Breach of Fiduciary Duty, now there’s three words guaranteed to chill any banker of lawyer for that matter alive. You play with other people’s money, there are rules, sure, you can play it loosey goosey, for a while but ultimately they’ll catch you,
numbers just don’t lie.
Local businessman sued by bank shareholders on fraud, breach of trust claims
A McLennan County businessman sanctioned two years ago for questionable banking activities at an East Texas bank is being sued by shareholders of the bank, who allege fraud, gross negligence and a breach of trust and fiduciary duties.
The lawsuit was filed in Waco’s 170th State District Court by Perrylee Enterprises, a shareholder of the bank, against David W. Mann, of McGregor, in his former capacity as officer and director of Citizens State Bank of Woodville, and as former officer and director of Security Bancshares, Inc., the bank’s holding company, and RAM Security Holdings, Ltd.
The suit also names current and former bank officers and directors, who the lawsuit alleges allowed Mann to operate unchecked to enrich himself to the detriment of the bank and its shareholders. Neither Mann nor his attorney returned phone messages Monday. Houston attorney Randy Owens, who represents the plaintiffs with attorney Howard Close, declined comment on the lawsuit Monday.
The lawsuit tracks much of the same language and findings from a Texas Banking Commission investigation of Mann in 2019 that stripped Mann of his ability to serve as a director, officer or employee of a state bank, holding company of a state bank or any entity licensed by the banking commissioner.
The banking commissioner also ordered Mann to pay $687,000 for improperly reimbursed expenses and $250,000 in fines for his actions.
The commission’s findings and the lawsuit pertain to Mann’s dealings while serving as former chairman of the board, former chief executive officer and former director of the Citizens State Bank in Woodville, which is in Tyler County in far East Texas and has branches in Waco and Marlin.
According to the lawsuit and the commission order, Mann sought inappropriate reimbursement for expenses from 2014 to 2018 worth $641,870. Mann admitted to listing people as having attended dinners with him and his wife in California, Las Vegas and New York when they actually dined alone, according to the lawsuit and the commission order.
He also admitted he obtained $3,300 in reimbursement from the bank for his contribution to a political action committee, for which he later reimbursed the bank. When bank directors raised concerns in 2017 about Mann’s “excessive reimbursed donations to Baylor University,” Mann reimbursed the bank for $22,036, the lawsuit and order state. However, “the very next day, Mann requested and received reimbursement for that same amount from the Bank Service Corp. and RAM Holdings.
To pay the restitution and fines, the lawsuit alleges the board and Mann “have orchestrated a sale of the bank to repay amounts owed out of his portion of the sale proceeds, which will improperly advantage the new shareholders to the detriment of the current shareholders.”https://d569e9e3e2b6ed8c75c3eadd026c53e7.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
“SBI’s Board of Directors is incapable of making an independent and disinterested decision regarding this suit due to the Board Members’ relationships with David W. Mann and their continued refusal to take any action in the face of the allegations…” the suit alleges.
The board’s “lack of oversight is especially egregious considering David W. Mann’s history of improper conduct,” the lawsuit claims.
The Federal Deposit Insurance Corp. denied Mann’s application to become board chairman and chief executive officer of the First State Bank of Marlin in 1990. The presiding officer denied the application after finding Mann “lacked the character and integrity required,” the lawsuit states.
The officer, a retired administrative law judge, also found that Mann “consistently failed to protect the bank’s interests in which he served as an officer or director, particularly where they conflicted with his own,” according to the lawsuit.
The lawsuit also alleges that Mann cost the bank $3.8 million by greenlighting 144 “fraudulent real estate loans” with no collateral in violation of accepted banking standards and the bank’s policies. The lawsuit calls them “phantom loans,” and alleges Mann breached his fiduciary duty to the bank “by not following bank policies and by conducting inadequate due diligence.”
“David W. Mann breached his fiduciary duties by self-dealing, by engaging in transactions that were unfair and inequitable to the bank and SBI, by failing to act with the utmost good faith and with fidelity to the bank and SBI, and by failing to exercise the most scrupulous honesty toward the bank and SBI, by placing his interests ahead of the interests of the bank and SBI, by failing to fully and fairly disclose all important information to the bank and SBI concerning the transactions in question,” the lawsuit states.