US sues officers of failed Puerto Rico bank

AP News
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Posted: Jan 19, 2012 2:59 PM
US sues officers of failed Puerto Rico bank

U.S. banking regulators have filed suit against the director of a Puerto Rican bank, alleging that reckless lending and improper management led to the April 2010 collapse that cost the deposit insurance fund nearly $1.5 billion.

Officers and directors of R-G Premier Bank failed to adequately supervise the huge increase in commercial lending during the housing boom and bust in the U.S. island territory, the Federal Deposit Insurance Corp. said in the lawsuit filed Wednesday in federal court in San Juan.

The suit seeks at least $257 million in damages and names 19 bank officials, including founder and CEO Victor Galan Alvarez. The suit also names the spouses of 17 of the directors and officers so that it can go after their assets to recover losses from the failure.

U.S. regulators have filed dozens of similar lawsuits over the past two years to recover losses from bank failures that regulators say resulted from negligence and misconduct. FDIC attorneys have been in settlement talks with many of the executives.

The FDIC says that directors of R-G Premier Bank didn't adequately supervise the chief loan officer, ignored warnings that should have led them to tighten control of their operations and made dozens of loans to developers who were already heavily in debt and were poor credit risks.

"Between November 2004 and December 2008 alone, the bank extended over $350 million in loans that any prudent banker should have known would probably never be repaid," the suit says. "The directors and officers also exacerbated and accelerated these losses by robotically approving virtually any loan request that crossed their desks, even though such loan requests had been processed through the obviously deficient lending structure they had created at the bank."

A lawyer for Galan, Mary Gill of Atlanta, Georgia, had no immediate comment but said the CEO may issue a statement later.