The Federal Deposit Insurance Corp sued 11 former executives and directors of a failed bank as it works to recover as much as $2 billion suffered by one of its funds during the financial crisis.
The FDIC filed the lawsuit in the U.S. District Court of Chicago, Reuters reported. It accuses former officials of Heritage Community Bank of negligence, gross negligence and breach of fiduciary duty.
The FDIC accused the officials of trying to hide problems in the bank's commercial property portfolio by making new loans. This strategy caused more than $8.5 million of losses, the complaint says.
The complaint also accused the officials of handing out more than $11 million of dividends and incentive payments to senior management, including to CEO John Saphir, when they should have been conserving cash for the bank.
"Defendants failed to preserve the bank's capital and provide sufficient reserves to absorb losses that would inevitably result when poorly underwritten commercial real estate loans went bad," the complaint said.
Lawyers for the defendants said the lawsuit lacked merit.