No trial: Parker settles Guaranty suit
Guaranty Bank, left holding the bag for a million-dollar loan to defunct Ivy Industries, has settled its suit against company principal Troost Parker, who had personally guaranteed the debt.
The settlement averted a civil trial slated to begin May 17, which might have clarified a key question following one of Virginia's biggest banking scandals. Pre-trial filings hint the trial would have seen each side blaming the other for the disappearance of millions of dollars, about 150 jobs, and a home-grown company whose wood moldings were staples of hundreds of America's finest picture-framing shops.
In court filings, defendant Parker alleged that Ivy Industries should have been saved as a "going concern." He contended that a savvier sale could not only have fully paid the $1.86 million balance of the debt but also provided a surplus.
Instead, Guaranty padlocked the building and sold off the machines and inventory that it held as collateral. In its court filings, Guaranty claimed it acted in "a commercially reasonable manner."
Neither side would elaborate or say what prompted the settlement, but the record indicates that Guaranty had subpoenaed Parker's personal financial records.
The lawsuit stemmed from a conspiracy by Ivy Industries president John C. Reid and his chief financial officer, Alan B. Pinkerton, to juggle non-existent funds between two other banks in what's known as a kite. When the kite crashed a year ago, the two faced criminal bank fraud charges and were sentenced May 10 in federal court, Reid to a 46-month prison term, and Pinkerton to 37 months.
While the recent civil settlement may have reduced Guaranty's loss in what some insiders are calling the worst loan debacle in that bank's history, Guaranty is busy merging. On April 9, the Federal Reserve of Richmond approved a plan by Union Bankshares Corporation of Bowling Green to acquire Guaranty.
Other banks uninvolved in the kite but still damaged in the collapse of Ivy Industries include Virginia National and Southern Financial.
After negotiating a 71 cents on the dollar settlement for its loans to Ivy Industries, Virginia National suffered a loan loss of $406,664, according to president Mark Giles. This one escapade accounted for about 85 percent of Virginia National's total loan losses in over five years of business. "I'm disappointed by any loss," says Giles, "but given the nature of the train wreck, I'm quite satisfied."
Like Virginia National, Southern Financial was able to cut its loan losses by negotiating with guarantors and keeping some collateral. Southern Financial ended up losing about half a million dollars, according to president Tom Baker.
The two banks caught in the kite were SunTrust, a large regional player, and Albemarle First Bank, a community bank founded here in 1998. According to court filings, the two banks unknowingly allowed themselves to be used as major lenders by Ivy Industries.
The scam boggled local bank-watchers both for its length (about three years) and its size– $2.42 million when it unraveled.
Until then, neither SunTrust nor Albemarle First had seemed to notice that Ivy Industries was making monthly deposits reaching an "astounding" $15.6 million– or 39 times Ivy's average monthly sales, according to a filing by Parker, who professed total ignorance of what was happening at the company he founded in 1971.
Unraveling day was February 26, 2003. That's when SunTrust suddenly wised up to the worthless-check shuffle and refused to cover checks totaling $2.42 million.
Southern Financial narrowly avoided becoming directly involved in the shenanigans on kite-discovery day when Reid then tried to "cure" the kite by "starting a new check-kiting scheme involving Southern Financial Bank," according to a Parker filing. Baker says he declined to fork over the $2.42 million to cure the scam.
Who got the money?
An FBI investigation found no evidence that Reid or Pinkerton– other than buying time for their hemorrhaging molding company– received any direct benefit from the scheme.
The money was paid into Ivy Industries, but any gain was short-lived. News of the fraud instantly sent several million dollars in loans into default. As banks snatched up collateral and receivables, the woodworking business that typically enjoyed nearly $5 million in annual sales suddenly had a negative value.
Because SunTrust was the first to act, it wound up with no losses– unlike Albemarle First, which subsequently scrambled to issue additional stock to raise sufficient capital to stay alive.
Albemarle First was able to recover $900,000 of its loss, according president Tom Boyd, although he declined to specify how it was recovered.
"We feel we have good controls now," says Boyd, citing new computer systems and Internal policies implemented since the kite. He says the bank enjoyed a profitable first quarter and recently exceeded $95 million in deposits. "We're confident we're on the right track," he says.
Although he's now in prison, Reid isn't immune from litigation. A civil action Parker has lodged against Reid is set for trial June 29. "We haven't received any settlement offer," says Parker's attorney, Stephen Scott.
"We've been focusing on other issues," says Reid's lawyer, Fran Lawrence. "Now is probably the time to focus on that."
The old factory
PHOTO BY JEN FARIELLO