Georgia Fraud Case Could Complicate Recaps at Small Banks

By Barba, Robert | American Banker, July 13, 2012 | Go to article overview

Georgia Fraud Case Could Complicate Recaps at Small Banks


Barba, Robert, American Banker


Byline: Robert Barba

The story of Aubrey Lee Price has captivated Georgia's banking industry, but his actions could have far-reaching effects for small, capital-hungry banks.

Last week, the U.S. Attorney's Office for the Eastern District of New York charged Price with embezzling about $17 million from Montgomery Bank & Trust in Ailey, Ga., which failed Friday. The Securities and Exchange Commission obtained a court order freezing the assets of an investment fund tied to Price.

Price is missing. Last month he reportedly sent a note to acquaintances detailing his attempts to hide up to $40 million in trading losses with the bank's and other investors' money and writing that he planned to kill himself. Authorities say he was last seen boarding a ferry in Key West, Fla., and could have fled to South America.

While his alleged actions may have pushed the Ailey, Ga., bank into oblivion, Price was originally Montgomery's white knight. In January 2011, PFGBI, a Price-controlled firm, pumped $14 million into the critically undercapitalized bank.

Price had to submit to a rigorous background check by state and federal regulators that all investors must go through to take a controlling stake of a bank. Several deal advisors say they are concerned that the fraud case at Montgomery could make that process even tougher.

"The regulators do a really good job of vetting people," says Chip MacDonald, a partner at Jones Day in Atlanta. "This could make it harder for small unknown investor groups to invest in smaller banks. a[bar] I don't think the regulators ever want to deny capital, but the fact is that this might make them more wary."

Other industry observers say they hope regulators don't tighten the screws, because the process is already at maximum torque.

"I'm not sure that they could be any tougher," says Jeffrey C. Gerrish, a partner at Gerrish McCreary Smith.

"I mean, you have to send your fingerprints in and they cross-reference that with the Department of Justice and other agencies," Gerrish adds. "The process is pretty thorough. I would hope they would just view this as an aberration."

The Federal Deposit Insurance Corp. and the Federal Reserve Board declined to comment for this story. The Georgia Department of Banking and Finance did not return a call for comment.

Montgomery has had director issues before. Last year, the FDIC slapped Greg Morris, a bank director and the chairman of the Georgia House of Representatives' banking committee, with a $5,000 fine for an unspecified rules violation. He agreed to pay the fine "without admitting or denying any violation."

Though advisors say that Price's actions do not imply a poor job by regulators, they believe the investor's alleged actions are cautionary tale for banks that are desperate for capital.

Shortly after the capital infusion, Price joined the board and gained control of Montgomery's investment portfolio, according to a complaint filed by Michael Howard, a special agent with the Federal Bureau of Investigations. …

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