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Almost 70 banks failed in Florida during the last five years.
Most executives say the failures were not their fault. They blame a tanking economy. Or meddling government officials. Or people who borrowed more than they could afford while the market was cooking hot.
But these bankers are wrong.
At least half of Florida's community banks failed because their leaders were greedy, arrogant, incompetent or sometimes corrupt, a Herald-Tribune investigation found.
The newspaper obtained previously confidential state records that show how failed bankers broke the law, manipulated financial documents and gorged themselves on insider deals. These bank records had never before been collected by an American newspaper.
Sixty-eight banks failed in Florida since the Great Recession began, second-most to Georgia, and the misdeeds were found in communities all across the state.
In the farm town of Immokalee, Florida Community Bank executives lent millions of dollars to mob associates while a terrorism financier moved money in and out of its vaults.
In the Panhandle, Coastal Community Bank bought an insurance company from the chief executive's son and sold it back to him three years later at a $900,000 loss.
At First Commercial Bank of Tampa Bay, employees were so fearful of the chairman that they met privately with state officials and told them of secret dealings, altered documents and questionable loans.
Not all of the failed community banks have been accused of wrongdoing. Some made sensible loans and were undone by borrowers who took on too much debt during the real estate boom and couldn't repay.
But banking's worst offenders made insider loans and business deals to enrich themselves at the expense of their own banks and, ultimately, the public. Other banks lent millions of dollars to mobsters, drug dealers, convicted felons and developers with prior bankruptcies.
In flush times, as Florida's real estate prices soared to new heights, bankers rewarded themselves with large salaries and generous dividends. One local banker used a private airplane to fly across the country while others held meetings at lavish beach resorts.
Regulators saw this behavior but often they were too timid to act while the economy was humming. When regulators did object, bankers ignored the warnings, hid important documents, removed conversations from board minutes and doctored financial reports to make things seem better than they were.
Even after home prices fell and hundreds of thousands of Floridians stopped paying their mortgages in 2007, many bankers forged ahead -- continuing to make risky loans and payments to themselves as their banks lost money.
Most of the failures in Florida involved community banks, small institutions founded to serve local customers.
Community bankers are vital to small cities and towns as a source of money to build new shopping plazas, office buildings and neighborhoods.
But some outgrew their local roots to become large and unwieldy. They made loans far beyond their home turf with inexperienced employees handling complex real estate transactions.
In all, the failures cost the Federal Deposit Insurance Corp. more than $11 billion to clean up. The exact cost to America's local economies is unknown but clearly felt.
The fallout is seen everywhere: in the ruined credit of Americans who walked away from homes they could no longer afford; in cities like North Port and Lehigh Acres, beaten by wave after wave of foreclosures; in stagnant wages and frozen credit; in the millions who still struggle to meet the rising costs of milk and eggs and bread.
Even with clear evidence of wrongdoing, few bank officials will be arrested or charged with a crime.
Many more still work in the industry today. Just six banks have been sued by the federal government, while 10 others settled out of court -- with insurers covering the damages.
To investigate the reasons for Florida's bank failures, the Herald-Tribune obtained state banking reports that had never before been made public. The documents are so secret that even federal judges have kept them sealed in court filings.
But these examinations become public record one year after a bank fails thanks to a law passed by the Florida Legislature in 1992. No other state permits access to such reports until at least 50 years after a failure.
In 44 states, bank examinations are either destroyed or permanently sealed after an institution fails.
The newspaper collected 3,000 pages covering 40 of the banks overseen by the Florida Office of Financial Regulation. It also built a database of nearly 400,000 mortgage and foreclosure records and reviewed 25 reports published by the FDIC Office of Inspector General.
Reporters visited a dozen counties and conducted more than 90 interviews with bankers, borrowers, regulators and analysts.
Among the newspaper's findings:
Florida Community Bank, for example, lent $8 million to a company partly controlled by Leonard Mercer, identified by New Jersey law enforcement as a "front man" for the "Little Nicky" Scarfo crime family.
"Bankers operated like riverboat gamblers," said Jack McCabe, a Florida real estate consultant. "They threw caution to the wind to prop up their bottom lines. The country suffered, but very few have been brought to justice."
And it could happen again.
In Florida, the government has undertaken no studies to examine why so many banks collapsed nor has it written any new laws to prevent similar failures in the future.
In fact, the state has moved to further deregulate the industry, with managers appointed by Gov. Rick Scott cutting 10 percent of employees in the Division of Financial Institutions and closing half of the regulatory offices across the state.
Top financial regulators vow to give bankers more freedom -- even when history suggests that without oversight, they take risks that ultimately hurt themselves, the economy and ordinary Americans.
The newspaper spoke with more than two dozen bank leaders and all but one said their banks closed due to forces beyond their control -- meddling by the government, the real estate downturn or homeowners who stopped paying their bills.
Florida's top regulator agrees with them.
Instead of faulting bankers, Drew Breakspear, the head regulator in this state, attributed the failures largely to homeowners who were "out of their league in terms of their spending habits."
But that analysis is flawed.
The newspaper found that many banks encouraged borrowers to fudge their incomes to qualify for bigger mortgages. And most Florida institutions went under because of multimillion dollar loans to real estate developers -- not to average home buyers.
Questionable ethics
Peninsula Bank showed all the signs of a troubled institution.
It lent millions to developers whose behavior should have raised red flags. A property flipper who later went to prison. An attorney suspended three times from the Michigan bar. A builder sued four times for copyright infringement. And six developers with a past bankruptcy.
None of those people would ever repay their loans.
Peninsula also dealt with dubious customers in other areas of the bank. A money launderer moved cash in and out of its vaults. A jury found that it lent $10 million to a man running a Ponzi scheme.
Mortgage records show that it also lent millions to insiders. And during its final months, state examiners say a director accused the CEO of using accounting tricks to hide information from regulators.
Peninsula failed in June 2010, costing the FDIC $195 million.
Once a small bank based in Charlotte County, Peninsula took off when Simon Portnoy entered the picture. In 1995, Portnoy led a takeover and grew the bank from just two offices and $50 million in assets to a statewide real estate player with 14 branches on both coasts and $650 million in assets.
As home prices rose, Peninsula soared.
But below the surface, the bank's growth was fueled by loans to people with questionable ethics or past financial problems.
In particular, Peninsula lent nearly $50 million to developers who had once declared bankruptcy and later sought money to invest in raw land, develop golf course communities, buy office buildings and erect everything from town homes to hotels across Florida.
A company controlled by Miami Beach developer Mordechai Boaziz received nearly $9 million from Peninsula in August 2006 to finance the renovation of a Tampa hotel even though one of his companies filed for bankruptcy two years earlier. He also was in the midst of a federal lawsuit in which former partners accused him of misappropriating $8 million from a hotel business in the Midwest.
Boaziz denied the allegations in court and the case was ultimately dismissed. Boaziz defaulted on his loan from Peninsula in December 2009.
Other questionable loans included: $6.25 million to a company controlled by David P. Hickey, a Michigan attorney suspended for failing to repay a loan to a client; nearly $10 million to companies managed by James W. DeMaria, a Spring Hill developer who was accused four times of copyright infringement and later settled the cases in federal court; and $1.6 million to John Yanchek, a Sarasota attorney later imprisoned for illegal property flips.
All of those loans went into default.
'Cash for trash'
Then there was James Bovino.
The founder of a bank in New Jersey and a real estate developer with projects in six states, court records show Bovino already owed hundreds of millions of dollars to other institutions when he took on even more debt from Peninsula in 2008.
The bank lent him $12 million despite the fact that the world financial system was on the verge of seizing up and companies Bovino controlled in Arizona and New Jersey had filed for bankruptcy just a few months earlier.
"Remember what's going on at this time," said Raymond Vickers, an economic historian and former regulator. "We're talking October 2008. No other bank in the country is lending money."
The loan was one that bank analysts call "cash for trash." State examinations show Peninsula had foreclosed on 200 acres in Port St. Lucie just a few months earlier, and was anxious to get the land off its books. So it transferred the property to Bovino at no cost and provided him with $12.1 million.
The transfer seemed to benefit the bank because it made it look like Peninsula had replaced a bad loan with a good one. But state regulators said the transfer violated federal accounting rules and complained that Bovino did not have to put any of his own money into the deal. They said nothing about his bankruptcies.
"No prudent banker would make such a loan," Vickers said.
Bovino eventually defaulted.
Reckless behavior
Again and again, Peninsula seemed to do business with people whom it should have avoided.
One depositor pleaded guilty to money laundering, regulators found. Another customer was Robert Bentley, the investment adviser who pleaded guilty to orchestrating a $380 million Ponzi scheme.
In June 2006, a federal jury found that a senior vice president at Peninsula -- and the bank itself -- had assisted Bentley's operation. Jurors said that Peninsula vice president Joseph Marzouca helped the scheme stay afloat by providing money to a company controlled by Bentley when his investors demanded they be paid.
A jury ordered Marzouca and the bank to pay $13.1 million in damages, but the decision was overturned on appeal. An appellate court ruled that Marzouca and the bank were not responsible for the Ponzi schemer's actions.
Marzouca remained in the industry and became CEO of Davie's Floridian Community Bank in 2008.
"The receiver tried to make more out of it than it was, and the jury was influenced by that," Marzouca said. "That's why we appealed and the three judges on the appellate court ended up throwing it out."
Meanwhile, Peninsula insiders were helping themselves to the bank's money.
In 2009, long after the housing boom, Peninsula had nearly $18 million of insider loans on its books -- up from just $5 million two years earlier and enough to rank it among the top five of all Florida banks that failed during the Great Recession.
Most insider loans are not illegal and are not necessarily a bad thing for a bank, but they can be an indicator of reckless behavior by executives, officers and directors because they are not "arm's-length transactions" -- meaning it is hard to tell if the insider is getting a better deal than an ordinary customer might.
"Why do insiders need to borrow from their own banks?" Vickers said. "If they've got good credit, why not go across the street?"
With losses mounting, Peninsula began to cut corners.
State officials found that executives were slow to write down bad loans, making the bank seem healthier than it was. In August 2009, three out of every four bad loans were less likely to be repaid than the bank reported. Peninsula should have moved $14 million out of its capital reserves and into a fund to protect against losses, regulators said.
Within the bank, dissension began to bubble up. One insider started wondering whether the CEO was hiding important information, according to regulators' reports.
Portnoy, the CEO, refused to downgrade struggling loans, a director said in a private meeting with the state, and tried to give extra money to customers who were already behind on payments.
When pressed by directors, Portnoy said he could "fire" the entire board if he wanted to, because of an agreement that gave him and two other shareholders special voting rights, according to a regulatory report.
The discord boiled over in June 2009, when board member Marcus Faust successfully lobbied for Portnoy's removal while accusing him of "falsifying, or at least distorting" important bank records.
"The validity of Mr. Faust's allegations is unconfirmed," state officials wrote.
No one from Peninsula has been charged with a crime. But the FDIC sued Portnoy and nine of the bank's officers and directors in April, accusing them of gross negligence in their management of the institution.
Officers and directors "blindly approved loan transactions despite numerous, repeated and obvious violations of the bank's lending policies and procedures, banking regulations and prudent banking practices," the FDIC suit says.
Portnoy did not return three calls for comment.
An attorney representing Peninsula's directors denied the government's allegations and said the bank failed because of the real estate slump, not board members' decisions.
'Not in our stars ...'
Even the federal government has acknowledged that wayward bankers were responsible for the global crisis.
A 600-page report by the Financial Crisis Inquiry Commission borrowed a quote from Shakespeare when it came time to assign blame:
"The fault, dear Brutus, is not in our stars, but in ourselves."
The crisis could have been avoided, had the system not been choked by risky mortgages, dangerous investments, a lust for growth and regulators too meek to put a stop to it all, the commission said.
According to a separate report from the FDIC, examiners reacted slowly and "had difficulty restricting risky behavior while institutions were profitable."
In some cases, the FDIC's inspector general said, regulators knew about problem banks that had repeatedly broken the law and still took little or no action against them.
The FDIC has sued officials at six failed banks in Florida, claiming gross negligence. Officers and directors at 10 others have settled out of court by agreeing to pay the FDIC nearly $17 million from insurance policies.
Even other bankers questioned some of the decisions -- both by executives and regulators -- during the boom and the crash.
Jody Hudgins, a veteran Sarasota bank executive, saw counterparts who tried to build their institutions as fast as they could with an eye toward selling them off to out-of-state companies seeking a foothold in Florida.
From 1994 to 2008, more than 230 new banks started in the state. This ramped up competition for customers and experienced staffers.
"There were just too many banks," said Hudgins, who now serves as chief credit officer for First National Bank of the Gulf Coast in Naples, "and not enough really good bankers who had been in the business for 25 to 30 years and had experienced all the different kinds of crooks and what they can do to you."
Meanwhile, there was increased pressure to find good customers. With fewer and fewer options, some bankers turned to borrowers with bad credit, past jail time or clear evidence suggesting they would never make good on the debts.
In many cases, making loans to people with questionable backgrounds was a conscious business decision, according to Bill Black, a University of Missouri professor and former Savings & Loan regulator.
It was a strategy used by banks and thrifts during the run-up to the Savings & Loan crisis of the 1980s and early 1990s, Black said. This allowed lenders to make more loans and book higher profits than they might have through the more arduous task of finding creditworthy borrowers.
"Making money in banking is really hard," Black said.
If a bank wants to grow by making good loans, it has to seek borrowers with the best credit histories and compete for their business by offering the lowest possible interest rates.
But if a bank focuses on making loans to borrowers with poor credit, it can charge much higher rates and will not face the same competition.
"If you make really crappy loans and charge a premium to people with nowhere else to go, you can make money really fast," Black said.
Hudgins, the bank executive from Sarasota, said: "Why did loan officers make so many loans to people who had problems in their past? Because it helped them meet their quotas."
Seeking answers
There has been a public vetting of the crisis by federal leaders -- but nothing similar by the state of Florida.
Instead of offering answers to the latest financial meltdown and solutions to prevent another in the future, Florida is headed in the opposite direction. The state cut the number of employees in the banking division by 10 percent, shut down four offices across the state and encouraged the exodus of that agency's most experienced examiners.
In recent years, Florida lawmakers sought to make the state friendlier to businesses and loosen regulations on everything from hairdressers to auto mechanics.
Now the state's top banking regulator says there is no need to get tougher on the industry.
"'Tougher' is a hard word to use because we do live in a free-enterprise environment," said Drew Breakspear, the state's top regulator.
"Bank and other financial regulators must change so they do not stand in the way of banks."
The Office of Financial Regulation sends in a team of examiners to state-chartered banks every two years to look into their operations. These reviews typically last three weeks and include a look at loan documents, meetings with bank leaders and reports on insider loans, deposit accounts and other factors that contribute to a lending institution's health.
The examiners produce reports that become public only after a bank fails.
Those documents were the basis of the Herald-Tribune's investigation, and they show how nearly half of the state's collapsed institutions broke the law, had excessive insider dealings or ignored basic banking practices.
Some banks, for instance, did not conduct basic background checks on the riskiest customers. Others exceeded lending limits to insiders. Still others attempted to ward off the collapse by continuing to give money to borrowers -- throwing good money after bad, regulators said -- in order to keep loans from going into default.
Eventually, default came for tens of thousands of borrowers. This set off a foreclosure crisis, made it more difficult to obtain a loan, and finally swept up small community banks whose balance sheets were overrun by bad loans.
"You can fudge things for a while by gaming and hiding but death is inevitable," says Black, the Missouri professor.
At A Rural Bank, A Classic Case of 'Be Careful Whom You Lend To'
IMMOKALEE -- Federal agents say Eli Hadad borrowed $500,000 from the Israeli mob to buy and sell the club drug Ecstasy in South Florida.
But the deal went bad. So a group of enforcers flew to Hadad's home in Miami, threatened to throw his business partner off a balcony, and took the title to Hadad's house until he repaid what was owed.
Federal authorities learned of the deal and arrested Hadad. But charges against him were later dropped and he became a key witness in the government's prosecution of the fearsome crime syndicate known as the "Jerusalem Network."
Three years later, Hadad again had trouble repaying a debt -- this time a $6.7 million loan from one of Florida's biggest banks.
Florida Community Bank made a habit of giving money to people with questionable backgrounds, a Herald-Tribune investigation found. It lent more than $70 million to mob associates, convicted felons, people with past bankruptcies and others who lacked the ability to repay.
The personal and financial histories of these borrowers were widely available on the Internet and in court documents long before they received loans from Florida Community.
The leaders of this South Florida bank also accepted deposits from a terrorism financier and money launderer, enriched directors with lucrative insider deals and were accused of illegal stock transactions to make the bank look stronger than it was.
This approach to banking ultimately killed Florida Community and devastated the small farming town of Immokalee where it was based.
The failure cut deeply into the wealth of the town's most prominent residents, among them the widow of a farmer who lost her life savings and now lives on Social Security benefits. It wiped out the pensions of its employees, hurt small businesses that had relied on the bank for loans and made it harder for the town's wealthiest people to continue backing local charities.
But Florida Community's failure had an even wider impact, costing the American banking system hundreds of millions of dollars to clean up.
During the Herald-Tribune's yearlong investigation of bank failures, Florida Community stood out as one where financial misdeeds were most pronounced, and where its leaders -- particularly its chief executive -- openly flouted laws and regulations meant to protect it.
CEO Stephen Price and most board members would not comment for this story. No one has been charged with a crime.
