FDIC Charged RI Bank Execs With Loan Fraud — Now the Bank Is Suing Feds and DBR
Wednesday, November 01, 2023
In April 2023, GoLocalProv was first to report that three banking and finance executives in Rhode Island were being charged by the Federal Deposit Insurance Corporation (FDIC) for “recklessly engaging in unsafe or unsound practices,” as it pertained to the issuance of bridge loans.
Robert S. Catanzaro and Danielle Desrosiers — top executives with Independence Bank in East Greenwich — and finance professional John Ponte were faced with nearly a million dollars in restitution and penalties by the FDIC.
According to the FDIC, of the 201 bridge loans referred by Ponte to the bank, 44% defaulted, and the bank was able to charge-off $1.6 million. Ultimately, SBA suffered an estimated loss of $8.8 million on the guaranteed portion of the loans.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThis week, Independence Bank sued the FDIC — and the Rhode Island Department of Business Regulation — in federal court.
“This is a case about blatant federal and regulatory agency overreach,” wrote Independence Bank’s attorney Travis McDermott with Patridge Snow and Hahn.
"The FDIC does not comment on pending litigation," said LaJuan Williams-Young in the FDIC office of communications when reached for comment on the federal suit.
Allegations that FDIC’s Actions Are ”Kafka-Esque"
At the crux of the latest suit is the assertion that state and federal agencies are illegally requiring Independence Bank to continue to operate -- despite its desire to "wind down."
"Plaintiff, Independence Bank ('Independence,' 'Bank' or 'Plaintiff'), brings this action against Defendants, Federal Deposit Insurance Corporation ('FDIC') and Rhode Island Department of Business Regulation ('RIDBR'), because Plaintiff has been unable, is still, and will continue to be unable to overcome a Kafka-esque nightmare of the FDIC’s design: it is requiring Independence to operate — despite the Bank’s stated intention to wind down its operations, surrender its banking charter and terminate its deposit insurance — for an indefinite, potentially infinite period of time until the FDIC in its apparently unfettered discretion determines that the Bank may cease operating," according to the lawsuit.
“The FDIC insists that forcing Independence to continue operating — despite the Bank performing no lending, no underwriting, holding no loans, and essentially only maintaining a rapidly dwindling deposit base — is required by law,” the suit continues. “This is incorrect, and unsurprising, given that the FDIC cannot articulate or identify where this law or rule exists. Such a 'rule' is well beyond the FDIC’s power, is contrary to its own written guidance, and if it existed at all would give the FDIC unlimited discretion to require institutions no longer engaged in the business of banking to remain open solely for the purpose of being subjected to regulatory scrutiny and fines, indeed even for the ‘offense’ of continuing to operate without performing any lending.”
The lawsuit contends that Independence Bank is “very well capitalized” and “intends to pay out its depositors as part of its liquidation.”
Moreover, the lawsuit contends that by forcing the back to remain open, the FDIC wants to see it “bled dry.”
“The Bank has incurred approximately $3.6 million in operating expenses since first raising voluntary liquidation with FDIC and RIDBR. It expects that by 2025 it will have spent another $4 million after notifying FDIC of its plan to terminate operations and submitting a formal plan of liquidation to RIDBR, essentially just 'keeping the lights on' for no apparent purpose other than the FDIC’s apparent desire to see the Bank bled dry of equity,” according to the suit.
Independence Bank is seeking “declaratory relief” to be allowed to “winddown and terminate its deposit insurance.”
According to the FDIC, Ponte, Catanzaro, and Desrosiers have civil monetary penalties totaling $602,000; restitution was also set at an additional $326,000.
DBR declined to comment as well.
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