The Federal Deposit Insurance Corp. on Wednesday filed a lawsuit against relatives of former Illinois treasurer and Senate candidate Alexi Giannoulias and other executives of failed Broadway Bank in an effort to recover $104 million lost through questionable loans.
Broadway Bank was founded by Giannoulias' father, and was shutdown in 2010 when it couldn't raise new capital.
The lawsuit alleges breaches of fiduciary duty by former directors and officers who approved risky loans, and contends the defendants approved the worst loans in 2008 after a meeting with bank regulators.
"Defendants ignored the regulators,'' the lawsuit contends. "Indeed, immediately following the June 24, 2008, meeting, the Board of Directors approved two grossly imprudent loans which resulted in losses to the bank of approximately $12 million.''
The bank's failure cost the FDIC's deposit insurance fund about $394 million.
Among those named in the lawsuit are former Broadway bank President Demetris Giannoulias, George Giannoulias, who was chairman of the board, and Chicago real estate developer Sean Conlon, who served on Broadway's board and was a customer of the bank.
Alexi Giannoulias is not a defendant in the lawsuit. He was an officer at Broadway before being elected Illinois treasurer in 2006.
The lawsuit alleges that Demetris and George Giannoulias, along with other board members, ignored warnings by regulators and approved commercial real estate loans that resulted in millions in losses that were assumed by the FDIC when the bank failed.
The lawsuit points to 17 loans, including two that were approved on the same day regulators met with bank officials about reining in their lending practices.
One loan was for $22 million to finance the construction of a luxury condominium in Beverly Hills, Calif., made at the request of a company owned by Conlon. The lawsuit contends Conlon voted on the Broadway loan as a board member, despite his interest in the deal. The FDIC contends the bank lost $3.4 million on the deal.
Demetris Giannoulias contends in a statement to Crain's Chicago Business that the facts in the complaint aren't accurate.
"The FDIC now blames Broadway's former officers and directors for not anticipating the same unprecedented market forces that also surprised central bankers, national banks, economists, major Wall Street firms, and the regulators themselves,'' he said in the statement. "Every officer and director of Broadway Bank did their best for the institution and they will vigorously fight these unsubstantiated claims.''
Alexi Giannoulias worked at the bank until 2005. It was often brought up during his 2010 Senate campaign with allegations of shady loans, including to political insider Antoin ``Tony'' Rezko. Republican Sen. Mark Kirk repeatedly used Broadway's failure to question Giannoulias' qualifications.
Messages left for Giannoulias weren't immediately returned.