The Federal Deposit Insurance Corp. -- which had to pay $353 million to cover the bank's losses in January 2010 -- sued its leaders for "gross negligence" in March 2012.
An attorney representing the directors says a judge has dismissed negligence claims against the men. But the case remains pending.
"It would be inappropriate to comment about individual borrowers of the bank," Atlanta attorney Mary Gill said in a statement. "However, we note that, of the many loans made by the bank over the years, the action filed by the FDIC is focused on just a small handful of those, only one of which is referenced in the article today."
To investigate why Florida Community failed, the newspaper obtained previously confidential regulatory reports from the state. It also examined federal criminal and bankruptcy documents, sought court filings in four counties and reviewed 6,500 mortgage and foreclosure records.
Those court records and regulatory reports show:
"We bought the stock because we believed in Steve," said Jack Whisnant, whose family accumulated $18 million worth of stock over the years.
"You might think some faceless executive on Wall Street would screw you, but it's hard to believe someone who you went hunting and fishing and snow skiing with would do that to you."
Up from the swamp
Immokalee is a town on the northern edge of the Everglades, wedged between Miami and Naples. The main industry, as it has been for decades, is farming.
Major grocers and food chains, from Publix to Burger King, buy tomatoes and other vegetables grown in vast Immokalee fields. Winter harvests draw tens of thousands of migrants from Central America and Haiti each year, and many have stayed, remaking Immokalee in their image.
Main Street is lined with shops with names like Tienda El Quetzal, El Taquito and the Haitian American Latino Market. Trailer parks teem with pickers who are bused daily to the fields.
Immokalee also is one of the state's poorest cities. The median income is $22,000, and only one-third of adults have a high school degree. There is no movie theater, and just one major supermarket.
But Immokalee's high school football team, with its mix of nationalities, is one of the best in the state.
Disdain for regulators
Stephen Price grew up in Immokalee, played guard on the high school football team and followed his father's footsteps into a banking career.
Bill Price took over Florida Community in 1963, a time when the bank served mostly as a lender to local farmers. He was seen by people in the community as a shrewd, well-respected man who grew the bank slowly -- but with consistent profits for shareholders.
The bank was considered such a safe bet that most of the 1,200 shareholders lived nearby and the board of directors was made up primarily of farmers and businessmen from the area.
He was so trusted that older residents still refer to him as "Mr. Price" and can point out the modest ranch home where he lived until his death in 2009.
"Bill Price was a tough businessman, but he was fair," said Pam Brown, whose father was a large shareholder.
The elder Price was a powerful figure not just in Immokalee, but in the banking industry. He was appointed president of the Florida Bankers Association in 1975, and became a hero to colleagues when he retired with a fiery, widely circulated letter denouncing government regulators as a "crew of knee-jerk stooges."
"It's stressful, disconcerting and demeaning as well as insulting," he wrote in the letter, published in the American Banker newspaper, "after almost a half century of high-performance banking and community involvement to be told by immature, inexperienced, neophyte examiners that you're doing everything wrong because you don't follow the know-it-all checklist procedures imposed by Congress."
He later told the American Banker, "I don't need some 26-year-old examiner telling me I'm stupid and don't know what I'm doing."
Rising to the top
Stephen Price, who inherited his father's distaste for regulators, wanted to outgrow his Immokalee roots.
He once called his hometown a "labor camp," and pushed the bank away from its history as an agricultural lender to one that did big-money deals with developers statewide.
Though Florida Community kept lending to businesses in its home city, its greatest opportunities for growth lay along South Florida's coasts.
Price had experience there. He spent nine years lending to builders and developers in Fort Myers and Venice after graduating from college, and he adhered to the notion that "if you build on dirt, you can't get hurt."
The bank paid high interest rates to attract "hot money" deposits from around the country and used loan brokers to find developers with a hankering to build strip malls, hotels, offices and even an amusement park.
Florida Community doubled its assets every two years, reaching $1 billion in 2006.
The bank's success, Price once told American Banker, was based on making "character" loans.
The bank looked at a borrower's history, and his ability to manage finances and keep promises, Price told American Banker. But Price said regulators frowned on that kind of old-fashioned community lending. They wanted Florida Community to put more emphasis on credit history and financial wherewithal.
"Regulators are asking us to look more like other banks," Price told the newspaper. "My response to them is, 'We are one of the highest-performing, best-capitalized banks in the nation, and you want us to start looking more like them?'"
Character loans
As it grew, Florida Community seemed to put less emphasis on the "character" of its customers.
In fact, some of its largest loans went to those with ties to drugs, violence and financial misconduct.
In May 2005, developer Marvin Rappaport was named in a Key West newspaper in a "corruption scandal" that later led to a federal indictment of a local mayor.
The mayor, Jack London, told authorities that Rappaport funneled $82,000 to county officials to approve building permits at his Florida Keys resort.
Rappaport was not charged with a crime.
In an April 2006 report, regulators questioned why the bank lent Rappaport $9.7 million just four months after reports had surfaced about the scandal. Examiners also pointed out that Rappaport had been issued an "order of prohibition" in California after conducting improper land deals that inflated the value of real estate, used millions of dollars "for purposes not intended," and helped an institution hide bad loans during the savings and loan crisis of the late 1980s and early 1990s.
State regulators questioned that deal, but missed many others.
Court records show that a company co-managed by Kenneth Chadbourne, 39, received $1 million in January 2005, just eight months after he was released from federal probation for selling Ecstasy. A company he controlled with his family, American Invest LC, defaulted in 2008.
Leonard Mercer spent nine months in federal prison for giving kickbacks to a Teamsters Union official in the late 1980s to finance a chic restaurant in Palm Beach. He was later called a "front man" for the dangerous Philadelphia gangster Nicodermo Scarfo, according to law enforcement documents. New Jersey authorities say he bought a lavish home for Scarfo and paid for it by dropping off a bag of cash to a loan shark.
A company controlled in part by Mercer borrowed more than $8 million from Florida Community in March 2006 to develop boat storage in Dania Beach. The company defaulted 13 months later.
It is not clear how much bank leaders knew about these borrowers before issuing the loans because personal financial documents are not public record. Bank officials would not comment, nor would any of the borrowers.
But in one case, there is evidence that Florida Community knew it was making risky bets but decided to go ahead with them anyway -- even with millions of dollars and the bank's health on the line.
Cash for trash
Four years after gangsters threatened his family and took his jewelry and car as collateral for a debt, Eli Hadad was back in business.
He testified in 2006 against members of the Jerusalem Network -- telling a jury that he borrowed money from the mobsters to buy shelving, not Ecstasy -- and returned to his life as a real estate developer in South Florida.
A company controlled by Hadad received a $6.7 million loan from Florida Community in August 2006 to buy land in Broward County. The company struggled to make interest payments less than a year later.
Instead of foreclosing, the bank helped the company repay its debt by arranging the sale of his property to two of Hadad's friends.
A company controlled by Isaac and Veronica Mizrahi, of West Palm Beach, paid $7.3 million for the land in February 2008 and Florida Community lent them $9.7 million despite the fact that the real estate market was already in steep retreat.
The extra money covered past interest owed by Hadad, fees and commissions for real estate professionals and an interest reserve set up to automatically keep interest payments current for two years.
Experts who reviewed the loan for the Herald-Tribune called it an egregious example of bad banking.
The Mizrahis sued Florida Community, a loan officer and a mortgage broker in May 2010 saying the bank should have known the couple could not afford such a large loan.
They provided tax returns and financial statements that showed they would not be able to keep up with payments. Meanwhile, real estate prices were already falling, and once the interest reserves ran out, the borrowers would have no way to repay.
A judge ultimately ruled against the Mizrahis, saying they were obligated to repay the debt.
To Bill Black, a University of Missouri professor and former federal regulator, the chain of transactions between Hadad, the Mizrahis and Florida Community was reminiscent of the savings and loan crisis that saw so many institutions fail.
"We call it 'cash for trash,'" Black said. "When an S&L wanted to cover up a bad loan, it made an even bigger bad loan."
Insider deals
Rapid growth had its benefits.
The bank engaged in a series of lucrative deals with directors that were neither illegal nor hidden but were mentioned in state regulatory reports and in documents filed by the bank with the U.S. Securities & Exchange Commission.
A company controlled by Daniel Rosbough, Florida Community's vice chairman, bought the bank's Cypress Lake branch. He then leased it back to the bank and collected $1.3 million from 2001 to 2008, according to documents filed with the SEC.
"I think it was a fair deal," Rosbough said.
Patrick Langford, another director, sold the bank a fleet of 15 automobiles from his dealership in Labelle. SEC filings show Langford's company generated $827,000 from the arrangement from 2002 to 2008.
Price, meanwhile, saw his annual compensation more than double to $670,000 in six years.
The CEO's stock holdings increased from 45,000 to 180,000 shares and he took home nearly $75,000 in yearly cash dividends by 2007.
He owned a canalfront home in Lee County, a Piper Lance airplane and a timeshare at a Utah ski resort, his March 2012 bankruptcy and county court records show.
He also had a stake in the construction of a luxurious new bank headquarters in Ave Maria -- the Catholic university town eight miles south of Immokalee.
In early 2007, Price and his partners offered to build the branch for $5.1 million. This is not illegal but was noted by regulators in their 2006 report.
The bank made an $836,000 investment in the project and promised to lease the building back for $536,000 per year, according to SEC records.
This would have been a 10.5 percent return for Price and his partners, with guaranteed increases based on the rate of inflation.
"They spent a lot on that building," said Josh Cox, a banking consultant who worked briefly for Florida Community before it was seized by regulators. "I took a tour. It was as lavish as anything I've ever seen."
The bank failed before the building was complete.
'Benevolent dictator'
Long before the housing meltdown, regulators expressed concerns about Florida Community's practices.
As far back as 2003, state examiners warned bank executives that they made too many loans to real estate developers who were building everything from subdivisions to shopping malls.
Later reports said Florida Community did not have experienced staffers and ventured too far from its natural market -- lending in competitive regions such as Broward and Palm Beach and as far north as St. Augustine.
The bank did not have a proper credit department, examiners found, and Price was the only person on his nine-member board of directors with any experience making complicated commercial real estate loans.
Most of the other members joined the bank under his father, when it was still focused on financing farmers: five were in agriculture, one was an auto dealer, another was a dentist and yet another owned a dry cleaner.
Regulators said Price had a stranglehold on the board and the bank, running it like a "classic one-man show."
"It is the opinion of the examiners," one report said, "that Mr. Price operates the bank as a 'benevolent dictator,' to use Mr. Price's exact words, and that any dissension or question of his authority by bank management would not be welcome."
Like his father, who once derided regulators as "stooges," Price bristled at these characterizations.
Tempers flare
Tensions between Price and state officials reached a breaking point in 2006, when regulators visited the bank and uncovered troubling evidence in deposit accounts.
After the 9/11 attacks, examiners began to pay closer attention to these accounts to track potential terrorists and stop criminals from using American banks to launder money. Known as the Bank Secrecy Act, these regulations were meant to keep tabs on customers who made large or irregular deposits, wired sums of money, exchanged currency or conducted cash transactions.
During their 2006 exam, regulators identified 188 "high-risk" accounts at Florida Community -- 70 more than it found in the previous inspection. In one case, regulators said the bank had accepted money from a man who had been "publicly linked to money laundering and terrorist financing networks in South America."
The man's identity was redacted from regulatory reports by state officials, but examiners wrote that "public information sources available to the bank" showed how the depositor was involved in criminal activity across the globe.
Examiners say that $60 million in suspicious money ran through the bank, but Price and his executives had no idea where it came from or what it funded.
At a meeting with examiners, Price said it was unreasonable for the bank to act like a "CIA agent" and look up information about depositors on the Internet.
"None of that information is relevant," he said. "When the money leaves this bank, I don't care where it goes."
Price then warned regulators he would speak to their superiors in Tallahassee if they did not change their conclusions. He also threatened to close every suspect account, send letters to customers saying it was because of "unreasonable government requirements," and include a list of elected officials for the customers to contact.
Price's hostile response to regulators was unwise, analysts say.
"When you fight with them, it only makes life more difficult," said Ken Thomas, a Miami economist and bank consultant. "All of a sudden you become a target. You get a big 'X' on your back. Regulators begin wondering whether there are other problems at the bank they have not uncovered yet."
Death spiral
By 2008, the bank was losing tens of millions of dollars.
The real estate market was sliding, and regulators tightened their control over Florida Community through "a stipulation and consent agreement," a tool examiners use to force banks to comply with the law.
The agreement forced the bank to weed out suspicious deposit accounts, hire more experienced executives and limit risky lending.
The result was that operating costs rose just as the bank began to shrink and lose money.
Although executives tried to hide the problems, examiners were watching more closely than ever. In August 2008, they ordered the bank to reclassify $64 million in loans that borrowers were struggling to pay and later forced Florida Community to issue the following statement to investors:
"Florida Community Banks Inc. has determined that its audited financial statements for the year ended December 31, 2008, cannot be relied upon."
Besides thwarting its growth, regulators prohibited Florida Community from paying dividends. That created a new set of problems for Price and his fellow shareholders who had come to rely on the twice-annual arrival of dividend checks in their mailboxes.
So Price reached out to friends for help.
Desperate for cash
Price was a lot like Jerry Williams.
Both men built banking empires by funding construction projects all across the state. Both were considered brilliant executives and drew praise from other bankers across the country.
With their banks in trouble and the housing market starting to collapse, the two men exchanged millions of dollars in loans.
Price had an unsecured line of credit with Orion Bank for $500,000, but that figure increased to $1.5 million in December 2007.
Ten months later, Florida Community lent Williams $5.9 million. That loan was backed by stock in Orion Bank.
The FDIC criticized Price for exceeding the bank's $5 million lending limit on the loan to Williams in its March 2012 lawsuit against Florida Community's officers and directors. Regulators complained that no independent analysis was undertaken to value the Orion Bank shares and that Price simply took Williams' word.
The lawsuit did not mention the fact that Price received a loan back from Orion, nor did it mention his friendship with Williams, now in federal prison for financial misconduct during the crash.
Neither loan was repaid.
Friends and neighbors
Price may have tried to save his personal fortune with the Orion loans, but to save his bank he had to hurt some of his closest friends.
In Immokalee, families like the Whisnants, the Nobles, the Priddys and the Browns had all known each other for generations.
They bought stock in the bank when Price's father was still in charge and the investment was a proven winner. When the elder Price retired, trust in the father was quickly transferred to the son. So when Steve Price told investors the bank could turn things around in 2008 and 2009, they believed him.
Mark Whisnant, who grew up with Steve Price and played on the same football team in high school, proved to be a steady source of fresh capital as the bank's fortunes waned. But Whisnant did not always have the cash to make the purchases, so Price allowed him to borrow from Florida Community.
Whisnant and his son, Peter, borrowed about $700,000 in late 2007 and 2008 to buy shares, according to a suit filed against Florida Community's successor in Ripley County, Mo.
Price "expressly represented that the bank was doing well at the time, that this would be a good investment," the Whisnants said in their suit.
It is unlawful for a bank to loan money in order for someone to purchase its shares if the institution is not listed on a major stock exchange. Experts say this is essentially a phony transaction -- the bank is taking money from depositors and giving it to an investor who will put the money back into the bank's vaults.
This makes the bank look like it has more capital and is better able to withstand a downturn.
"You just don't do that," said Irv DeGraw, a St. Petersburg banking professor. "That's the same stuff that got Jerry Williams in trouble."
Williams, Orion Bank's former CEO, was sentenced to six years in prison in June 2012 because he lent money to a customer who used some of it to buy stock.
In a transaction separate from that with Whisnant, Price also convinced shareholders to borrow from Florida Community using their stock as collateral.
Pam Brown and her mother, Shirley, said they approached Price to sell some of their shares in 2008. But they said Price advised them to keep their stock and borrow against it instead.
"He said we should borrow the money to live on and use the dividend checks from the bank to pay the interest," Brown said.
A bank is not allowed to lend against its own stock, said Nicholas Ketcha, a former bank regulator who now runs his own New Jersey consulting firm.
"Bank capital is supposed to be permanent," Ketcha said. "It's supposed to be there to absorb losses."
The Browns say Florida Community sold their note to one of the bank's directors. But both Brown and her mother said they did not know who had bought their loans until two weeks after the bank was shut down.
The Browns finally received a letter dated Jan. 28, 2010 -- the day before the bank closed -- saying their loans had been transferred to a trust belonging to the wife of Rosbough, the long-time director who also owned one of the bank's branches.
Rosbough told the Herald-Tribune that he did not remember buying the loans.
Liesa Priddy, who once worked for the bank and whose family took a hit when the stock became worthless, said Price probably felt desperate at the end and was willing to do anything to save the bank.
"In his mind, if it failed, it was a reflection on him," Priddy said. "And Steve Price is someone who never made a mistake."
ATLANTA -- Before his bank in Immokalee failed, Stephen Price had a hand in the downfall of a larger institution that lent out money carelessly and spent it recklessly -- on parties, a lavish new headquarters and multiple airplanes.
Price was one of 14 directors of the Atlanta-based Silverton Bank, which was sued for "gross negligence" by the Federal Deposit Insurance Corp. two years after failing in May 2009.
The suit accused Price and his fellow directors of "corporate waste" and said they had disregarded "ominous warning signs in the economy" as the bank continued to make risky real estate development loans. This, even after the housing market had gone into a veritable tailspin.
