Ex-Integrity Bank Execs Charged With Fraud
Two former executives of Integrity Bank and a hotel developer were charged with conspiracy, bribery, bank fraud and securities fraud related to $80 million in loans that helped bring down the bank, U.S. prosecutors said.
Hotel developer Guy Mitchell, 50, of Coral Gables, Florida, pleaded not guilty at an arraignment today in U.S. District Court in Atlanta before Magistrate Judge Gerrilyn Bell. The timing of appearances by Douglas Ballard, 40, and Joseph Todd Foster, 42, both former Integrity Bank executives from Atlanta, has not been announced.
“Certainly, the financial crisis and plummeting real estate markets have made it difficult for a number of banks, but this bank was robbed from the inside,” United States Attorney Sally Quillian Yates said in a telephone interview after Mitchell’s hearing. “Over $80 million was given away by a dirty insider who was taking payoffs from the developer and the bank simply couldn’t withstand these losses and failed.”
Alpharetta, Georgia-based Integrity was closed in August 2008 by state regulators, causing a charge of $235 million to the Federal Deposit Insurance Corp.’s insurance fund. Because about one-third of those losses came from loans to Mitchell, Integrity’s largest borrower, the soured loans were a major contributor to the bank’s failure, Yates said.
Banks have been failing at the fastest rate since the early 1990s as defaults rose on residential and commercial real estate loans. Since Jan. 1, 2008, 228 federally-insured banks have failed, including 64 banks this year through April 30.
According to the indictment, Mitchell and companies he controlled used false pretenses to obtain more than $80 million in business loans from Integrity Bank. Mitchell allegedly deposited almost $20 million of the loans in a personal checking account, spending the money for personal luxuries, including more than $1.5 million for a private island in the Bahamas.
The indictment alleges Mitchell paid Ballard, an executive vice president in charge of client relationships and a member of Integrity’s board of directors, more than $230,000 over a nine- month period as compensation for his role in the conspiracy.
Ballard sold more than $1 million in Integrity’s stock, using insider information that the shares were over-valued because of the fraudulent loans, Yates said. Foster, executive vice president of risk management, used insider information to sell $350,000 in Integrity shares before the bank collapsed, the indictment said.
Just Another Developer
Mitchell, who is being held pending posting of a $2.5 million bond, did not engage in illegal activity or try to bribe bank officials, said his attorney, Edward T.M. Garland.
“The bank’s losses were caused by their liberal lending practices and the failed economy,” Garland said. “He was just another real estate developer crushed by the economy.”
Integrity was founded in 2000 as a “faith-based” bank, where Chief Executive Officer Steven Skow began every business day praying with the top officers and a wood carving of the Prayer of Jabez hung over the entryway of the main branch in Alpharetta, according to a 2005 report in Time magazine. Skow, who was not named in the indictment, was fired in August 2007 after the bank came under FDIC investigation for its handling of loans.
Prosecutors are exploring the possibility of more indictments in the case, Yates said. She declined to answer questions about names of other targets of the probe.
The bank’s 2007 proxy statement showed compensation was $1.8 million for Skow, $847,222 for Ballard and $269,821 for Foster.
The FDIC’s Board of Directors approved Regions Bank, based in Birmingham, Alabama, to assume Integrity Bank’s five branches and deposits.