Originally published November 21, 2011 at 8:25 PM | Page modified November 22, 2011 at 12:10 PM

Ex-bank execs sued by FDIC over loans

Federal regulators have sued two former executives and the board of failed Westsound Bank for at least $15 million.

Seattle Times staff reporter

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Federal regulators have sued two former executives and the board of failed Westsound Bank for at least $15 million.

The Federal Deposit Insurance Corp., which assumed most of the soured real-estate loans of Bremerton-based Westsound when it failed in May 2009, seeks to recover losses on seven loans to insiders, seven risky land-development loans and 21 allegedly fraudulent ones to Russian and Ukranian borrowers.

In its lawsuit, filed Friday in federal court in Seattle, the FDIC estimates Westsound's failure will cost the deposit insurance fund $106.4 million.

The lawsuit names Westsound's former CEO, David K. Johnson; Brett Green, former executive vice president of sales and lending; and former board Chairman Louis Weir, as well as eight other former board members.

The FDIC suit says the defendants repeatedly ignored warnings from state and federal regulators about the bank's lending practices and neglected to supervise a Federal Way loan officer who allegedly originated the 21 fraudulent loans.

Weir declined to comment, and Green and Johnson could not be reached for comment.

According to the regulators' suit, loan officer Teresa Feller colluded from 2005 to 2007 with a homebuilder, borrowers and appraisers to gain approval of 142 fraudulent home-construction loans totaling $96 million. She earned more than $1 million in commissions from the bank.

The FDIC filed a separate claim in June against Feller, seeking to ban her from future involvement with any federally insured depository.

In that claim, the FDIC said the construction loans to "unqualified Russian immigrant borrowers" accounted for 83 percent of troubled loans found in an October 2007 examination of the bank by regulators.

Feller, whose loan-origination license is now inactive, has denied wrongdoing and is challenging the FDIC's action against her.

The 21 allegedly fraudulent loans listed in the FDIC's lawsuit against the Westsound Bank directors total more than $29.5 million.

The FDIC estimates its losses on these loans at more than $10 million.

Many of the loans were to self-employed borrowers in construction in their 20s and 30s. The lawsuit says they were drawn in by Aleksandr Kravchenko, who advertised in Ukrainian-language newspapers about his ability to get loans, the FDIC alleges.

Kravchenko, through his construction companies Artisan Homes, Pallazzo Homes and Urban Homes, received a development fee of $10,000 to $15,000 for each loan — ostensibly for filing permits and other work, but no work was actually performed and many borrowers didn't know about these fees, the FDIC alleges.

About half of the 21 loans were stated-income loans with no documentation to support their monthly income, the FDIC alleges, while other loan files contained unsigned tax returns, often with multiple versions for the same year.

The borrowers weren't required to make down payments and were loaned enough money to cover the initial interest payments, according to the FDIC.

All 21 loans should have been reviewed by a board-level loan committee, according to the agency's lawsuit. The loans were made during a four-month period shortly after regulators discussed their concerns about Feller's loans with the bank's board of directors, the FDIC alleges.

Instead, they were "approved through a largely automated process," the FDIC alleges.

In addition, the lawsuit alleges that the bank made "numerous" favorable insider loans. It cites seven such loans totaling more than $3.1 million, which resulted in losses to the FDIC of at least $1.7 million.

Loans made on preferential terms included a $233,055 loan to board member Dean Reynolds, general manager of a Monroe industrial company, and a $1.25 million loan to his company, as well as a $500,000 loan to a limited liability company owned by Weir and Green, according to the lawsuit.

The lawsuit also cites seven high-end land-development loans that failed to follow "the most basic prudent lending controls," according to the lawsuit.

For example, in June 2006, the bank approved a $1.47 million loan to a grocery-store clerk, with the approval of chairman Weir and lending executive Green. .

The loan was purportedly to buy three duplexes and convert them to homes for sale. The clerk, who made little income, wasn't required to put any significant equity into the deal, according to the FDIC lawsuit.

Sanjay Bhatt: 206-464-3103 or

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