The FDIC said it lost $386 million after Silverton failed.
"This case presents a textbook example of officers and directors of a financial institution being asleep at the wheel and robotically voting for approval of transactions without exercising any business judgment in doing so," regulators wrote in their lawsuit.
"What makes this case so unique is that Silverton's board was not composed of ordinary businessmen. Rather, the members of the board were all CEOs or presidents of other community banks, which was the requirement to serve on the board."
Price would not comment.
In court filings, the directors denied the FDIC's charges and said decisions at Silverton were made in good faith.
"With the benefit of 20-20 hindsight, the FDIC now challenges business decisions made by the Silverton Directors and seeks to hold them personally liable for losses allegedly incurred after the Bank's closure," attorneys representing the group said.
"Perfect hindsight vision, however, is not the standard for judicial review of these decisions."
Silverton was a "banker's bank," which meant other community institutions around the Southeast were its customers. Silverton provided these banks with loans, helped them raise money for start-ups and organized "participations" -- in which one bank made a large loan and others agreed to fund pieces of it.
Silverton's goal, according to the FDIC's lawsuit, was to become one of the biggest banker's banks in the country by making loans to developers far outside Georgia -- from Florida to California.
Silverton gave bonuses to its employees based on the number of loans they booked, not on how the loans performed. It also set up offices in fast-growing markets and doubled its size as the economy faltered.
The lender grew from $2 billion in assets in December 2006 to $4.2 billion by March 2009.
In one case, the bank approved a $99 million loan to land developers who wanted to convert 6,000 acres in Arizona into a sprawling subdivision.
Silverton made the loan in September 2006, just as Arizona's housing market began to cool.
Federal regulators said the developers had very little of their own money in the project. They did not provide all the necessary proof of their financial situation and the bank did not obtain an updated appraisal until after the loan was funded.
"This loan is a ticking time bomb," one of Silverton's directors said at the time it was approved, according to the lawsuit.
Meanwhile, directors and officers of Silverton spared no expense in surrounding themselves with luxuries.
They spent nearly $5 million to buy two corporate jets -- one that belonged to Silverton's chief executive -- in 2007. They approved $3.8 million to start building an airplane hangar, and employed eight pilots to take executives and their clients around the country, the FDIC said.
In November 2006, they borrowed $35 million to build a new headquarters with 26 conference rooms in the Buckhead neighborhood of Atlanta. They called the building "The Medici," and moved in as soon as it was finished in February 2008 -- even though the bank had 20 months left on the lease of its former building, according to the FDIC.
Silverton also spent $62,000 every year to host its annual meeting at the luxurious Cloister resort hotel on Sea Island, Ga., and $4 million from 2002 to 2009 on an annual meeting and banking conference at Amelia Island's Ritz-Carlton.
Officers, directors and their wives were all flown to and from these meetings at no charge.
"The cost for this annual board meeting and conference was incredible, and amply demonstrates the cavalier attitude of the board when it came to spending the bank's money on luxuries," the FDIC said in its suit.
Attorneys representing Silverton's directors said the planes and hangars were required to help the bank expand into 13 states. They said the bank needed such a large headquarters because it was running out of space.
The directors also said that Silverton took care to vet borrowers and that regulators consistently gave the bank high marks for underwriting before the housing market turned.
"The individuals who served on the Board of Directors were the pillars of the banking community in the Southeastern United States," attorneys said in court documents. "These Directors took great pride in the services that Silverton provided to the banking community and had planned carefully for its further growth and expansion."
The case remains pending.
In the Panhandle, A Legacy Of Nepotism And Insider Dealing
PANAMA CITY BEACH -- Bobby Kirvin wanted his money back.
He lent $1 million to the directors of Coastal Community Bank back in June 2009, at a time when they were desperate for cash to keep the lender alive.
But when the loan came due a year later, bank executives refused to pay. They were not returning Kirvin's phone calls, and wouldn't even give him complete loan documents.
So Kirvin's daughter got her gun.
Daphne Davis invited a top bank executive to her office at the Piggly Wiggly grocery in Apalachicola, pulled out a Smith & Wesson .40-caliber pistol and threatened to shoot him dead.
"I told him my face would be the last one he would see if he didn't get Daddy that paperwork," Davis said.
The documents came 20 minutes later. The bank's directors ultimately repaid most of Kirvin's money.
Other investors -- and the American financial system -- weren't so lucky.
Coastal Community, which failed in July 2010, was a bank rife with nepotism, mismanagement and lucrative insider deals that benefited top executives, their families and their friends, a Herald-Tribune investigation found.
The newspaper's examination shows how bank leaders used deposits insured by the federal government to fund risky deals that enriched themselves -- even when those deals were harmful to the bank and ultimately led to its collapse.
No one has been accused of any crimes.
During his eight years as president and chief executive, Terry Dubose gave jobs to his son, two daughters and both of their husbands. He had the bank pay $3.4 million for his son's insurance company and later sold it back at a $900,000 loss.
He bought another Panhandle bank in 2007 and immediately drove up personnel expenses by more than $200,000 without hiring a single new employee. He also increased dividend payments to stockholders, including himself, by $5 million in less than two years.
In 2009, Coastal Community took $10,000 from a customer's loan account and gave it to one of Dubose's friends. After a fire destroyed a bank branch that same year, $310,000 went missing from an insurance payment.
Meanwhile, Coastal Community made more loans to its executives and directors than all but five of the 68 banks that failed in Florida during the Great Recession. Dubose's children received at least 25 loans for more than $9 million. Officers and members of the board received 53 loans totaling about $24 million.
Of those loans, three ended in default and cost the bank a total of $1.5 million.
In a separate transaction, director Steve Counts, a real estate broker, was allowed to buy 23 foreclosed properties from the bank at a 50 percent discount.
In another insider deal, Dubose and two bank officials bought three bank branches and leased them back to Coastal Community when the economy was still strong.
But when the housing bubble burst, Dubose and his partners sold the branches back to Coastal for $5.3 million -- just when the bank needed that money to remain open.
Coastal Community failed the following year.
The Herald-Tribune examined previously confidential bank reports and conducted a computer analysis of more than 5,500 mortgages and foreclosures for this story. Reporters visited Bay, Gulf and Franklin counties and spoke with 20 former executives, directors, employees, customers and banking experts.
Dubose did not return repeated phone calls, nor did most of Coastal Community's directors.
Johnny Patronis, a restaurateur and the brother of state Rep. Jimmy Patronis, was a director who said he and others lost millions when Coastal sank. He blamed the global economic collapse for the bank's demise, not the actions of the lender's leaders.
"When the market busted, everybody went down," Patronis said. "There were too many people allowed in the real estate game, people allowed to take out loans with no money down. They had no skin in the game, that caused a bubble and the bubble eventually burst. I don't think community banks were at fault."
If anything, Dubose thought the government owed him money.
In December 2010, he sued the FDIC demanding $71,000 in yearly pension benefits and the return of his Rolodex, his signature stamp, a 6-foot marlin wall decoration carved from mahogany and a small table belonging to his wife.
A judge dismissed part of the case and the parties settled out of court.
Panhandle prominence
For more than 30 years, Dubose was a success at building and selling banks.
Originally from Alabama, he was a lineman on the Crimson Tide football team and later went to work for his father-in-law's bank in the Panhandle town of Marianna.
About 20 miles from the Alabama border, Marianna relies on farming, timber and county government to support a population of 6,000.
Dubose rose to become president at First National Bank of Marianna, and he orchestrated its sale to a Birmingham bank, SouthTrust, in 1987.
At that time, banks across the Southeast were expanding into Florida to profit from the state's growing population.
Dubose stayed on with SouthTrust and ran its Panhandle operations until 1996. That year, he launched a new bank in Panama City Beach -- the Spring Break Capital of America.
He quickly built Emerald Coast Bank and made it attractive to outside buyers. In just four years, it amassed $84 million in assets and Dubose sold it to The Bancorp, another Birmingham institution looking to benefit from Florida's booming economy.
Once again, the buyers anointed Dubose the head of Panhandle operations. He earned $235,000 per year, was named vice chairman and set up a side deal that let him benefit even further, according to documents filed with the U.S. Securities and Exchange Commission.
Before the sale, Dubose teamed up with powerful developer Earl Durden to buy three of Emerald Coast's branches. The partners held on to those branches after the sale to The Bancorp and leased them back to the Birmingham bank at a 12 percent return on investment.
A century of banking
Apalachicola State Bank had been around for 95 years when Dubose approached its owners in 2001.
The town for which the bank is named is 75 miles southeast of Tallahassee on one of the last coastal highways in Florida.
U.S. 98 runs right along the water through places like Panacea and Carrabelle until it crosses the Apalachicola Bay.
Apalachicola is an oysterman's town, where men work the bay in small rigs and unload the day's catch at tin-roofed shacks along the shore.
Tiny Apalachicola -- its population is just 2,240 -- produces 10 percent of the oysters consumed in the U.S. each year.
Apalachicola State Bank had been run for generations by families with ties to the community. Dubose saw it as a quick way to get back in control of a Panhandle lender.
"It's easier in today's environment to acquire a bank than to try to start one from scratch and make it profitable," Dubose's son, Anthony, told a Panhandle business magazine.
Dubose changed the name of the bank to Coastal Community and built its assets to $360 million by the end of 2008.
On to Port St. Joe
Twenty-three miles west of Apalachicola is Port St. Joe, a town of 3,600 that sprung up around a paper mill during the Great Depression. The mill closed in 1998 as its owner, the St. Joe Co., turned to real estate instead of paper.
Bayside Savings was a small thrift that was profitable and efficient when Dubose acquired it in 2007.
It had $84 million in assets, paid a modest dividend and kept expenses down.
Under Dubose, the bank's management style changed.
Financial reports filed with the FDIC show that the bank raised dividend payments sixfold, to $2.5 million the first year. Salaries rose by $228,000 and building expenses by $187,000 -- even though the bank did not add an employee or expand its office space, according to FDIC and SEC records.
"Terry used the bank just like you would use your personal credit card," said Greg Johnson, Bayside's former chief executive, who stayed on for eight months after the acquisition.
A family affair
Dubose began every board meeting with a prayer. His son once said, "The order of my priorities should be God, family, my neighbor and my work."
That sense of family carried over to the bank.
Many members of the Dubose family were on Coastal Community's payroll at one time or another. Dubose's son, Anthony, and daughter Brantley Byers worked for the insurance division. Byers' husband, Mike, was a loan officer. Another daughter, Elizabeth Falke, oversaw marketing and online banking. Falke's husband, Heinz, regularly did appraisals for bank loans.
In addition to jobs, Coastal Community was generous with depositors' money. Only five of Florida's 68 failed banks lent more in total dollars to insiders.
Insider loans are not illegal, but experts say they raise conflict-of-interest questions.
Mortgage records show that Michael and Brantley Byers received three loans totaling $915,000 between 2002 and 2010. Michael Byers defaulted on a $37,000 loan, according to Bay County court documents.
The Falkes received six loans totaling $1.6 million. Those loans were repaid.
Anthony Dubose and companies he controlled received 16 loans totaling $6.7 million. Each was repaid.
Family members were not the only ones to benefit.
Steve Counts and his companies received eight loans totaling $6.5 million. James Holsombake and his companies received 17 loans totaling $2.8 million and Michael Bennett received two loans totaling $2.35 million. Those loans were ultimately repaid.
Troy Campbell, the executive vice president, received two loans totaling $1.1 million. He defaulted on both.
Insider dealing
Of all the insider deals, three in particular show how far the bank went to reward its executives.
In these cases, the bank lost while its leaders gained. They involved the sale of branches to a company run by Dubose and two other bank officials; the purchase of an insurance company controlled by Dubose's son; and the sale of foreclosed properties at a discount to a director.
Mortgage records show the group financed the purchase with a $5.3 million loan from an outside lender and leased the branches back to Coastal Community for an undisclosed sum.
County tax collector records show the branches in Panama City Beach, Port St. Joe and Lynn Haven were worth $3.2 million at the time of the sale.
In the short term, the deal appeared beneficial to the bank because it sold the branches for much more than they were worth. But in the long term, the transaction hurt Coastal Community.
By July 2009, the real estate market was detoriorating fast and properties across Florida were sinking in value. So Dubose and his partners wanted to get rid of the branches -- and found a buyer in their own bank.
Coastal Community paid off the group's original $5.3 million loan and took back the branches.
The sale could not have come at a worse time.
Earlier that year, regulators examined the bank and concluded that it had not set aside enough money to cover its bad loans. Over the ensuing months, Coastal Community had to reduce its precious capital cushion by $17 million.
Having to pay an additional $5.3 million to buy bank branches simply reduced the bank's capital cushion even further.
"At that point the bank didn't need $5 million in extra branches," said Richard Newsom, a retired California bank and thrift regulator. "Usually what you're trying to do when things get desperate is sell fixed assets, not buy them."
That year, the bank's holding company bought an insurance company that belonged to Dubose's son, Anthony, for $3.4 million.
In March 2010, it sold the company back to Anthony -- at a $900,000 loss. The bank gave Anthony Dubose a $2.5 million loan to complete the purchase and regulators sharply criticized the deal.
State officials obtained board minutes from February 2010 that showed how the purchase price was not based on the actual value of the insurance company, but on the bank's need for additional capital.
During their May 2010 examination, regulators determined that the deal broke federal law, as well as the bank's own internal policies.
No appraisal had been done on the insurance company in four years. The bank provided all the funding for the purchase when it was only allowed to contribute 70 percent. The loan also exceeded the amount a bank could give to an insider or affiliate.
Beyond that, regulators thought the insurer was worth just $1.2 million in 2006 -- long before property values and the economy collapsed in Florida.
When the deal was finally signed, the terms were more favorable to Dubose's son than what the board had agreed to.
Instead of having to pay a 7 percent interest rate over 15 years, Dubose's son would only have to pay 5 percent over 20 years.
"That's a blatant example of self-dealing," Newsom said.
His distinctive "Counts Real Estate Group" signs line properties along Back Beach Road, 40 miles west of Port St. Joe.
This section of U.S. 98 is much different than the counties to the east. New developments sprang up during the boom and the road is lined by strip malls, chain restaurants and new neighborhoods.
Counts played an active role in that development. He built a shopping mall along Back Beach Road that included Coastal Community's headquarters and a cluster of houses to the south.
As the economy collapsed in September 2008 -- as Lehman Brothers went bankrupt and the government took control of Fannie Mae and Freddie Mac -- Counts made a deal with Coastal Community.
A company he controlled paid $3.2 million for 23 properties foreclosed on by the bank.
Coastal Community helped finance the purchase by providing Counts' company with a $2.56 million loan. The deal benefited the bank because it was able to turn 23 foreclosures into one good loan, but it had to write off the value of the properties at a loss.
Counts benefited because he got properties ranging from a waterfront lot on St. George Island to a four-bedroom house just a block back from the water in Panama City for 50 percent less than the previous owners had owed on their mortgages -- a good deal, considering that median home prices had declined by just 25 percent at that time.
Counts did not respond to multiple phone calls and emails for comment.
Johnny Patronis, the bank director, told the Herald-Tribune that the deal was "on the table" for anyone. But he did not know what efforts were made to inform the general public. He said Counts went ahead with the deal reluctantly to help the bank.
"These represent an unusually large number of insider transactions in a short period of time," said Robert DeYoung, a business professor at the University of Kansas, in reference to the three insider deals. "They are also large compared to the size of the bank. Each one represents about 1 percent of the bank's total assets."
DeYoung, also a fellow in the FDIC Center for Financial Research, added that the deals were "unambiguous examples of bad banking behavior."
Desperate for capital
As the bank's fortunes declined, Coastal became involved with even more questionable deals.
John Carroll, one of the bank's customers, complained in a 2009 lawsuit that $10,000 was taken out of his loan account and given to one of Dubose's friends -- James Gortemoller.
"Gortemoller was not current on his loan and the bank was trying to find a way to funnel money to him," Carroll told the Herald-Tribune.
Carroll reported the alleged theft to the Bay County Sheriff's Office and filed a civil suit against the bank. But after the FDIC closed Coastal, the suit was dismissed.
Gortemoller did not respond to multiple phone calls for comment.
At about the same time, the bank's holding company received an insurance payment for $1.21 million to pay for repairs at an Apalachicola branch.
But only $900,000 of that money found its way to the bank, according to state regulatory documents.
The remaining $310,000 was simply listed as an account receivable that the bank never received.
On borrowed funds
With bad loans eating away at the bank's capital, Dubose scoured the Panhandle for investors willing to prop up his sagging enterprise.
In March 2009, he convinced his board of directors to set up a separate company and borrow $2.5 million from the Bank of Bonifay, another Panhandle institution that failed during the recession.
The directors personally guaranteed the loan, regulatory reports show. But they did not reach into their own pockets to make interest payments. They borrowed $100,000 from Coastal Community to cover those costs.
Regulators pointed out that borrowing the $100,000 was illegal because banks are not allowed to provide unsecured loans of more than $25,000 to affiliated parties.
Three months later, Dubose approached one of the bank's biggest depositors for more help.
Bobby Kirvin made a small fortune selling land in Mississippi to casino companies at the beginning of his career. He felt comfortable with Coastal Community because his niece's husband worked there and he had $4 million in its vaults.
So Kirvin lent $1 million to a company controlled by 12 of the bank's directors in June 2009. The directors personally guaranteed the note.
