Investors in Sonoma Valley Bank filed a second lawsuit Wednesday blaming top officials at the shuttered bank for the loss of $69 million in the value of shareholders' stock.
The two plaintiffs, Sonoma Valley residents Douglas and Patricia Ghiselin, contend the bank was undone by risky lending activity that included nearly $55 million in loans to a Marin County developer, Bijan Madjlessi, and his associates. The borrowers defaulted on at least $45 million, according to the lawsuit.
The complaint accuses Sean Cutting, the bank's president and chief executive officer, and seven other bank officials of encouraging "dangerous risk-taking" by loan officers and executives through the bank's compensation and bonus policies.
"Greed led to a culture at the bank ... where violations of standard bank lending practices were rampant and tolerated," the lawsuit alleges.
The complaint was filed in Sonoma County Superior Court by attorneys with Cotchett, Pitre & McCarthy, LLP, a Burlingame law firm that has represented plaintiffs in the San Bruno gas pipeline explosion and the Bernard Madoff investment scandal, among other high-profile cases.
It seeks a jury trial and unspecified damages.
The other defendants named in the lawsuit are six members of the bank's board of directors — Mel Switzer Jr., Robert J. Nicholas, Suzanne Brangham, Dale T. Downing, Robert B. Hitchcock and Valerie Pistole — and its former chief financial officer, Mary Dieter.
Anne Marie Murphy, an attorney for the Ghiselins, said the bank had a $20 million insurance policy that could be tapped to pay shareholders if their lawsuit prevails.
In addition, the bank's officers and directors are being sued as individuals and are "fair game" for recovery of alleged damages, Murphy said.
Brangham said she had been advised by her attorney not to comment. The other defendants could not be reached on Wednesday.
The bank, shuttered by regulators one year ago, is the only Sonoma County bank to collapse since the economic downturn began toppling financial institutions across the country in 2008. Its three branches and most of its assets were purchased by San Rafael-based Westamerica Bank.
The U.S. Attorney's Office is conducting a criminal investigation into Sonoma Valley Bank's lending practices, The Press Democrat reported last month. A spokesman for the U.S. Attorney declined to comment Wednesday on the status of the probe.
Wednesday's lawsuit is the second filed by shareholders seeking to recoup their losses. In June, a group of Sonoma Valley Bank shareholders filed a class action lawsuit accusing top bank officials, primarily Cutting, of mismanaging more than $40 million in loans.
Shareholders, mostly Sonoma Valley residents, saw the value of their stock fall from $31 a share in 2007 to less than a penny after the bank's seizure on Aug. 20, 2010. The three-year slide wiped out $69 million in wealth, according to Wednesday's lawsuit.
The federal government is estimated to have lost at least $20 million due to the closure.