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Failed bank accused of fraud

Community Bank and Trust loans were risky, car dealer says

POSTED: March 6, 2010 12:51 a.m.

Habersham County’s largest and oldest bank made risky and questionable business decisions that crossed the line into fraud and conspiracy before it failed in late January, a lawsuit alleges.

In a response, lawyers for Community Bank and Trust said bank officials did not commit any fraudulent acts or promise a Cleveland car dealership a loan of $11 million that was never approved.

Regulators seized the assets of Cornelia-based Community Bank and Trust on Jan. 29. The bank had total assets of $1.1 billion and 36 locations, including seven in Hall County. South Carolina Bank and Trust agreed to purchase the bank’s assets.

Since the takeover, rumors have swirled in Habersham County of a possible investigation into criminal wrongdoing, with one former bank officer telling the Northeast Georgian newspaper that "some people are going to jail."

No criminal charges have been filed against the bank’s officers. But a lawsuit filed by Mitch Simpson offers a possible glimpse into the bank’s operations.

In the lawsuit, Simpson alleges while the financial health of his company, Cleveland Motor Cars, worsened in 2008, the bank honored the company’s checks even when the account was overdrawn "by several hundred thousand dollars."

The company took out a number of loans with the bank, which culminated in a $6.5 million loan.

When the company was unable to secure more loans, it recruited seven individuals to take out loans with CB&T of approximately $125,000 each in February and April 2009. According to the lawsuit, Cleveland Motor Cars gave each person $2,500 to sign the loans.

"Although some of the borrowers ... were not creditworthy to take out these loans, and Community Bank and Trust was fully aware they were being paid to borrow the money, Community Bank and Trust made the loans to them anyway," according to Simpson’s suit.

Simpson alleges that the bank agreed to make an $11 million loan that would "roll up" pre-existing loans.

The loan never happened, and when another creditor presented a draft on the car company’s CB&T account for $423,000, it was refused by the bank.

Simpson’s suit alleges his company relied on the bank’s "false representations" and that Cleveland Motor Cars "chose to stay in business and continue to lose money they would not have lost if CB&T lived up to their word."

On Jan. 29, the same day the bank’s assets were seized, lawyers for Community Bank and Trust filed a response denying the allegations and including a counterclaim for the money the car company owed the bank, which included the $6.5 million loan, plus $341,000 in interest.

"Community bank did not make any promises or engage in any conduct that fraudulently induced the plaintiffs to act ... (in) reliance on the promises or conduct of Community Bank," according to the bank’s response.

Efforts to reach bank officials for further comment this week were unsuccessful. Reached Friday, Smith said the lawsuit spoke for itself.

The lawsuit initially was filed in Habersham County Superior Court. Last month it was transferred to U.S. District Court for the Northern District of Georgia after the FDIC, in its receivership role, became the defendant.

Judge Richard Story is presiding over the case.


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