Kirvin said he was supposed to be repaid in one year, but documents he was handed at closing provided for repayment in three.
"I called Dubose and he said, 'Just mark through it and put one year,'" Kirvin said. "He did that even though all the documents had already been signed by the other directors."
Kirvin said that Dubose later handed him an incomplete set of closing documents.
"He said, 'These are the originals,' and I trusted him," Kirvin said.
When it came time to get his money back in June 2010, Kirvin discovered that Dubose never told his board that he had unilaterally changed the terms of the loan, according to a lawsuit.
Kirvin also realized that he did not have a complete set of original loan documents, which he needed to prove he was owed the money.
Kirvin said he asked his niece's husband, a top executive at the bank, to get him the original documents. But Marcus Edenfield told Kirvin that the bank did not have them.
After Kirvin's daughter got her gun and threatened the bank executive, Edenfield quickly changed his message.
"He cried. He broke down and wailed like a little baby," Kirvin said.
He also produced the paperwork, enabling Kirvin to sue Dubose and 11 fellow directors. Edenfield would not comment.
Ultimately, all but two of the directors agreed to pay him back. The two who did not were Dubose and his son, Anthony.
Kirvin says it was Dubose who failed to hand him the correct paperwork, and it was Dubose who failed to let his fellow directors know about the risk they were taking when they borrowed money to keep the bank afloat.
"My lawyer said he could have gotten some of the other directors to pay more than their share to make up the difference," Kirvin said. "I didn't want that. I wanted DuBose and his chickens--t son to pay me what they owed."
At Bank of Florida, it paid to be an insider.
Directors received more than $100 million in loans and earned many millions more by contracting with the chain of three banks to lease branches, provide architectural advice and oversee computer systems.
When state regulators asked for proof that deals with insiders were good for the bank and not just good for directors, they were met with delay, resistance and deception.
Regulators found that executives twice filled out questionnaires with erroneous information and were unable to produce key documents showing deals had been properly vetted, leading them to conclude that Bank of Florida was breaking the law.
Bank leaders say they may have been slow to produce documents but ultimately complied with all requests.
Instead of punishing Bank of Florida executives, examiners gave them high marks for overall management.
Regulators saw wrongdoing and defiance such as this at other banks across Florida in the years before the financial crisis but did little to stop it. Only two of Florida's failed banks were hit with serious enforcement actions in 2006 and 90 percent were given high marks.
But as soon as the real estate market soured and banks began reporting losses, regulators got tough. They issued 13 enforcement actions in 2008 and downgraded more than half of Florida's failed banks.
By then it was too late.
Sixty-eight banks failed during the last five years and a Herald-Tribune investigation found that more than half of them repeatedly broke rules and regulations meant to protect them.
Most of those rules were common-sense guidelines to keep bankers from hurting themselves.
For example, banks have to make sure they have enough money on hand to cover losses. They are supposed to know a borrower's financial history to determine if he or she can repay. They must adhere to caps on how much money they can loan to each borrower and they are warned not to use too much depositor money to fund the riskiest kind of loans.
Banks also have to get appraisals on property and are supposed to avoid deals that are overly generous to directors and executives.
During the last decade, bankers often broke these rules and examiners watched them do it.
"They had front-row seats," said Raymond Vickers, a former state regulator and economic historian. "They knew what was going on and they allowed it to happen."
The result was the most serious economic downturn since the Great Depression.
The Federal Deposit Insurance Corp., which protects customers' money when a bank fails, concluded in 2011 that regulators need to act earlier in an economic cycle and take a harder stance against wayward banks to avoid similar calamities in the future.
The U.S. Congress passed sweeping reforms that make banks raise more capital to protect against losses and force executives to rely on data, instead of personal relationships, when they lend money.
In Florida, though, the agency that oversees banks seems to be moving in the opposite direction.
Ten percent of bank examiners at the Office of Financial Regulation have been let go since the peak. Half the offices have been closed. Senior employees have been encouraged to leave the agency. Its second-in-command -- a Naples chiropractor and real estate investor who plays golf with the governor -- cannot take over the top spot because he doesn't have the appropriate license.
Meanwhile, the state's top regulator does not believe that getting tough on bankers is the right approach. He says "more effective, more business-friendly regulation" is the answer.
Critics disagree.
"What we need now is not less oversight," said Benton Eisenbach, a former regulator who oversaw the Tampa Bay region before retiring last year.
"We need to step up and be more hard-nosed than we have been."
A history of failures
Failure is part of the American banker's DNA.
In the 1880s, before there was any type of modern banking regulation, land, commodity and stock market booms preceded waves of bank failures every 15 to 20 years.
That trend continued until the Great Depression, when 270 Florida banks and thousands more across the country were shut down.
Looking to prevent a similar crisis, Congress enacted a series of laws. These included insurance to protect depositors and the separation of banking from other financial services to reduce risk-taking on the part of banks.
Relatively few banks failed over the next 40 years. But Depression-era regulations were by no means perfect and got in the way amid the high inflation of the 1970s.
President Ronald Reagan ushered in a new era with laws allowing savings and loans to charge higher rates to borrowers and to make riskier loans to developers and speculators.
But regulators stumbled.
Banks and thrifts received fewer exams and excesses went unchecked -- leading to the savings and loan crisis of the late 1980s and early 1990s.
Ninety Florida banks failed during this period and studies from that time reveal that the principal cause was misconduct by bankers and acquiescence by regulators.
Experts concluded that government needed to clamp down on bankers going forward, but that did not happen.
Under President Bill Clinton, the trend toward deregulation continued. Key restrictions were lifted -- among them, a provision of a decades-old rule that prohibited banks from operating other businesses, like insurance or stock brokerages -- and regulators were told to stop being so confrontational.
"Business owners are sick of being treated like criminals," said Vice President Al Gore, who was charged with streamlining government regulations.
His solution: Treat bankers more like customers.
Beginning in 2002, the FDIC implemented its "MERIT" program, which led to shorter, less-intrusive exams.
Through 2007, about 40 percent of all bank exams were conducted in the MERIT program, according to the FDIC. Among those that participated were seven of the 68 banks that failed in Florida.
The program ended in 2008 after examiners complained it stripped them of their authority to investigate banks properly.
"A whole generation of regulators was trained under this program," said Dick Newsom, who served as an FDIC regulator for 17 years. "They were told not to make a nuisance of themselves, to do superficial reviews and do them quickly.
"The idea was to create a kinder, gentler regulatory atmosphere."
Ignoring the regulators
Bankers seized on this "kinder, gentler" environment as an opportunity to dismiss regulatory concerns.
At Riverside National Bank in Fort Pierce, executives ignored regulators who told them to keep better track of $24 million in insider loans. And when examiners asked about transactions with affiliate companies, the bank refused to turn over information about these deals and told regulators it was "confidential."
At Marco Community Bank in Collier County, regulators warned that it was breaking the law by investing too much money in a company that funded the rehabilitation of low-income housing. Instead of cutting back, Marco Community increased its investments -- costing the bank millions when borrowers defaulted.
And at Freedom Bank in Bradenton, regulators told Gerry Anthony to grow slowly when he opened shop in May 2005.
Anthony had been forced out of two other banks for aggressive growth and risky lending. State regulators wanted to prevent that from happening again. But Anthony did not listen.
He grew Freedom to be the biggest bank in Manatee County in less than three years and regulators say he and members of his board became "argumentative" when management was blamed for an increase in bad loans.
Regulators have a range of punishments they can use to make bankers follow rules. The strongest is a cease-and-desist order that forces banks to comply with regulatory orders or face the prospect of being closed.
With regard to Freedom, Marco Community and Riverside National, the FDIC found that regulators did not take strong action fast enough.
"Regulators felt their hands were tied a little when banks were showing record profits," said Bruce Kuhse, the former general counsel for the Florida Office of Federal Regulation. "They couldn't go to court and get a cease-and-desist order when times were good.
"Banks would have told the administrative law judge: 'We know what we're doing. We're making lots of money. Leave us alone.'"
Delay and take time
Executives at the Bank of Florida were especially brazen about rebuffing regulator requests for information about insider deals.
Though not illegal, experts say such deals can signal a conflict of interest and lead to concerns about whether executives are putting their own priorities above those of the bank. A Naples attorney who was also a Bank of Florida director says all of the insider deals were handled properly.
Documents filed with the U.S. Securities and Exchange Commission show a company controlled by director Ramon Rodriguez received $6.2 million for providing computer network support to the chain of banks.
Companies run by Terry Stiles, another director, earned $4.4 million for leasing out space in buildings to Bank of Florida-Southeast, while a company managed by Donald Barber and two other directors garnered $4.8 million by leasing office space to Bank of Florida-Southwest.
In the deal with Barber and his partners, the bank started leasing headquarters space in Naples for $34,000 per month in 2002. But four years later, the price skyrocketed to $94,000 per month and state officials wanted to know whether the bank was overpaying.
They asked bank executives to provide proof that the lease was based on market rates, but executives were slow in responding. The matter was finally settled when directors sold the building to an outside buyer in April 2008.
"Management was unable to provide any written analyses indicating that the various business transactions with insiders were reasonable to the bank and on terms no more favorable than would be offered to a disinterested third party," regulators wrote in 2006.
Regulators also noted that executives twice withheld information when filling out questionnaires about insider deals.
"In 2004, examiners were not aware of the transactions because management failed to disclose them in its response to the officer's questionnaire," regulators wrote in their 2006 report. "At this exam, the officer's questionnaire was also erroneously completed and had to be corrected after the exam began."
Joe Cox, a Naples attorney and former board member, said insider deals were properly vetted. He said executives tried to get regulators the information they wanted and ultimately succeeded.
"You can delay and take time," Cox said. "Sometimes there's miscommunication. But they don't let go. They get your attention and they keep coming back."
'Chickened out'
Nowhere is the timidity of regulators better exemplified than in a 2006 showdown over loans to commercial real estate developers.
This type of loan is among the riskiest a bank can make. There is a lot of money on the line -- millions of dollars to build shopping malls, office buildings and the like. Banks are betting that developers will finish the job and that small businesses will lease or buy the empty space.
Though risky, commercial loans are lucrative. So Florida's community banks became steeped in them and regulators grew worried.
"These loans always crash and burn in a downturn," said Newsom, the former FDIC regulator. "They always do."
The FDIC saw the number of development loans growing to dangerous levels nationwide and tried to put a stop the trend. In early 2006, the agency proposed a rule that would limit how much banks could lend to commercial developers.
The proposed cap meant that if a bank had $10 million in capital, which is basically the cash on hand to protect against problems, it should lend out no more than $10 million to commercial developers.
The Florida Bankers Association lobbied hard against the restrictions, believing the halt in lending would cause the bottom to fall out of the real estate market. Most Florida banks already far exceeded the proposed limits and the new rules signified they would not be able to make fresh loans.
Together with similar organizations around the country, the FBA poured all its resources into getting the FDIC to back off.
"The FDIC chickened out from doing anything meaningful," Newsom said. "They watered down the policy so that it was nothing more than guidance. There was no consequence for not doing it."
The result was that banks continued to load up on risky development loans even as the real estate market began to falter. In fact, many Florida banks made their largest and worst loans during this period, making the ensuing crisis much worse.
Even the bank lobby now acknowledges it was a mistake to allow commercial real estate lending to continue unfettered.
"Given the benefit of hindsight, it was probably a bad decision," said Alex Sanchez, head of the Florida Bankers Association. "We just didn't think the one-size-fits-all approach of the FDIC was the answer."
Continued deregulation
Bankers give millions to fund the campaigns of political candidates in Florida and beyond.
An analysis of campaign records shows that Florida bank executives, board members and trade groups have donated nearly $9 million to state and federal campaigns since 2000.
This largess allowed bankers to win concessions from Florida lawmakers such a law this year that allows banks to speed up the foreclosure process and get struggling property owners out of homes faster.
Also, some of Florida's top financial watchdogs are bankers themselves. Its chief financial officer, Jeff Atwater, spent 25 years in community banking while its top regulator, Drew Breakspear, was tapped after four decades as an international banker and consultant.
Given the background of Florida's top government officials and so much support from the bank lobby, it should be no surprise that Tallahassee lawmakers rarely take a hard line against the industry.
Unlike the FDIC, the Florida Office of Financial Regulation has not undertaken a study to determine the causes and consequences of the 68 bank failures since 2008. And Breakspear believes it is average Americans "who were out of their league in terms of their spending habits" that caused the financial crisis rather than mismanagement and poor decision making by bank executives.
"Clearly you had government pushing to increase homeownership and there was a lot of pressure that resulted in some people who probably should not have been getting loans," Breakspear said. "As the economy turned down, they were incapable of paying."
A former banker himself, Breakspear acknowledges the need to move quickly against defiant bankers but says the cuts to regulatory staff were justified considering there are 20 percent fewer banks to regulate.
He added that he has strengthened his agency by upgrading computer systems, developing a succession plan and replacing former employees with those who have a combined 200 years of experience.
But in an interview with the Herald-Tribune, Breakspear bridled at the thought of getting tougher on bankers, saying that we live in a free enterprise environment and that "financial regulators must change so they do not stand in the way of banks."
That means Florida will continue down the path of deregulation, and critics worry that this leaves the state vulnerable to another banking crisis in the future.
They say the 10 percent reduction in banking division staff and the loss of nearly half of the OFR's top 23 administrators in the past 12 months has greatly weakened the agency at a time when it should be strengthened.
The No. 2 person in the organization is now Greg Hila, the Naples chiropractor and personal friend of the governor. Hila is not able to fill in for the agency's leader because he does not hold a stock broker's license. But Breakspear defended Hila, saying "he brings vast private-sector business management experience to the OFR" and has improved finances "through visionary budget management."
Critics say Breakspear is following a path laid out by his predecessor, Tom Grady.
"Grady came in with preconceived notions that the OFR was overstaffed," said Kuhse, the OFR's former general counsel. "His goal was to cut a certain number or regulations and a certain percent of personnel to meet commitments to the governor, and he did that.
"He posted his initiatives right off the bat and did not take kindly to pushback. The new commissioner -- Drew Breakspear -- is continuing that trend today."
The result has been "a serious brain drain" at the OFR, said Linda Charity, a 33-year veteran of the agency and former interim director.
"If you look at the organizational chart, it's completely changed from a year and a half ago," she said.
Missing from that chart are Charity and Kuhse, who said they were fired soon after Breakspear took charge.
Breakspear says the longtime employees left voluntarily. But Kuhse says that is not true.
"The choice was either be terminated immediately," Kuhse said, "or sign the prepared resignation letter and be able to use two weeks of accumulated leave. I think you could properly describe the departures as forced resignations."
To Kuhse, the decision to oust veterans such as himself reflects the agency's growing appetite to replace hard-nosed state officials with those more amenable to the banking industry's needs.
"I don't know what will happen to the agency now," Kuhse said. "If the goal is to continue to downsize, I don't think that's good. Without senior officials, historical lessons will be lost."
James Bovino is a bank killer.
His companies defaulted on more than $300 million in loans and contributed to the failure of six banks across the country during the Great Recession — including three in Southwest Florida.
The son of a janitor, Bovino rose to become chairman of his own bank and a prominent New Jersey developer with two dozen multimillion-dollar projects under his belt.
Business associates say he prided himself on being a family man. He once told The New York Times that he watched only G-rated movies and had fired people for swearing in the workplace.
But his squeaky-clean exterior did not stop him from using strong-arm tactics — hiring a disbarred attorney with ties to organized crime — to get what he wanted in the combative world of New Jersey development. When the economy slid into recession, former associates say Bovino diverted bank funds meant to pay subcontractors, and regulatory documents and a government lawsuit show he participated in "improper" deals that broke bank policies, hiding the fact that he was no longer current on his loans.
Bovino, 71, is not accused of any crimes.
The developer did not return three calls left on his answering machine or a handwritten message left in the mailbox outside his house — red brick with white columns — in Ho-Ho-Kus, N.J.
Bovino's rise and fall provide a glimpse into how developers and bankers walked hand-in-hand during the real estate boom, and how they stopped playing by the rules even before the crisis hit.
In the end, developers like Bovino not only contributed to the failure of 69 banks in Florida and hundreds more across the country — their actions hurt ordinary workers and small businesses.
In Bovino's case, at least 120 building contractors and subcontractors say they were left with more than $13 million in unpaid bills, court records from six states show.
"Getting to the end in 2008, there is collusion between bankers and their customers," said Dick Newsom, who served as a regulator with the Federal Deposit Insurance Corp. for 17 years. "Borrowers knew banks were desperate to hide bad loans, and banks understood that developers would lie, cheat and steal — and do whatever they had to — to survive."
The Herald-Tribune began investigating Bovino and his businesses during its yearlong inquiry into failed Florida banks.
Regulatory documents, bankruptcy records, civil filings and interviews with 15 people show that lenders ignored warning signs and funneled money to his companies even after the recession took hold.
Among the findings:
• Bradenton's Freedom Bank did not look at Bovino's total debts before lending one of his companies $7.5 million in March 2007.
• Sarasota's Century Bank lent another Bovino company $900,000 in 2008 to cover unpaid interest and bounced checks.
• Cape Fear Bank in North Carolina broke laws and regulations when it provided a third Bovino company with $2.7 million in May 2008.
