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Lawsuit response critical of FDIC
Senator, others deny accusations over bank
Murphy Jack
Sen. Murphy - photo by For the Forsyth County News


In response to its lawsuit against him, Jack Murphy is telling the Federal Deposit Insurance Corporation to take a look in a mirror.

Murphy, a state senator from Cumming, and three other directors of the failed Integrity Bank are denying the FDIC’s accusations of negligence, gross negligence and breach of fiduciary duties resulting in the bank’s closing.  

Instead, in a legal response to the charges, they argue that evidence will show it was the FDIC’s “lax oversight and arbitrary demands” that caused the bank to fail.

“The alleged damages to which the FDIC claims it is entitled were a direct and proximate result of its own conduct,” according to the response.

Murphy, chairman of the Senate Banking and Financial Institutions Committee, said his response to the FDIC speaks for itself.

“The FDIC had a certain responsibility towards the bank and because of the actions the FDIC took, it was the primary cause of the bank’s failure, along with the other 56 or 57 banks that failed in Georgia,” Murphy said. “I am confident at some point, the suit will be dismissed.”

The suit was filed in January against Murphy, as well as Gerald O. Reynolds of Atlanta, Don C. Hartsfield of Florida, Joseph J. Ernest of Norcross, Clinton M. Day of St. Simons, Douglas G. Ballard of Alpharetta, Alan K. Arnold of Alpharetta and Steven M. Skow of Alpharetta.

Defendants Murphy, Ernest, Hartsfield and Reynolds are being represented by McKenna Long & Aldridge.

The law firm’s response noted that the bank received favorable evaluations on asset quality from state and federal regulators between 2004-06.

But in 2007, a year before the bank was closed, the bank’s assets were downgraded.

According to the response: “At the same time, bank regulators, including those from the FDIC, were under increasing pressure to explain their failure to predict and prepare for the depth of the economic crisis. Rather than offer an explanation, the FDIC radically and unjustly reversed its prior approval ... in an effort to deflect responsibility for its inadequate oversight of banks.

“With this downgrade came arbitrary regulatory constraints and demands that severely constrained the defendants’ ability to save the bank.”

The FDIC’s case points toward the directors and executives of the bank, saying they “failed to exercise that degree of diligence, care, judgment, skill and good faith which ordinarily prudent persons would have exercised under similar circumstances.”

All five branches of the bank were shut down by the FDIC in August 2008.

Regions Bank took over, acquiring Integrity’s deposits and purchasing assets totaling about $34.4 million.

Murphy said he had about 340,000 shares of stock in Integrity Bank, which was worth about $6.5 million at one point.

The bank suffered more than $70 million in losses, all of which the FDIC is seeking to recoup.

The FDIC case also contends the bank violated rules, including circumventing Georgia’s legal lending limit, falsely reporting property purchasing price and offering undocumented, unexplainable and inappropriate disbursement of loan proceeds.

According to their response, the defendants “deny each and every allegation of the complaint ... and deny that plaintiff is entitled to any relief from defendants.”

Among the hundreds of bank closings nationwide, and more than 50 in Georgia, the civil suit against Integrity is the first filed by the FDIC.

Murphy, who last fall was elected to a third term in District 27, said he hopes the outcome of his case could help other banks that may be in similar circumstances.

“I’m not sure whether it will set a precedent or not, but I certainly I hope it helps some of them in their situations, whatever that might be,” Murphy said.

“I would hope it would be dismissed or settled before it ever gets to trial.”