failed bank’s eight other directors are being sued for millions of dollars more, according to a lawsuit filed last month by the Federal Deposit Insurance Corporation.
The lawsuit charges Willetts and the directors engaged in dangerously aggressive lending practices despite being warned repeatedly by authorities, and these practices led to the bank’s takeover by the government in June 2009.
“The negligence, gross negligence and reckless conduct of the Defendants, as officers and directors of the Bank, ultimately led to the Bank’s failure,” according to the lawsuit, which was filed in the U.S. District Court for Eastern North Carolina.
Reached by phone Thursday afternoon, Willetts declined to discuss the case.
“We have retained legal counsel and on advice of our counsel, I can’t comment at this time,” he said. “However, we do look forward to answering this lawsuit at the appropriate time.”
Willetts said he is being represented by the Venable law firm in Washington D.C.
The other directors named in the lawsuit are Paul G. Burton, James D. Hundley, Horace Thompson King, III, Ottis Richard Wright, Jr., Richard Allen Rippy, Francis Peter Fensel, Jr., Dickson B. Bridger and Otto C. “Buddy” Burrell, Jr.
Each director is being sued for different amounts based on different loans they were involved with, according to the lawsuit.
Burton is being sued for $9.4 million, Hundley for $4.9 million, King for $12.3 million, Wright for $11 million, Rippy for $20 million, Fensel for $21.4 million, Bridger for $14.4 million and Burrell for $18.6 million.
According to the lawsuit, Cooperative’s board adopted a strategic goal in November 2001 to grow its assets from $443 million to $1 billion by the end of 2005. Although the bank didn’t reach that goal by the end of 2005, Cooperative continued to try to reach it, the lawsuit alleges.
“As implemented, the aggressive growth campaign traded the conservative and safe manner in which Cooperative had operated for 100 years for a strategy that concentrated Cooperative’s lending in higher risk acquisition, development and construction (“ADC”) loans,” the lawsuit stated.
“As a result of Cooperative’s aggressive growth strategy, Cooperative’s ADC loan concentration grew from 326% of total capital in December 2005 to 469% of total capital in December 2007. In its peer group, ADC loans comprised 104% of total capital in December 2005 and 124% of total capital in December 2007.”
To grow its assets, the directors allowed “a lax loan approval process,” that included making loans with the borrowers putting up little or no equity and not requiring borrowers to share financial statements or tax records, according to the lawsuit.
Starting in 2005, the lawsuit noted, “state and federal regulators repeatedly warned Cooperative’s management and Board about the risks associated with its high concentration in speculative loans and weaknesses in its lending function…
“In February 2008, two state banking examiners advised the Board that Cooperative’s commercial real estate concentration was the highest percentage in North Carolina — nevertheless, in clear conflict with the best interest of the Bank, the Board permitted and approved Cooperative’s continued focus on commercial real estate lending, even though the Board had known since at least early 2007 that the real estate market was slowing.”