• Englewood's Peninsula Bank signed off on a $12.1 million loan to another Bovino company as the world economy was melting down in October 2008. The purpose of this loan, according to regulatory reports, was to help Peninsula get 200 acres of repossessed land off its books. Regulators called it an "improper sale," and analysts say the deal was meant to trick regulators into thinking the bank's capital stockpiles were deeper than they actually were.
But Bovino's story does not end with failed banks and unpaid loans. For the past two years, he has been scrambling to rebuild his real estate empire by repurchasing foreclosed properties at a discount.
In North Carolina, a company controlled by one of Bovino's associates bought 121 lots in a large housing project outside Wilmington. In Florida, a company managed by another associate bought two unfinished town homes and 11 vacant lots in Bradenton's Palma Sola neighborhood.
Shay Hawkinberry, a Sarasota real estate agent and interior decorator, said Bovino raised $1.1 million from a New York City investment firm to buy town homes in Florida and start fixing them up. But she said Bovino diverted some of the money to one of his projects in New Jersey.
Though Bovino's investors say he had permission to use the money as he saw fit, Hawkinberry said the diversion meant Bovino did not have enough left to pay nearly $40,000 to her and a flooring contractor.
"He told me to find a bank that would lend him money, because that would be the only way I would get paid," Hawkinberry said.
She introduced a Bovino associate to three local lenders, and each turned him down.
"I did everything I could," one of the mortgage brokers wrote in an email to Hawkinberry. "But when you have partial tax returns, bank statements missing pages, no idea what mortgages go to what property, it is really hard to get a loan approved."
From the bottom up
Before he became a multimillionaire, Bovino was a schoolteacher.
He began dabbling in real estate in the 1970s, buying and building homes and apartments in his spare time.
By the 1980s, he had become a full-time developer, accumulating at least 11 apartment buildings and three office structures in northern New Jersey by the decade's end.
Friends and business associates say Bovino fought to overcome polio as a child, which stunted his growth. But what he lacked in height, he made up for in tenacity.
Bovino also had a gift for relating to people at every level. That helped him on worksites, where he interacted easily with construction workers, and in planning board meetings, where he was able to charm public officials and concerned citizens.
It also helped when it came to raising money from bankers and winning favor from politicians. In 1991, New Jersey Gov. Jim Florio appointed him to the state's Bank Advisory Board.
But there was another side to Bovino.
Creditors say he was slow to pay his bills. In one well-publicized instance, he reneged on paying a multimillion-dollar commission to Dennis Sammarone, the former chef for hotel heiress Leona Helmsley.
Bovino was trying to buy a vacant 16-acre tract in New Jersey near the George Washington Bridge that was owned by the Helmsley family. But Helmsley, dubbed the "Queen of Mean" by the press, would not return his phone calls. So he asked Sammarone to intervene and the chef opened the door for Bovino to complete a $46.3 million purchase in 2003.
When Sammarone did not get the commission he was promised, he sued Bovino and eventually won a $13.9 million judgment.
Robert Cohen, who won a $2.3 million judgment after Bovino did not fully pay for the purchase of a New York stock trading firm, said Bovino had a motto: "Don't pay anyone until they ask you three times."
"He was supposed to give me $1.5 million upfront, but I don't believe he gave me half that amount, and I had to twist his arm for the rest," Cohen said. "After I won my suit, I talked to him about a settlement. He'd say a number. I'd say OK. Then I'd never see the money."
One of Bovino's former Florida executives, who asked to remain anonymous, was more succinct:
"If Jimmy owed you $1,000, he'd tell you he'd pay you. But that might be in 10 years from now — and that was OK with him."
Calling on Rigolosi
Newspaper reports and lawsuits show that Bovino also had a tough side that he displayed when competing developers threatened his turf, or when reluctant lawyers, planning commissioners, judges and politicians needed persuading.
Robert Fraser stood to make a large commission from the sale of land to a young developer who was trying to build a New Jersey apartment complex in 1989. But when Bovino blocked that purchase, Fraser sued.
He accused Bovino of hiring an attorney to tie up planning board meetings and slow the developer's efforts to secure approvals.
When that did not work, Fraser said Bovino offered the developer $200,000 to abandon the project.
Unsuccessful once again, Bovino turned to Vincent Rigolosi, a disbarred attorney with ties to the powerful Genovese crime family.
Rigolosi was indicted in 1981 and accused of helping Mafia crime boss "Cockeye Phil" Lombardo bribe a police officer who was Maced outside a Jersey Shore restaurant by Lombardo's son.
A jury later found Rigolosi not guilty, but the New Jersey Bar Association stripped him of his law license five years later. An opinion letter drafted by the the state Supreme Court said that Rigolosi "actively participated in a criminal conspiracy," and that his "conduct reveals a flaw running so deep that he can never again be permitted to practice law."
Despite Rigolosi's well-publicized history, Bovino repeatedly asked the ex-lawyer to help him work out intractable problems over the years. Rigolosi — a former mayor of Garfield, N.J., and Democratic Party chairman for Bergen County — had useful connections.
Indeed he was so powerful, Fraser said, that he persuaded Fraser's first attorney to quit.
"Rigolosi calls my attorney and tells him this is a B.S. lawsuit," Fraser said. "He said: 'These young kids don't know what they're doing' and my attorney got scared off. He tried to tell me to drop the case."
Fraser hired a new attorney, who was also approached by Rigolosi. But this time, the lawyer kept fighting for six and a half years.
The case was finally dismissed when the state Supreme Court ruled that Bovino, who owned a parcel adjacent to Fraser's, had reason to try to block the development.
A decade later, The Record of Hackensack reported that Rigolosi was still working for Bovino. A prominent fundraiser for Sen. Frank Lautenberg, Rigolosi convinced the senator to visit Bovino's $1 billion development near the George Washington Bridge in late 2007, the newspaper said.
But even Lautenberg, who is now deceased, could not help that failed project get off the ground.
Coast to coast
Bovino was luckier after the savings and loan crisis of the late 1980s and early 1990s.
He survived with his New Jersey real estate holdings largely intact, and by 1998 was ready to expand across the country.
His first stop was Wilmington, N.C., where he began developing housing projects in and around the coastal city. Then it was on to Arizona and Florida in the early 2000s and Georgia and New York by the middle of the decade.
At the peak, Bovino's companies were building homes in the suburbs of Phoenix and Atlanta, apartments in Raleigh, N.C., town homes in Palmetto and upscale condos in Port Chester, N.Y.
Bovino also launched Citizens Community Bank in Ridgewood, N.J., in November 2004. One of his companies purchased an institutional trading firm the following year that bought and sold stocks and bonds on the New York Stock Exchange, and he laid out plans for building a 47-story skyscraper overlooking the Hudson River in Fort Lee, N.J.
"Jimmy's biggest downfall was that he had an opportunity to expand quickly — so he did," said Greg Cagle, a Georgia developer who helped Bovino buy a housing development in the Atlanta suburbs. "He expanded too quickly and ended up being spread too thin."
Smoke and mirrors
Bovino was always meticulously dressed.
A former employee said he would never wear a suit more than once before having it dry cleaned; his shoes were regularly sent off for polishing at Saks Fifth Avenue in New York.
He maintained swanky offices on Park Avenue, and even his flagship company's name — Whiteweld Barrister & Brown — was meant to project an air of Old-World affluence.
But the names were all made up.
A former employee said Bovino chose Whiteweld because his father worked as a janitor for White Weld & Co., a prestigious Boston-based global financial firm that can trace its history back to the 1630s. The other two names were tacked on because they sounded good together, the former employee said.
To further add to his cachet, Bovino started a charity called The Whiteweld Foundation to benefit children. It put on half-dozen concerts at Lincoln Center and Carnegie Hall during the real estate boom with headliners that included Gladys Knight, Chuck Mangione, Burt Bacharach and the Count Basie Orchestra.
"It was all smoke and mirrors, really," said Cohen, who sued Bovino after the New Jersey developer failed to pay him fully for his New York investment firm. "The guy was leveraged out the wazoo."
But bankers were impressed by Bovino, and he had few problems borrowing when the economy was strong.
In Georgia and North Carolina, Regions Bank became one his major backers. In Florida, Bank of America lent him more than $7 million to build town homes in Palmetto.
By 2006, however, big banks were reluctant to keep fueling Bovino's insatiable demand for money.
Community banks stepped into the void.
A former Century Bank executive, who asked not to be named because of a new job she has secured, said Century president John O'Neil was seduced by the fact that Bovino was the chairman of his own New Jersey bank and had served on a state bank advisory committee. O'Neil greenlit approvals for one of Bovino's companies to borrow $9 million in October 2006 to buy 274 acres in Manatee County.
"When the president says, 'We're going to do business with this guy,' you don't look for stuff that says we can't do this," the former Century executive said.
She said Century was trying to increase its loan portfolio and ensure bonuses for top executives at the time. "People do stupid things to meet their goals," she said.
O'Neil did not return a call and an email message to his Fort Lauderdale attorney.
Bankers at nearby Peninsula Bank and Freedom Bank were equally eager to meet Bovino's financial needs.
Peninsula lent one of his companies $2 million in May 2007 to develop town houses on the Hillsborough River, while Freedom failed to properly analyze Bovino's finances when it allowed one of his companies to borrow $7.5 million to pay off an existing loan.
A former Freedom loan officer, who also asked not to be mentioned by name because he is still employed in the banking industry, said executives did not try to count up Bovino's outstanding debts across the country before lending him money. They merely ordered an appraisal and evaluated the loan based on what they felt the collateral was worth.
Banking experts and former regulators say that was a big mistake.
The FDIC warned banks a year earlier to cut back on making speculative real estate loans to developers. Regulators also made it clear that bankers needed to complete a global financial analysis of a borrowers debts before extending money.
"With developers, you have to do a really good job of identifying contingent liabilities," said Newsom, the former FDIC regulator. "Nearly every greedy banker looks only at the project and ignores the other debts a developer might have."
'... regret what you said'
A few months after receiving loans from Freedom and Peninsula, Bovino's operations ran into trouble across the country.
Speculator-driven demand for housing in Arizona, Georgia and Florida started sliding in late 2006 and prices plummeted the following year.
One of Bovino's former managers in Georgia said Bovino's development began losing money in 2007 because of high construction costs in the mountainous terrain outside Atlanta.
In Manatee County, one of Bovino's companies was having so much trouble selling town homes at Oak Trail that he had to take out personal loans and buy six of the units himself to pay down some of what his company owed to Bank of America, court records show.
In New Jersey, he was facing the lawsuit from Leona Helmsley's former chef and the Environmental Protection Agency fined one of his companies $600,000 for failing to get permits before installing a sewer system at one of his developments, court records show.
About the same time, The Record ran a front-page story in December 2007, about how Bovino's $1 billion development by the George Washington Bridge was dead in the water.
That was the time for banks all across the country to stop funding Bovino, financial experts say. But only a few adopted that approach.
A Regions Bank loan officer cut off Bovino's funding in both Georgia and North Carolina in early 2008 after he refused to use collateral from one of his North Carolina projects to shore up more than $6 million in Georgia loans.
"He stopped funding our North Carolina project ... because we wouldn't agree with his cross collateralizing," Bovino said in a deposition after Regions filed to foreclose. "I told him: 'You'll never see that. And he said: 'You'll regret what you said.'"
Under a cease-and-desist order from state and federal regulators, Freedom Bank also acted swiftly to foreclose on Bovino in May 2008.
But Cape Fear Bank provided one of Bovino's companies with $2.7 million that same month to help it pay back taxes and cover future interest payments.
That loan later went into default and was mentioned as one that helped bring down the North Carolina bank when the FDIC sued Cape Fear's officers and directors in April 2012.
"No credit history was located in the file," the FDIC wrote in its suit. "Additional deficiencies and violations identified on this loan include the failure to adhere to applicable laws and regulations."
Century Bank executives were equally negligent, according to a similar lawsuit filed by the FDIC.
Regulatory reports show that one of Bovino's companies owed the bank $280,000 in back interest payments in late 2007. But Century kept handing him more money.
The bank first lent the company enough to cover unpaid interest in March 2008. Then in September, it lent Bovino's company another $641,000 after the company sent the bank a string of bounced and uncashed checks.
"That's called 'pretend and extend,' " said Irv DeGraw, a banking and finance professor at St. Petersburg College. "The bank was playing a little game of make-believe in the hope that the market would turn and everything would be OK."
Peninsula Bank took that game to a higher level.
One of Bovino's companies defaulted on a $2 million loan from the bank in early 2008. But instead of foreclosing, Peninsula worked out a deal in which it would renew the loan as long as one of Bovino's companies took 200 acres in St. Lucie County off the bank's hands.
Peninsula had foreclosed on the former owner and did not want to take a loss. So it transferred the land to Bovino's company and lent him $12.1 million in October 2008 — just as the economy was reeling from the collapse of AIG and Lehman Brothers.
"That's outrageous," said Newsom, the former FDIC regulator. "He's purchasing a property to mask a loss to the bank."
Bankruptcy and civil court records show that at least 120 subcontractors have demanded that Bovino's companies repay debts totaling more than $13 million.
These include drywall contractors, plumbers, cabinet makers, pool maintenance companies, roofers, engineers, architects, tile companies, masons and electricians in six states. The majority have won judgments in their favor.
One of them, a general contractor who paved roads and installed a sewer system at Bovino's 400-lot development outside Wilmington, N.C., is out just over $1 million, according to a judgment filed in New Hanover County.
"Instead of telling us to stop when he knew he was in trouble, he told us to accelerate," said Robert Thomson, a Wilmington general contractor. "So we started putting in the really big-money stuff like sewers and sidewalks."
That was classic Bovino, according to two of his former managers.
As he began running out of money, those managers say Bovino pressed subcontractors to hurry up and finish their work so he could submit their invoices to the bank for payment. But the managers said Bovino did not always use the bank funds to pay his subcontractors as required by law.
Ronnie Lewallen, a former executive at Bovino's housing development in the Atlanta suburbs, says his predecessor "did everything in his power to get subs paid before Jimmy ran out of money."
This angered Bovino and his New Jersey executive team, and they quickly clamped down on the payments.
"When he left," Lewallen said, "they put me in charge. But they didn't let me control the money. I'm owed more than $100,000."
Though it was not uncommon for subcontractors to go unpaid during the Great Recession, developers understand that their long-term reputations are tied to their ability to pay their bills.
Bovino does not seem to have learned that lesson.
In March, he raised $1.1 million from John Bivona, a New York attorney and owner of Felix Investments. Manatee deeds show he used $950,000 to purchase a pair of town homes and 11 vacant lots in Bradenton's Palma Sola area.
That left $150,000 to fix up the town homes and get them ready for sale, says Hawkinberry, the interior decorator who helped Bovino find the property.
But Hawkinberry said Bovino diverted some of the money to a house he was building in New Jersey, so there was not enough left to pay the bills.
In an email to Hawkinberry, Bovino explained that he intended to repay the money as soon as he sold the house in New Jersey. But a "greedy lawyer" took it to pay one of Bovino's outstanding debts.
"That's what happens when they find out our past history," Bovino wrote.
Bivona, who provided the $1.1 million, told the Herald-Tribune he was not concerned about the diversion of funds.
"He didn't do anything he shouldn't have done," Bivona said. "If he needed to use the funds for something else, that was fine with us."
Bivona — a licensed attorney — also disputed owing anything to Hawkinberry.
"That's a B.S. lien," he said. "That money is not owed her."
But Hawkinberry has kept all of Bovino's emails and telephone messages, and they tell a different story.
In them, Bovino acknowledges he owes her money but says the only way she is going to get paid is if she helps him get a $500,000 loan using the two town homes as collateral.
Hawkinberry consequently referred Bivona and his wife to 1st Manatee Bank, Movement Mortgage and C1 Bank. But they all declined to make the loans.
Throughout the process, Bovino told Hawkinberry he intended to use some of the funds from the loans to pay off debts owed to Iberia Bank, which acquired Century Bank's assets after that Sarasota lender went under in November 2009.
"That's what I'm concerned about now," he said in a voicemail message.
He also told Hawkinberry not to say anything to Bivona.
But when it became clear that Bovino was planning to take proceeds from the loan to pay off past debts, Hawkinberry called Bivona.
That made Bovino angry.
"If you insist on avoiding my directions, I will make sure your association with the company is terminated!!!" Bovino wrote in an email message. "And let me say this, if Mrs. Bivona's loan is denied and I find out that you had a conversation with the bank that caused it to be denied you will be hearing from our attorney very quickly."
Hawkinberry told Bivona that if Bovino remained involved in the property, it would be difficult to sell the units. She told him she had a buyer willing to purchase the property for more than Bivona's company paid.
But Bivona told the Herald-Tribune he was not interested in that offer.
"We're not going to be frightened into doing that," he said.
A New York City investor, stealing from retirees and a German bank in the summer of 2008, needed $10 million to keep his scam going.
So he asked a Sarasota bank for financial help.
The deal made Century Bank's top officials queasy.
The chief executive and chief financial officer both said they did not trust the investor. A board member wondered if the loans were even legal. But at least one Century official wanted that assistance to happen.
And Barry Florescue usually gets his way.
With the world financial crisis in full bloom and banks failing across America, Florescue convinced Century's board to approve two $5 million lines of credit for William Landberg's companies.
Florescue had a personal interest in making the deal, because he invested money in Landberg's companies and would be hurt if the funds — later revealed to be part of a Ponzi scheme — collapsed.
Within a year, Landberg was indicted amid accusations of securities fraud and Century was taken over by the federal government. Yet Florescue emerged from the mess with much of his wealth and his reputation intact.
