Updated to reflect Sapp's denial of FDIC allegations
Former Tennessee Commerce Bancorp CEO Mike Sapp could be fined $485,000 for some of his actions leading to the failure of the Franklin business bank.
In a legal filing published Friday, Federal Deposit Insurance Corp. officials allege that, starting in 2008, Sapp set up or oversaw the creation of several schemes to mask Tennessee Commerce's potential losses and then repeatedly misrepresented the health of the bank to regulators and the bank's outside directors. Tennessee Commerce was closed by state and federal regulators in January 2012.
The FDIC says Sapp breached his fiduciary duty as an executive and board member and that his "reckless, unsafe or unsound practices and/or breaches of his fiduciary duty were part of a pattern of misconduct and/or caused more than a minimal loss to the Bank." In all, the agency says, his actions caused at least $5.3 million in losses.
Sapp is denying the allegations and the appeals process is still in its very early stages.
Among the alleged actions detailed in the FDIC's notice are:
• Buying a $24 million insurance policy on the life of a client with tongue cancer who had borrowed almost $14 million from Tennessee Commerce but who appeared to have committed fraud. Sapp authorized the life insurance purchase against the advice of attorneys at Waller, who pointed out that he needed FDIC approval to invest the $3.5 million. Sapp then helped set up a company to own the loan and lent that entity $8 million to service the policy payments and pay the bank its interest. When the patient's cancer went into remission, Tennessee Commerce sold the policy for less than $800,000 and charged off more than $4 million related to the scheme.
• Greatly overvaluing hundreds of trucks and trailers repossessed by the bank in 2008, not charging off loans to borrowers when they should have been, setting up another company to buy some of those assets and funneling $5 million of TARP funding to that entity. During this time, Tennessee Commerce also made loans to third parties buying trucks and trailers that overvalued those assets. That practice led to an email exchange involving another bank executive in May of 2009 that had special assets executive Tom Crocker, who had joined the bank in late 2007, saying that placing the correct value on the repossessed trucking assets would put the bank out of business. (See the excerpt at right.)
The full FDIC notice is available at this link .