Federal regulators have sued several former directors and officers of the failed Cape Fear Bank to recover about $11.2 million in losses the bank suffered on 23 commercial loans.
The suit by the Federal Deposit Insurance Corp. (FDIC), filed Wednesday in U.S. District Court for Eastern North Carolina, says the risky acquisition, development and construction loans were approved between Sept. 27, 2006, and Feb. 27, 2009.
It says the loans "as well as numerous other acts of negligence, gross negligence, and/or breaches of fiduciary duties ... were the direct and proximate cause of the bank's losses."
The suit said that over the years defendants repeatedly disregarded regulatory and auditor warnings about its risk management policies.
The FDIC seeks to recover approximately $11.2 million plus interest and costs from the defendants jointly and separately.
The Wilmington-based bank failed April 10, 2009, and was taken over by First Federal of Charleston. The FDIC is suing as the bank's receiver.
This is the second suit by the FDIC against a closed Wilmington bank.
Cooperative Bank failed June 19, 2009, and was taken over by Troy-based First Bank.
Last September, the FDIC sued former Cooperative chief Frederick Willetts III and the bank's board of directors for $33 million, charging neglect of duty.
This week's the Cape Fear Bank suit named seven defendants: John Cameron Coburn, president and CEO until Sept. 19, 2008; R. James MacLaren, senior vice president and chief credit officer from March 2007 until the bank failed; Mark Tyler , senior vice president and chief banking officer from March 2007 until the bank failed; Larry Flowers, chief credit officer from Jan. 20, 1998, until he retired Jan. 1 2007; and directors Walter Winter, Jerry Sellers, and Craig Relan.
Coburn could not immediately be reached for comment Thursday.
The defendants "pursued a flawed strategy of branching growth without developing a plan to monitor the five new branches that were opened between April 2006 and November 2007," the suit states.
Federal regulators allege that the defendants were "ill-equipped to properly manage the risks associated with the bank's growth."
The suit also states the defendants "increased the bank's already high-risk exposure by implementing policies and procedures void of the most basic prudent lending controls in an effort to pursue the bank's ill-advised ... strategy."
According to the suit, "Cape Fear struggled under ineffective management from the day that it opened."
The FDIC allege that Coburn "totally dominated the lending activities of the bank, although he had insufficient experience to lead a bank."
The suit also said that Coburn initially served as the bank's executive vice president.
After the bank's then-CEO resigned, the board, whose chairman was Coburn's father, elected John Coburn as president and CEO.
Richard Coburn resigned six months later, the suit states, and John Coburn became chairman of the board at age 34.
The 23 loans are listed separately in the suit, with their loan amounts and the losses the bank incurred.
One loan, for $1.4 million in 2006, resulted in a loss to the bank of $1.18 million. Another the same year, for more than $1.3 million, ended up as a $1.17 million loss for the bank.
The suit also shows how each defendant voted on approving the loans.
Cape Fear's failure cost the federal deposit insurance fund $141 million, the FDIC said.
Credits to the Reporter/Starnews, Wayne Faulkner
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