Century was one of 69 banks to fail in Florida since the beginning of the Great Recession. The Herald-Tribune examined these failures during a yearlong investigation and found that top bank executives were responsible for their own demise.
Though the government sued Florescue and four other directors in civil court over their management of the bank, authorities say there is no evidence to charge anyone from Century with a crime.
Florescue continues to live in a $13.5 million estate on a South Florida beach. Companies he controls have spent at least $30 million on commercial real estate. And he has donated $5 million to his alma mater, the University of Rochester.
Now 69, Florescue is seen by both allies and rivals as a sharp operator, unafraid to bully his way to power in the world of high finance. He is a master of the hostile takeover, has enjoyed one business scrap after another, and has rarely suffered a personal defeat. This, though many of his own companies foundered, fellow shareholders were hurt and the American financial system was forced to pay for some of his mistakes.
Florescue would not comment for this story, nor would many of his colleagues at Century. To investigate Florescue's career, the Herald-Tribune reviewed filings with the U.S. Securities and Exchange Commission, federal court cases, corporate documents and real estate records in Florida.
During the Herald-Tribune's yearlong inquiry into failed banks in Florida, the newspaper found few characters who lorded over their institution like Florescue. Despite being forced out as chief executive in 1997, he remained a powerful figure at the bank until its collapse in November 2009.
His behavior at Century was emblematic of the rest of his career.
Over the past five decades, Florescue has owned, operated, directed, invested in or profited from Automat cafeterias in Manhattan, a casino in Las Vegas, a home shopping channel, a cosmetics business, hotel toiletries, healthy hamburgers and even pornography.
Friends say he is a generous benefactor. His South Florida foundation donates hundreds of thousands of dollars to charity each year. Along with his girlfriend, he is a regular on the Broward County social pages. An undergraduate business degree at the University of Rochester bears his name.
Others say that Florescue is all about Florescue.
His leadership of a fried chicken company was so bad that Forbes was prompted in a 1987 article to ask, "Why Didn't They Pay Him to Stay Home?"
He once phoned a Sarasota reporter to complain that he was left off a list of the region's Top 50 most influential people — just a few months after he was sanctioned and prohibited from ever serving again as an officer of his own bank.
He joked to a colleague that he wanted a certain mansion so badly that he bought it and made the woman who lived there his girlfriend.
The two are now an item.
"Sometimes a guy gets a negative reputation when he makes a lotta, lotta money. There is a combination of jealousy and the fact that he had to make some tough decisions," says Drew Staton, a Boca Raton investor. "But Barry's a decent human being when you look at the whole picture."
Chicken and jets
Barry Florescue goes way back, to a time when chopped sirloin steak with mashed potatoes and asparagus cost $1.45 and coin-op Automats were Manhattan's choice for fast food.
Horn & Hardart was one of American's earliest fast-food companies. It ran automated cafeterias where diners deposited coins in a slot and selected fresh meals from within a glass case.
Then 34 and a recent business school graduate, Florescue operated six Burger King franchises in South Florida and Long Island, N.Y.
With Horn & Hardart, he saw an opportunity.
Together with other investors, he bought a small stake in the company, won a proxy fight to take control of the board and ascended to power in 1977.
Florescue had little interest in Automats, though.
In what would become a lifelong pattern, he benefited financially even while the companies he controlled suffered.
Forbes reported in 1987 that Horn & Hardart lost millions, but Florescue earned a yearly salary of $850,000 — $1.8 million in current dollars.
He also had side deals that paid one of his companies $1.2 million a year to lease corporate jets and hundreds of thousands more to lease a dozen fast-food outlets in Florida and New Jersey.
But while Florescue grew rich, he made missteps.
He moved Horn & Hardart's headquarters to Las Vegas, bought the Royal Inn Americana casino and lost $6 million in less than two years. A pizza restaurant called Mark Twain's Riverboat closed shortly after he opened it.
A chain of healthy hamburger joints called Goodbody's never got off the ground. A home shopping TV show with fitness guru Richard Simmons drew a 1 rating — an audience so meager that the show was only on the air for weeks, Forbes reported.
But the biggest flop of this period was Bojangles' Famous Chicken 'n Biscuits.
In 1981, there were 40 of the restaurants in the Carolinas.
Florescue had the idea to turn them into a rival to Kentucky Fried Chicken and opened more than 240 outlets across the country.
The result was an disastrous. Restaurants quickly became run-down. Shares in the parent company crashed, yet Florescue still managed to benefit.
He owned two Bojangles' franchises that were struggling in 1985. Instead of absorbing the losses himself, Florescue sold the franchises back to Horn & Hardart for $1 each and got the company to assume $8.5 million in debt.
"I did exactly the reverse of what most entrepreneurs are accused of doing," Florescue told a Forbes reporter. "I just washed my hands of operations."
'... Break the Rules'
Subsequent years brought more failure.
Florescue tried to expand his Burger King franchises into California but was blocked by the leaders of the Miami-based company who feared his growing power within the chain.
In the early 1990s, he again tangled with Burger King, suing the company in federal court over "its chaotic, uncoordinated, inconsistent and ill-conceived" marketing program and its advertising slogan — "Sometimes You Gotta Break the Rules" — but the case was ultimately dismissed.
In 2000, he tried to lead a shareholder revolt at a company that sold toiletries to hotels.
Clifford W. Stanley, Guest Supply Co.'s CEO, penned a blistering letter to shareholders, urging them to vote against Florescue's corporation as it attempted to have two people elected to the board of directors.
Stanley told shareholders that Florescue's group once offered to buy Guest Supply for $24, dropped that price to $21 and would likely reduce that sum further.
"We believe that Mr. Florescue has a track record of acting contrary to shareholder interest and for his own financial gain," Stanley wrote.
Florescue's bid was rejected.
The following year he made a similar play for Morton's steakhouse in Chicago, buying 9 percent of the upscale establishment and again trying to have his handpicked directors appointed the board.
Florescue told shareholders in a letter that top executives were enriching themselves and not doing enough to keep down costs and maximize value.
Morton's managers fought back. CEO Allen Bernstein, said in a letter filed with the SEC that Florescue's past was marked by "frequent litigation, including findings of self-dealing and allegations of fraud and securities law violations."
Florescue lost the battle. But he did not spend much time licking his wounds.
He continued to run Marietta Corp., which generates $170 million in annual revenues and distributes shampoos, soaps and other personal care items for the hotel industry.
He bought Caswell-Massey, a large manufacturer of bath and beauty products, in 2003 and became one of the biggest shareholders and a director of Friend Finder Networks in 2005.
Friend Finder Networks is a public company that publishes Penthouse photos and runs websites, billing itself as place to find "sex dates, adult matches, hookups and f--- friends."
Among the company's most popular features are virtual peep shows where members can interact with live strippers online.
Since 2011, companies controlled by Florescue also have spent more than $30 million to buy office buildings and a Walgreens pharmacy in three Florida counties, according to mortgage records and court documents.
Florescue joined the University of Rochester's board of trustees after donating $5 million to sponsor an undergraduate business major.
He now lives in his mansion in Lighthouse Point with Sharon Gustafson, a "Grand Dame" of the Broward social circuit, throwing lavish galas to raise money for cancer research.
His own charitable organization — The Florescue Family Foundation — uses more than $4 million in assets to invest in everything from cigarettes to copiers and spends about $300,000 a year on causes ranging from Alzheimer's research to Boys & Girls Clubs.
"He and Sharon are truly the most giving people I've ever met," said Anna Tranakas, a South Florida woman who served on a charity board with Gustafson.
'... and nothing else'
Florescue bought Century Bank in 1989 and regulators quickly questioned his management style.
In 1996, the Office of Thrift Supervision charged him with using bank money to enrich himself and his wife. He bought her a new Lexus, paid himself a salary and fees before he earned them, billed trips to Century that were personal and opened a $100,000 line of credit with rates better than those offered to the public.
Regulators fined Florescue $50,000 and forced him to give up his title as CEO, according to regulatory documents.
But Florescue said in SEC filings that he never admitted to wrongdoing at Century, and that the charges against him were "allegations and nothing else."
Florescue said he simply agreed to the terms set by regulators and paid "a nominal fee" to avoid long and costly litigation.
Though barred from serving as an officer and only visiting once or twice a year, Florescue still loomed large for the bank. He controlled its five-member board, which was stacked with friends and business partners. Federal regulators say in their lawsuit that he had "significant influence over senior management and the everyday operations."
From 2001 through 2007, Century grew quickly, tripling in size from $300 million to $920 million in assets. But the growth was tied to shaky underwriting, regulators found.
According to one former executive who asked not to be identified, Century focused on making loans to customers who would have trouble borrowing anywhere else.
"Banks are all competing for the same business and there are only so many borrowers to go around," the former executive said. "Big banks that can loan more money get the cream of the crop, leaving independent banks like Century to scrounge for their volume.
"Century was a bottom feeder. It loaned to the lower end of the market."
Its demise, according to a Herald-Tribune review of court records and government filings, came because Century did business with people of questionable ethics and no clear way to repay.
One of those borrowers was William Landberg.
A Ponzi
Florescue and fellow Century board member Stanley Kreitman had known Landberg for years.
They all attended New York University as graduate or undergraduate students and remained connected through their careers.
Both Florescue and Kreitman invested in funds that Landberg ran from his offices on Long Island, court records show, and Landberg returned the favor by investing in companies controlled by the two men.
Landberg invested at least $1.5 million in Century in March 2009 and $1.5 million in Geneva Mortgage Corp., a mortgage company controlled by Kreitman that sought bankruptcy protection in May 2009.
But the interplay between the three men went much deeper.
Landberg also borrowed tens of millions from Century in both good times and bad. It did the same with a bank and mortgage companies connected to Kreitman, federal prosecutors say.
In June 2006, Century financed Landberg's purchase of two vacant residential lots in the Hamptons, an enclave of the uber-wealthy on Long Island. Century initially provided $6.2 million, but later increased that amount to $10.5 million when Landberg wanted to buy more real estate the following year.
Federal regulators said these loans broke Century's policy of not lending outside Florida.
They complained that Century kept increasing the loans even though the real estate market had began to slump. Examiners also said the bank approved loans without getting appraisals or reviewing Landberg's financial statements.
But problems with these initial loans paled in comparison with the $10 million that Century provided from August 2008 to February 2009.
By that time, Landberg's investment funds were in deep trouble and he had initiated a scheme that would result in a 42-month prison sentence.
"Landberg was pressuring the bank to make these large and complex loans immediately and under unusual time constraints," federal regulators wrote in their lawsuit against Century's leaders, which is still pending in U.S. District Court. Attorneys representing the officers and directors say that their actions did not cause the bank to fail, and that the global recession was to blame.
CEO John O'Neil and chief financial officer Don Farr both said they didn't trust Landberg.
"I do not know whether any of these complicated transactions are technically prohibited by any law or regulation," Farr said in a board meeting. "But they do not give me a real good feeling."
The loans were made at a time when Century's all-important capital cushion had been worn down.
"As it turns out, these two transactions were used to fund Landberg's Ponzi scheme," federal regulators wrote in their lawsuit.
Regulators said that as much as $6 million of the proceeds went to repay a company where Kreitman served as a director, and there was a "quid pro quo" arrangement where Landberg agreed to invest $10 million back into Century.
"A portion of the value of this bank depends on Landberg," Farr said.
Arrested in January 2011, Landberg pleaded guilty to securities fraud.
He told the court in his sentencing memorandum that he panicked when his investment funds ran into trouble. But investors say he bilked many of them at a time when they could least afford it.
There were about 100 people involved, many of them mental health professionals who knew Landberg and his psychologist wife personally.
One investor — Dr. David Wolitzky — said he was ashamed of having fallen for Landberg's "self-aggrandizing, bombastic, manipulative nature."
In his late 70s, Wolitzky said the losses he suffered mean he won't be able to retire.
"When he invited me to the opera and to dinner, or to his son's wedding reception, little did I know that the monies for this sort of thing were coming from my funds," Wolitzky wrote to the court.
Instead of just letting West End funds collapse and dealing with the flood of lawsuits, prosecutors say Landberg borrowed $8.7 million from a German bank under false pretenses.
He said the money would fund real estate deals and finance restaurant franchises. But he funneled $1.5 million to himself and $2 million to pay off a loan to Century.
He also earmarked $3 million to buy Century's headquarters in Sarasota and help shore up the bank's depleted capital reserves. But regulators blocked the deal.
In the end, Landberg defaulted on $20 million in loans from Century and suffered a nervous breakdown that led him to check into the Payne Whitney Psychiatric Clinic in Manhattan before being sent to prison.
Florescue's ties to the funds and to Landberg were so deep that he was one of the first people called by Raymond Heslin, a New York lawyer who took charge of Landberg's investment funds after the businessman's emotional collapse.
"We generally discussed what steps should be taken to preserve assets of West End and prevent problems that we all foresaw as a result of what Mr. Landberg had done," Heslin said in a deposition.
Referring toLandberg, Florescue and Kreitman and their close relationship, one investor in Landberg's funds said "they were just a little too buddy-buddy.
"Here we were thinking we were fine and he's taking everyone's money, throwing it in a pot and doling it out to his cronies," Dennis Fogarty told the Herald-Tribune. "For a lot of the investors, especially the older ones, it was lights out. It physically and emotionally devastated a lot of people."
Risky bets drove one Sarasota bank into the ground
SARASOTA — Century Bank broke some of its industry's fundamental rules by financing deals that were destined to fail, and by looking the other way when it was clear a borrower had no way to repay.
Among its most egregious mistakes were loans to a convicted drug peddler, a property flipper and an investor who had been convicted of securities fraud.
Each loan involved a multimillion-dollar mansion and came after housing prices were already on the decline.
In each case, bank employees advised their bosses to deny the applications. But, obsessed with short-term growth and profits, the bank's leaders approved the loans anyway, according to a former executive who asked not to be identified.
Century was founded in Sarasota in 1985 and purchased four years later by Barry Florescue, a corporate executive with ties to everything from Burger King to pornography.
Florescue was barred by federal regulators from leading the bank after a series of insider deals in the 1990s, though he maintained a strong grip on Century in subsequent years.
Century failed in November 2009.
To investigate this bank, the Herald-Tribune reviewed federal court documents in two states, filings with the Securities and Exchange Commission, and mortgage and foreclosure records in Palm Beach and Hillsborough counties.
Federal regulators have since sued Century's board of directors, accusing its five members "of ignoring glaring deficiencies" in loan applications and "approving loans to borrowers of known questionable honesty."
This sort of "gross negligence" on the part of the bank's leaders contributed to the bank's failure, regulators said.
The directors have denied those claims, arguing that it was the economic downturn that doomed the bank, not their decisions.
But a closer look at three of the bank's loans tells a different story:
The drug peddler
In Panama, he was "Juan Montes." Online, he often went by "Mike Johnston."
But to federal agents, he was Michael James Arnold, online drug kingpin and money launderer.
Arnold oversaw websites that sold Valium, diet drugs and other medicines without a prescription. He laundered millions of dollars by switching money between bank accounts and buying luxury items including a Ferrari 575M Maranello.
But court records show that his plan to launder even more money by purchasing a mansion in Boca Raton needed financial backing.
When he approached Century for a loan in December 2006, the bank's underwriters saw red flags and told their bosses not to OK the deal. They did not know that Arnold was being investigated by federal drug agents and would be sent to prison for five years — but bank insiders say underwriters fretted about him anyway.
Here was a 35-year-old who had filed for bankruptcy protection four years earlier listing $121,000 in debts. He was a first-time homebuyer with no stable source of income.
But somehow he had accumulated at least $3.7 million in cash and wanted to buy a $9 million mansion overlooking the Atlantic Intracoastal Waterway from a mysterious seller who had bought it just two months earlier.
The underwriters turned Arnold down — twice.
But their opinions didn't matter. A former Century executive said they were overruled by the bank's majority shareholder.
Barry Florescue, who bought Century in 1989 and was later removed as CEO for profiting at the bank's expense, pressed for the deal, according to the former Century executive.
Arnold was bringing nearly $4 million of his own money to the closing. So even if he defaulted, the bank could resell the house at a profit.
It didn't matter that the deal broke a slew of Century's underwriting policies, or that Arnold was buying the house from a company managed by an accountant in the Isle of Jersey — a well-known tax haven off the coast of Great Britain.
The deal would allow Century to keep growing as the real estate market was beginning to sag.
What Florescue and other Century officials did not know was that federal agents had begun investigating Arnold back in 2005 and now intended to freeze his assets.
Seven months after approving the loan, the bank got a letter saying the house was subject to seizure by the Drug Enforcement Agency and that its loan might never be repaid.
Century fought back in court, claiming that it was an "innocent" party to Arnold's drug scheme, and that it had first dibs on the mansion.
Bank executives said they planned to foreclose on the home to get some of their money back and the court took their side.
But before foreclosing, Century's leaders inexplicably lent Arnold another $38,000. It is not clear from court documents why the bank made that loan or how the money was used.
Century sold the home at an auction in Palm Beach in July 2009. There was only one bidder: Bell Gustafson LLC, a company managed by Marc Bell and Sharon Gustafson, Florescue's business partner and longtime girlfriend.
Bell is the president of Friend Finder Network, a company that runs pornographic sites, including those that feature online peep shows and publish Penthouse photos and videos.
Documents filed with the SEC show that Florescue was one of Friend Finder Network's largest investors and had a seat on the board of directors.
The other name tied to Bell Gustafson was Florescue's girlfriend. Gustafson is a member of the Royal Dames of Cancer Research, is regularly featured on South Florida society pages and throws lavish galas at the couple's beachfront mansion for charity.
Court records show that Bell Gustafson paid $6.2 million in cash for the Boca Raton mansion and received a $5.6 million loan from Century Bank two months later.
The partners held the house for 11 months and sold it to a company run by a New England hedge fund manager for $100,000 more than they paid.
Gustafson would not open the gate to speak with a reporter who visited their mansion this summer. "You need to speak to Barry about all of that," she said.
The Internal Revenue Service was asking questions.
His mistress was drinking a bottle of vodka every night.
His wife was helping him with his mortgage fraud scheme. And Thomas Parenteau's complicated web of lies was about to fall apart.
A seemingly successful Ohio homebuilder, Parenteau had convinced his mistress, Pamela McCarty, to submit false tax returns to the IRS soon after they began their affair in 2000, according to federal prosecutors.
She made as much as $1 million a year as a real estate agent, but Parenteau said she was giving too much to the government. So he helped her set up a dummy company that lost hundreds of thousands from the bogus sales of art and home furnishings to offset her income, prosecutors say.
When McCarty was fired from her real estate firm in late 2003, Parenteau created a fake job for her — complete with an employment agreement and pay stubs — so banks would lend her $6 million against the 30,000-square-foot mansion they lived in on the banks of the Scioto River in Columbus, Ohio, according to court documents.
But a knock on the door in October 2005 changed everything.
IRS agents wanted to know why McCarty, who had been so successful selling real estate, was suddenly losing money with her new business.
Afraid that the investigation would lead to McCarty's fraudulently obtained loans, Parenteau began looking for a way to pay them off.
His first stop was Washington Mutual, the failed Seattle bank that proved to be one of the loosest lenders in U.S. history. Parenteau asked for $10 million. But WAMU turned him down after discovering he had presented tax returns that inflated his income by several million dollars.
Parenteau searched for another lender.
With help from a mortgage broker, he was introduced to Century — a bank 1,000 miles away in sunny Florida.
During his criminal trial years later — a messy affair in which Parenteau represented himself — he told the jury about a September 2006 phone conversation with Century's president, chief financial officer and a loan officer.
"Everything went well until the president said, 'I want to see your tax returns,'" Parenteau recalled. "I said, 'It's not on the table. ... It's not the basis of my loan request. I'm willing to put money in your bank. I'm willing to do an asset-based type loan, if you're willing to consider it.'"
Century wisely turned him down.
But within a month, the bank's top executives changed their minds and lent Parenteau $12 million in January 2007.
Besides refusing to produce his returns, his former accountant testified in court that Parenteau lied about his income and assets on the loan application and inflated the amount of money he had sunken into his mansion.
The appraisals, stating that the house was worth $16 million, also looked suspicious because none of the comparable properties were anywhere near Columbus. They were as far away as Atlanta and Franklin, Tenn. Some were much smaller.
Parenteau later admitted in court that his mansion would be almost impossible to sell. It would require someone of incredible means like Arnold Schwarzenegger, Eric Clapton or rapper Little Bow Wow.
"Think about it," Parenteau said. "How many people exist around us that have that kind of money?"
But Century made the loan anyway.
A few months later, federal agents sent the bank a letter requesting to see the loan file.
Realizing there was a potential problem, Century froze a $3 million certificate of deposit that Parenteau held at the bank's Sarasota headquarters.
At the same time, officials stalled after federal regulators asked them in 2007 to order another appraisal of the Columbus property, regulatory documents show.
When regulators revisited in May 2008, the appraisal still had not been ordered. So examiners asked again.
By August, bank officials finally obtained one — and learned the disastrous truth about Parenteau's mansion.
The home was worth $4.2 million, nearly $12 million less than the original value. Century's leaders tried to hide the document, according to regulatory reports. Examiners did not find it until 2009 and they weren't happy.
"Since Century did not obtain the appraisal in a timely manner and ignored the appraisal they later received, Century delayed recognizing the loss and consequently distorted the thrift's true financial position," authorities reported after the bank failed.
Parenteau has since been sentenced to 22 years in prison for his crimes. His mistress wore a wire for the prosecution, testified against Parenteau in court and was sentenced to two years in prison as part of a plea agreement.
"What led me to come clean, to be honest, was I am an alcoholic and I was drinking very, very desperately," McCarty told the jury. "I was drinking a bottle of vodka a day in a closet when my kids would go to bed. I was living with the pain of these lies and the abuse of living a double life."
The securities fraudster
Imprisoned for securities fraud in the late 1980s and with two bankruptcies under his belt by 2001, Paul Bilzerian was not the kind of borrower most banks would want to do business with.
The SEC was after him to collect on a $62 million judgment and he had been ordered to sell his 30,000-square-foot mansion in Tampa's Avalon neighborhood in 2002.
But Bilzerian still managed to get a $5.5 million loan from Century against that same house four years later.
Court records show he did it by transferring the mansion to a series of companies controlled mainly by his wife's parents.
Underwriters at Century were not fooled by the shell game. They knew Bilzerian was applying for a loan in December 2006 and they were well aware of his history.
Melody Shimmell, a former fraud examiner for the bank, even made a sarcastic comment to the CFO about whether someone would have to be criminal to get a loan like that.
Bilzerian, who made close to $100 million from hostile takeovers attempts in the 1980s, was convicted of securities and tax fraud in 1989 and spent 13 months of a 48-month sentence in prison.
He filed for bankruptcy in 1991 and again in 2001, declaring $140 million in debts and only $15,805 in assets.
Despite his self-proclaimed poverty, he continued to live in the mansion, with its indoor basketball court and 17 bathrooms, confident that Florida's liberal bankruptcy laws would protect his home from seizure.
But the bankruptcy court did not respond the way Bilzerian expected. He was thrown in jail for contempt in 2001 after refusing to disclose his assets and was only released after agreeing to sell his house.
An auction was held in May 2004.
The winning bid came in at the surprisingly low price of $2.55 million.
The buyer was a company controlled by Bilzerian's in-laws and a neighbor, Mary Haire.
Under Bilzerian's agreement with Haire, the house was supposed to have been resold within a year. But Bilzerian kept blocking the sale. So Haire sued him and obtained a court order in September 2006 to have him evicted.
Once again, Bilzerian outfoxed his adversaries.
With help from Century's $5.5 million loan, he arranged for a company controlled by his wife's parents and the son-in-law of the auctioneer to buy the house, court records show.
"I don't have any money to put in a bank," Bilzerian said in a deposition a few months before Century approved the loan. "Don't need one."
Fifteen months later, Century gave the company controlled by Bilzerian's in-laws another $750,000.
The company defaulted on both loans in October 2009.
Regulators shuttered Century a month later.
But Bilzerian is still living in the mansion.
DAVENPORT -- There are two ways to make money in banking: the easy way and the hard way.
The easy way means paying top dollar for deposits then lending that money back out at even higher interest rates -- usually to customers who can't get loans elsewhere and are more likely to default.
This was the status quo for many of the 69 banks that failed in Florida during the Great Recession.
A Herald-Tribune investigation found that these banks had such a lust for growth and profits that they were willing to break some of the industry's most fundamental rules -- as well as federal and state laws.
But one Central Florida bank survived the bust by sticking to the basics and making money the hard way.
Based in a rural town southwest of Orlando, CenterState Bank was strong enough to gobble up six failed competitors and is now one of the healthiest lenders in Florida.
"They didn't get caught up in the 'growth for growth's sake' mantra," said Paula Johannsen, a banking analyst with Monroe Securities in Tampa. "They didn't chase loans like other banks. They concentrated on attracting the right type of core deposits, which is how good, long-term banks drive growth."
Closing in on $3 billion in assets and eyeing another $2 billion by 2016, CenterState is a rare Florida success story.
Instead of building fast and selling out to a bigger bank after five or six years, leaders focused on building long-term relationships with its customers. They stayed local and did not make risky development loans on Florida's coasts. They encouraged staffers to learn the business and rise internally. They took in deposits at low interest rates, which meant they didn't have to turn around and loan that money to people with sketchy financial backgrounds.
The bank's philosophy is so simple that executives include it on their website, on investment documents and even their phone message for customers on hold:
"We will not sacrifice credit quality for short-term gain."
The history of banking is littered with banks that ignored this common sense rule.
More than 270 Florida banks went out of business during the Great Depression. Ninety more failed after the savings and loan crisis of the late 1980s and early 1990s. Yet despite these historical precedents many Florida bankers found themselves unprepared for the most recent economic slump.
They invariably told the public that the downturn took them by surprise. Even though home prices had been rising by 30 percent per year, they saw no bubble. For them, the laws of gravity no longer applied.
By contrast, CenterState's leaders remained grounded in history. Top executives were trained through a system that works like an apprenticeship and traces back nearly 100 years -- one banker passing on the tenets of safe banking to the next. They were aware of past crises and what caused them, and took basic steps to ward off deep losses suffered by other banks.
The bank did not escape unscathed, though. No one did.
It foreclosed on more than $100 million in loans. But that number was dwarfed by the capital it held in reserve in case of emergencies.
While other big banks like Riverside National, Orion, Florida Community and Sarasota's Century Bank saw their capital ratios plunge in 2009, CenterState's actually grew that year and remained steady throughout the crisis.
There are now 100 fewer banks in Florida than there were when the recession began in late 2007. One in three either failed or was taken over by a stronger bank, and experts say another 40 to 50 will be acquired during the next five years.
Together with other strong Florida lenders -- like Stonegate, Harbor Community and C1 Bank -- CenterState is expected to be one of the institutions left standing.
"CenterState is among the better -- if not the best -- banks in Florida," said Bill Nicholson, whose Jacksonville company helps lenders raise money. "It not only survived the downturn, it had enough capital and credibility with regulators to be qualified as a bidder of failed banks."
'On the right path'
At the core of CenterState is its culture, and the the person most responsible for that is James H. White, a retired banker who launched and managed more than a dozen Florida banks over the years.
"He, more than anyone else, put the bank on the right path," said Ben Bishop, a longtime Florida bank analyst.
White, now 87, grew up during the Great Depression.
The son of a Methodist preacher, he saw how his family and neighbors suffered in his hometown of Hastings.
"One year, my father only raised $80 from the church," White said. "But we had a garden, and if someone killed a hog they would bring us a piece of pork."
Those difficult days, and the fact that "people looked out for each other," stuck with White all of his life. Unlike competitors at other Florida banks, he remained wary of taking the kind of risks that might make history repeat itself.
White entered the world of banking in 1951 after a stint as a salesman for his father-in-law's wholesale grocery business. He was tapped to run First State Bank of Fort Meade and says he thanks God every morning for one of his mentors: Bradley Keen.
Keen had managed a bank during the Great Depression and was a director of First State when White signed on. Though retired, Keen came in every day to see if White needed help.
Keen taught White how to read customers and figure out who was a safe bet and who was not.
"He could analyze a person's character just by reading a financial statement," White said. "He could see whether someone was exaggerating their net worth or betting on the come."
White learned that financial statements are never as good as they seem, that there is always a problem somewhere -- and rooting out that problem requires knowledge of the local market and a sixth sense about people.
"You just let them talk about their business," White said. "If they have good integrity and know how to work, you get a sense of that."
White passed these lessons on to the bankers he mentored over the years, including his co-founders at CenterState.
But while lending could get a bank in trouble, it was not the most important part of banking to bankers like White.
His main focus was on the other end of the equation -- gathering deposits.
At CenterState, the goal was to set up branches in small rural communities and attract "mom-and-pop checking accounts." These may be small amounts, but they are usually free -- and certainly cheaper than certificates of deposit.
Using checking accounts as its foundation, CenterState kept down its "cost of funds," which represents the amount of money a bank spends to get people to deposit money in its vaults. The lower cost, the easier it becomes to make a profit from making loans.
Financial reports show that CenterState's cost of funds was at least 25 percent lower than failed Florida banks.
"We always had the cheapest cost of money," White said.
'Not part of our culture'
White also had a keen eye for talent.
He helped a dozen proteges start banks in Florida over the years, but CenterState's co-founder, Ernie Pinner, was special.
Pinner is the son of a single mother who waited tables to provide for her family. He learned the value of money early in life.
Now 66, Pinner first worked as a janitor for the State Bank of Haines City and later became a teller to help pay for college. White forced him to save $125 each week so he would have $3,000 by the end of the year.
"Of course he only paid me $128," Pinner quipped. "So I had to take a second job."
After serving in the military, Pinner went back to work for White at a series of banks that were ultimately merged into First Union.
With White's help, Pinner launch CenterState in 1999.
From the beginning, it was conservative. It did not pay for high-priced deposits or CDs. It steered away from loans to developers of shopping malls, office buildings and apartment complexes, which are some of the riskiest a bank can make. Only 5 percent of CenterState's loans were in this category. That compares with 40 percent or more at the now-defunct Orion Bank in Naples, which also had a large presence in Manatee and Sarasota counties.
"To a certain extent, we were fortunate that there was not a lot of commercial development going on here," said Pinner, looking out over the orange groves and agricultural land that spreads beneath the third floor window of his Davenport headquarters.
CenterState also avoided outside loan brokers.
"The broker is not part of our culture," Pinner said. "He's a sales person trying to do a deal."
In other words, the broker is looking out for the broker -- not the health of the bank. While other Florida bankers used these middlemen to close deals all over Florida, CenterState built relationships within its own communities -- like the one Pinner developed with an outdoor clothing retailer based in Winter Haven.
"I started banking with them they day they opened," said Scott Hart, the president of Andy Thornal Co. "Ernie Pinner is a personal friend of mine. I can sit down and talk face to face with him and he can give me an answer. I don't have to call anyone else."
Rainy day savings
Because CenterState's cost of funds were so low, the bank made money without having to lend to risky borrowers. From 2001 to 2008, it reported returns on equity between 8 and 13 percent.
This was much lower than some of its competitors, especially high fliers like Orion or Florida Community Bank in Immokalee. Those banks reported returns reaching 20 percent or more during the same period.
But CenterState's lower numbers revealed another strength: It held more capital in reserve than most of Florida's failed banks and kept raising more whenever it could.
"Mr. White always used to say that the time to get capital is when you can get it," Pinner said.
This strategy -- basically saving money for a rainy day -- was a stark contrast to many of those banks that flopped during the Great Recession. Some of these institutions pulled capital out of their banks just as the market began to nose-dive, usually in the form of dividend payments to shareholders.
Orion, for example, paid out $28 million in dividends in 2007 -- the same year it reported more than $6 million in losses. Similarly, Riverside took $27 million in 2008 while booking losses of $139 million.
By contrast, CenterState kept refilling its coffers during the run-up to the Great Recession and added another $28 million in Troubled Asset Relief Program, or TARP, funds during the depths of the crisis in November 2008.
The funds were only being offered to the country's strongest banks at that time and CenterState's board felt it would be at a competitive disadvantage if it didn't take the money.
"Given hindsight, I wouldn't do it again," Pinner said. "I didn't realize how the program would be perceived."
When popular opinion turned against the bailout, Pinner and his executive team raced to return the money.
In July 2009, the bank raised $86 million from a successful public offering and sent the funds back to Washington as soon as they got someone to answer the phone.
"They didn't want it back," Pinner said.
'Birds of a feather'
In 2003, Pinner tapped John Corbett to be CenterState's chief executive.
Born in Miami and raised in Winter Haven, Corbett got to know Pinner from church and went to work for him as a teller at First Union when he was still in college.
Corbett, 45, more than doubled CenterState's loan portfolio from $414 million in 2003 to $892 million in 2008.
By that time, the downturn was in full swing and bad loans began piling up. But instead of nursing the bank's wounds, Corbett opted to go on the offensive.
"Other banks had a 'tread water' strategy," Corbett said. "We were ready to play both offense and defense."
The strategy was welcomed by Wall Street investors, who provided CenterState with more than $120 million at a time when other Florida banks could not raise a penny.
In January 2009, CenterState bought its first failed bank -- Ocala National. It went on to purchase five more collapsed banks over the next three years.
"The crucible for us was 2010," Corbett said. "We had planned to convert our computer system to a much bigger platform. At the same time, we saw an uptick in problem loans, completed a major capital raise and bought three banks in 90 days.
"As I look back, I never want to live through that again," Corbett said. "But it did wonders for our team's confidence. They went through the fire together and learned they could handle it."
The strategy paid off for CenterState in a big way. Corbett estimates that the bank has made about $60 million in profits as real estate values in Florida have rebounded.
Corbett said CenterState is now well positioned to purchase healthier Florida banks and even expand out of state.
In the meantime, he said CenterState will keep trying to attract lenders and other employees with the same value system.
"Birds of a feather flock together," Corbett said. "Of course, we run across people who don't fit our culture. But things get sorted out pretty quickly. If we bring a guy in and he begins to stray a little, he probably won't get his loans approved.
"Before long the guy's back on track or he realizes he's in the wrong place."
Mystery family, failed bank and 'devilishly clever dishonesty'
WINTER PARK -- Susma Patel would not talk about her family's wealth.
After paying $5.5 million to rescue a Central Florida bank in 1997, the young lawyer told the press that her uncle had left behind a sizable inheritance, but she "had no idea" how he'd made his millions.
Besides, her family matters were private.
"We're Indian, after all," she told the Orlando Sentinel.
But now that First National has failed, a more complete picture of the Patel family is beginning to emerge.
Susma's father, Madhusudan Maganbhai Patel, was sentenced to prison in Kenya for smuggling in the 1970s and was convicted of cheating the British government out of millions in alcohol and tobacco taxes in the 1980s. Susma's brother, Suketu, received a two-year suspended sentence for the same tax dodge.
It remains a mystery where the money came from to take over First National Bank of Central Florida. It is clear, though, that trouble followed the family to the United States.
Court records and interviews with former First National employees show that bank officials misled the federal government about the number of insider loans; bank officials made favorable deals to family members and their business partners; and they extracted millions from the bank in the months before its collapse.
During a yearlong examination of failed community banks in Florida, the Herald-Tribune found that most of the institutions failed because of the greed and incompetence of their leaders.
This was certainly true of First National.
Mortgage documents and federal records show that just one other failed Florida bank logged more defaults from insiders, that regulators allowed a key member of the Patel family to oversee operations despite a felony in his background, and that investors earned payouts even as First National lost money.
No one involved with the bank is accused of a crime in connection with its failure.
Regulators shuttered First National in April 2011, costing the financial system $43 million to clean up. A post mortem by federal regulators said "the bank experienced a substantial depletion of assets or earnings due to unsafe and unsound practices."
Susma did not return emails left with her family's attorneys or two phone messages left on her husband's answering machine in New York.
In a November 2011 court deposition, she blamed the economy for First National's collapse.
"Downturn in the economy," she said. "Real estate values dropped and the exposure to the loan portfolio was too great."
But that's not the whole story.
Embezzlement and poor management
First National had plenty of trouble even before the Patels entered the picture.
Founded in 1985, the bank limped through the Savings & Loan crisis and hired Martin Hartmann as CEO in 1992 to jump start growth. His tenure was a disaster.
Hartmann embarked on a failed strategy of expanding the bank by setting up branches in supermarkets across Central Florida — and he was bilking the bank of hundreds of thousands of dollars at the same time. Federal authorities convicted Hartmann of taking more than $200,000 in kickbacks from vendors and arranging a phony $100,000 loan to a friend. He was sentenced to 19 months in prison.
Hartmann wasn't the only criminal working at First National. Branch manager Joaquin Vasquez stole $223,000 from customer deposit accounts between 1995 and 1997 and pleaded guilty to embezzlement in 1998.
The financial impact of these crimes, combined with nearly a decade of poor management, caused the bank to report $3.4 million in losses in 1996 and 1997.
"We tried a lot of different ways to make money — like supermarket branches and issuing credit cards -- but those ventures just dragged us down," said William H. Cross, a former First National director. "We needed an outside group to come in and keep things rolling."
First National's leaders tried to save the bank through a public stock offering, but were forced to scrap the plan when news leaked of Hartmann's fraud.
"We were on the brink of being taken over when the Patels came to the table," Cross said.
Mysterious new owners
Russell Mills, a First National director, was already doing business with the Patels in the late 1990s and suggested they invest in the struggling bank.
"We sort of accidentally got into banking here," Susma told the Orlando Sentinel in 2008. "When I say 'we,' I mean my brother, who was 11 years my senior, and I. Our family had a wholesaling business in the U.K. and we also had real estate interests there and here. We invested in a number of businesses, and we responded to a capital call from First National in the 1990s."
Everything about the family's purchase was secretive. Even some of First National's smaller shareholders had no idea who was buying majority control until several months after the investment was made.
The Federal Reserve Bank in Atlanta listed the names of five people who had filed for a change of control. But with a common surname like Patel, it was difficult to learn more about them.
Susma, a recently graduated lawyer, was not making things any easier.
"She's not interested in talking about where the money with which she bought the bank came from or where the bank she bought is going," the Sentinel wrote in September 1999.
'The Swerve'
Former First National employees say that the Patels hail from Gujarat, on India's northwest coast, and that they moved to Kenya, where they ran an import-export business.
Reports from British courts show that the family's patriarch, Madhusudan, was sentenced to more than four years in prison for smuggling in the 1970s. He spent three years behind bars and was eventually deported from Kenya.
The family then moved to London, where they supplied discount stores with beer, wine, liquor and tobacco.
By 1984, the Patels were in trouble all over again. This time, a British judge ruled that Madhusudan, his son, Suketu, and another family member had been involved in "very devilishly clever dishonesty" that cheated the government out of millions in tax revenues.
Court News UK, which documents criminal justice matters, reported in 1987 that their company sold $100 million worth of alcohol and cigarettes over a two-year period but failed to pay about $6 million in taxes.
Madhusudan, Suketu and Bipin Patel all pleaded guilty to tax fraud and were sentenced to two years in prison. Madhusudan spent eight months behind bars, Bipin six. Suketu had his sentence suspended because the court considered him a subordinate.
At his sentencing hearing, Madhusudan's attorney said that the patriarch was deeply ashamed of what he had done, and that he had not profited from the fraud. But it wasn't the last time Madhusudan would be embroiled in a British tax fraud investigation.
In the late 1990s, he became one of 109 suspects arrested by British customs officials for engaging in a massive scheme -- it was dubbed "The Swerve" -- that deprived the British government of $4 billion in tax revenues.
Businesses run by the Patels and other distributors pretended that they were moving alcohol from bonded warehouses in Britain to other countries in the E.U. But the booze never left the island. It was rerouted and sold on the black market, often from white delivery vans parked near pubs and restaurants, court documents and news reports show.
The BBC, which aired a TV special about the scheme, used a single bottle of whiskey to explain the criminal enterprise:
"In the Cash and Carry it'll cost you £10.80. Of that, over £7 accounts for the tax. Now, take 17,000 of these bottles, load them on a lorry, swerve them to the black market and we, the taxpayers, have just lost over £100,000."
Madhusudan pleaded guilty to evading about $14 million in taxes in 1999 and was sentenced to 30 months in prison. But an appellate court set aside his plea in 2002 after ruling that the British customs service facilitated the crimes and provided false evidence to defense attorneys and the court.
Personal piggy bank'
Madhusadan was embroiled in the "Swerve" investigation when his wife and two children invested $5.5 million in First National.
U.S. financial regulators were unaware of what was going on in England and appear to have overlooked Suketu's criminal record when they allowed the family to take control of the bank.
It is against the law for someone with a felony conviction to oversee a bank, but First National was on the brink of failure. In a hurry to recapitalize the foundering institution, regulators did nothing to stop the change of control even after learning that the investor group had failed to file an application 60 days prior as required by law.
Representatives from the Federal Reserve Bank in Atlanta would not comment on the record about why Suketu was allowed to invest in a U.S. bank or why it did not follow its own rules.
"The guy with a criminal record shouldn't have been allowed as a principal investor," said Richard Newsom, a retired California bank and thrift regulator.
Susma, without a blemish on her record, was tapped to be the face of the Patel family in Florida. But her youth and lack of banking experience, combined with rules prohibiting foreign nationals from sitting on the board of a U.S. financial institution, kept her from immediately exerting control.
In the meantime, a series of chief executives and a largely American board of directors managed the bank. Two of those leaders told the Herald-Tribune that they went out of their way to make sure that First National did not become the "personal piggy bank for the Patel family."
In 1999, the bank faced an enforcement action from regulators that meant it was being more heavily scrutinized. As CEO Jeff Longstaff tried to get First National out from under scrutiny -- technically known as a Memorandum of Understanding -- the Patels stayed largely in the background.
Susma slowly learned American banking laws while her brother acted as an informal advisor, Longstaff says.
The family made no inquiries about obtaining loans from First National, nor did they attempt to take greater control of the bank.
"To be perfectly honest, I wasn't concerned about their borrowings during that first nine or 10 months," Longstaff said. "Virtually everything that we did was focused on cleaning up the bank. But prior to my leaving, they were starting to make introductions to the bank from some of their friends, clients and acquaintences. And, of course, I was going to be very careful about that."
With the order lifted, and the bank able to operate more freely, Longstaff tried to dilute the Patels' ownernship by holding an approximately $20 million stock offering in 2000. The idea was that a wider number of shareholders is good for community banks, because it thins the power of dominant owners and gives the institution the capital it needs to grow.
The Patels were initially reluctant to go along with this plan, but eventually agreed. Longstaff says he drew up a proxy statement but, on the day of the shareholder's meeting, the Patels backed out.
Longstaff says he felt "submarined" by the move -- which allowed the Patels to keep their stranglehold on the bank's leadership.
"It came as a complete shock," he said. "I was angry, I felt there was no future for me going forward so I eventually left."
But former employees say resistance to the Patels among the board's directors continued for at least five more years. That was largely due to the leadership of Hugh Cotton, a former director and insurance agent who died in 2006.
"My father was determined to stop the bank from making loans to the Patels that it wouldn't make to anyone else," said Tom Cotton, who now runs his family's insurance agency.
Cotton was dying and made a final attempt to stop the bank from making a risky loan to a company controlled by Minesh Patel, who identified himself as Susma's nephew.
"Minesh had just gotten his contractor's license," Cotton said. "He had never built anything before, but wanted to borrow an enormous amount of money for some project in Jacksonville. No bank in the world would make that loan, and Dad wanted to make sure they didn't do it while he was alive."
Despite Cotton's efforts, mortgage records show that companies controlled by Minesh and his business partners borrowed $9 million from First National, which they used to buy prime office space in downtown Jacksonville.
Their companies later defaulted on those loans.
Reached by telephone in Orlando, Minesh declined to comment.
Susma Patel began to gain power during the height of the real estate boom -- just as banks across the country were loosening their lending standards and ushering in the worst economic collapse since the Great Depression.
When she first arrived in the Orlando area, she worked on business development and public relations. She also served as a guest on loan committees and on the board of directors. But by 2006, Susma had risen to chairwoman and would become CEO two years later.
"I never liked her much," said Larry Dale, a First National director and the former mayor of Sanford. "I didn't think much of her business acumen. She had a majority interest and there was always a little friction there. When family members wanted loans, we didn't go along with that."
Court records show the first loan First National made to members of the Patel family or their business partners was in March 2005. It was a $5.9 million loan to a company managed by Guy Novik, who was co-developing a housing project with the Patels just across the Polk County border in Davenport. The company also employed Minesh Patel as a senior vice president.
Over the next two years, the bank made $9 million in loans to companies controlled by Minesh Patel and Lalji Kanji, a close business associate from Kenya. When First National failed in April 2011, the amounts outstanding on these loans and a smattering of others to Novik and Minesh accounted for 30 percent of the bank's total losses.
The defaults caused First National to stand out among the 69 banks that failed in Florida during the last five years. While many of its counterparts lent money to officers, directors and their families during the run-up to the real estate boom, only one other failed Florida bank -- Riverside National Bank of Florida in Fort Pierce -- suffered more losses from insiders.
Mortgage documents in Florida show that First National did not always tell regulators about the relationship between borrowers and the Patels.
Records reviewed by the Herald-Tribune show that First National had at least $18 million in outstanding loans to companies controlled by members of the Patel family or their business partners between 2005 and 2011. But financial documents filed with the Federal Deposit Insurance Corp. during the same period reveal a different story: Insider loans averaged just $4 million per year and briefly spiked to $10 million in 2008.
Meanwhile, First National shareholders kept taking money from the institution even when it was racking up losses. Records filed by the bank show it paid out dividends totaling $793,000 in 2008 and 2009 despite losing $9 million in those years.
Then, in June 2010 -- with First National bleeding money -- a company managed by Susma Patel sold three buildings to the bank for just under $5 million. This price was nearly double the value of those buildings, according to records held by the Orange County Property Appraiser.
"The bank shouldn't have been buying branches at that point," said Newsom, the former bank regulator. "If anything, it should have been selling branches with deposits to third parties to raise capital."
Patels in distress
Court records show that Susma met and married a New York investment banker who came to Winter Park a year before First National failed.
Rajib Das was engaged to another woman when he met Susma and was hired by First National as a consultant. But Das was unable to save First National and ended up getting sued by his jilted ex-fiancee.
The woman, who also happened to be Das' business partner, accused Das in federal court of firing her after claiming his affair with Susma represented a conflict of interest. Das fought back, accusing the woman of attempting to sabotage their company. But he ultimately settled by paying her $30,000.
After First National failed, Das and Susma moved to New York. Das paid nearly $2.07 million for an apartment in October 2011.
Meanwhile, the rest of Susma's family remains mired in legal and financial trouble.
Trimurti Investments Inc., a Florida company controlled by Suketu's wife, filed for bankruptcy protection in April 2012, listing $19 million in debt. The company purchased nine commercial properties in Orlando and Jacksonville during the boom, and each was hemorrhaging money.
Back in England, a company controlled by Susma's father also went bankrupt — and the Patel patriarch was sued by his own business over allegations of tax fraud.
Attorneys representing Payless Cash & Carry claimed Madhusudan fabricated alcohol sales in order to collect about $8 million in tax refunds from the British government. Though Madhusudan denied the claim, the court found him guilty. It froze his assets and ordered him to repay the missing money.
"His evidence was often very unconvincing," Chancery Judge Mann wrote with regard to Madhusudan's testimony. "He would tend to take refuge in purported ignorance in a manner which suggested it was a convenient refuge from a question he did not want to answer."
The reporting for this series began three years ago.
The Herald-Tribune investigated First Priority Bank in Bradenton and obtained a set of documents from the state that previously had been confidential. These records showed, for the first time, the extent of a bank's insider dealings, critiques from regulators and the minutiae of internal operations.
The newspaper soon expanded its investigation statewide, setting out to learn why so many banks failed in Florida during the Great Recession, who was responsible for their demise and whether regulators could have done anything to stop it.
The first step was to obtain bank exams from the Office of Financial Regulation.
This state department sends in a team of regulators about every two years to pour over loan files, investment portfolios and deposit accounts, to assess the overall financial condition and interview the top leaders of each bank.
The exams take about three weeks. Afterward, state officials produce a report that remains confidential while a bank is open. But thanks to a law passed by Florida's legislature in 1992, the documents become public one year after a bank has been shuttered.
Florida is the only state that allows the records to be accessed so quickly. Elsewhere, documents are either destroyed or released 50 years after a lender fails.
The Office of Financial Regulation turned over records on 40 of the 46 failed banks it oversaw to the Herald-Tribune. Documents from the remaining six banks will become public over the next 12 months.
The documents are heavily redacted.
Florida laws prevent the government from releasing certain information, such as the name of individual borrowers, depositors or private companies that do business with banks. The bank exams do, however, show the amounts received by certain borrowers and the dates on which loans were made.
By checking mortgage records filed in county courthouses, the Herald-Tribune was able to identify many of these borrowers.
The newspaper built by hand a database of more than 4,000 deeds, mortgages and foreclosure judgments to show which loans hurt banks the most.
Besides the 46 failed Florida banks overseen by the state, 22 were regulated by the federal Office of the Comptroller of the Currency or the now-defunct Office of Thrift Supervision.
These federal agencies also sent examiners to review bank finances. But the reports they produced are sealed.
The Herald-Tribune was able to obtain information about these failed banks from reports and lawsuits filed by the Federal Deposit Insurance Corp., or FDIC.
Some of the post-mortem reports - especially for the largest failed banks - contained detailed information about misdeeds and poor decisions by officers and directors.
FDIC reports on BankUnited, Century Bank, Flagship National Bank, Lydian Private Bank, Ocala National Bank, Peoples First Community Bank, Republic Federal Bank and Riverside National Bank fell into this category. But most of the other FDIC reports offer little insight into the reasons for a bank's failure.
Prior to July 2010, the FDIC was required to write a detailed report on every failed bank that cost the banking system more that $25 million. But with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FDIC only had to file detailed reports on banks that cost the system more than $200 million.
Publishing this series was not the end of it.
The government seemed to notice the stories.
Two weeks after reporting on misconduct at a bank in the Panhandle, federal agents charged the chief executive and two colleagues with fraud. Terry DuBose was only the second CEO to be charged with a bank crime in Florida since the Great Recession began.
Prosecutors also filed civil suits against two other failed banks.
One was shut down in Crawfordville, and the state released confidential documents about another in Palatka.
Here is look at the continued reporting on local bankers whose misconduct made them wealthy but contributed to deep economic pain, often in their own hometowns and to people they had known all their lives.
Federal regulators shutter First Community Bank of Southwest Florida and sell its assets. It becomes the 69th Florida bank to fail since August 2008.
The Federal Deposit Insurance Corp. files a civil suit against five leaders of Wakulla Bank, saying they took dangerous risks to keep their bank alive. This Crawfordville bank is just the seventh in Florida sued for misbehavior during the real estate boom and bust.
In the Spring Break Capital of America, bankers ran wild too.
A Panama City Beach CEO made his board pray before each meeting but also made sure he and his loved ones got taken care of first. Coastal Community Bank was ruled by nepotism and self-dealing and government officials take action two weeks after our series, Breaking the Banks, debuted. Authorities indict three bankers, accusing them of stealing $4 million from a federally insured loan program.
The FDIC sues seven people from a Sarasota bank for $5.25 million in losses and said the group ignored basic underwriting principles. The Herald-Tribune wrote extensively about First State Bank and reported that it lent $4 million in a deal later linked to fraud and illegal property flipping.
Once a bank fails in Florida, the state has a year to produce confidential records about it. That deadline passes for Putnam State Bank, and the Herald-Tribune obtains early reports revealing insider deals and behavior meant to hide losses.