IN THE UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION 

FEDERAL DEPOSIT INSURANCE 

CORPORATION AS RECEIVER FOR 

BROADWAY BANK, 

Plaintiff, 

v. 

DEMETRIS GIANNOULIAS, GEORGE 

GIANNOULIAS, JAMES MCMAHON, 

SEAN CONLON, STEVEN DRY, DONNA 

ZAGORSKI, STEVEN BALOURDOS, 

GLORIA SGUROS and ANTHONY D’COSTA, 

Defendants. 

Case No. 12 Civ. 1665 

Judge John F. Grady 

Magistrate Judge Daniel Martin 

DEFENDANTS DEMETRIS GIANNOULIAS AND 

GEORGE GIANNOULIAS’ ANSWER AND AFFIRMATIVE 

DEFENSES TO SECOND AMENDED COMPLAINT 

As and for their Answer and Affirmative Defenses to Plaintiff Federal Deposit Insurance 

Corporation as Receiver for Broadway Bank’s (the “FDIC-R”) Second Amended Complaint (the 

“Complaint”), Defendants Demetris Giannoulias and George Giannoulias (collectively, the 

“Giannoulias Defendants”) state as follows: 

I. INTRODUCTION 

ALLEGATION NO. 1:

FDIC-R brings this lawsuit in its capacity as Receiver for Broadway Bank (“Broadway” 

or the “Bank”) to recover over $114 million in losses that the Bank suffered on 20 commercial 

real estate (“CRE”) and acquisition, development and construction (“ADC”) loans (collectively, 

the “Loss Loans”). 

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ANSWER:

The Giannoulias Defendants admit that the FDIC-R is bringing the present lawsuit in its 

capacity as Receiver for Broadway Bank. The Giannoulias Defendants deny the remaining 

allegations in this paragraph. 

ALLEGATION NO. 2:

These losses were caused by the gross negligence, negligence and breaches of fiduciary 

duty by seven former directors of Broadway (the “Director Defendants”) and two former officers 

of Broadway (the “Officer Defendants”) (collectively the “Defendants”), who approved and 

caused the Loss Loans to be made. 

ANSWER:

The Giannoulias Defendants admit that the Loss Loans alleged in the FDIC-R’s 

Complaint were approved by certain of the Director Defendants and/or the Officer Defendants. 

The Giannoulias Defendants deny the remaining allegations in this paragraph. 

ALLEGATION NO. 3:

As members of the Board of Directors and the Bank’s Loan Committee, the Director 

Defendants and Officer Defendants recklessly re-approved the 20 Loss Loans without regard for 

appropriate underwriting and credit administration practices, the Bank’s written loan policies, 

federal lending regulations and warnings from the Bank’s regulators. 

ANSWER:

The Giannoulias Defendants admit that the Director Defendants and the Officer 

Defendants were members of Board of Directors and/or the Bank’s Loan Committee and that 

certain of the Loss Loans were re-approved by certain of the Director Defendants and/or the 

Officer Defendants. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 4:

In fact, the Director Defendants approved two of the worst Loss Loans on June 24, 2008, 

after a meeting earlier that same day with the Bank’s regulators in which the regulators 

specifically warned the Director Defendants about the risks that these types of loans posed to the 

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Bank. That day, the regulators also discussed with the Director Defendants the need to enter into 

a Memorandum of Understanding with Broadway which would impose restrictions on the Bank 

designed to stop this type of high-risk lending. In all, the Defendants approved three Loss Loans 

on or after June 24, 2008, which caused over $20 million in losses to the Bank, and were among 

the largest Loss Loans approved by the Defendants. 

ANSWER:

The Giannoulias Defendants admit that two of the Loss Loans were approved on or 

around June 24, 2008 and that the Director Defendants met with the Bank’s regulators on or 

around June 24, 2008, during which a draft Memorandum of Understanding was discussed. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the alleged losses from the Loss Loans, but the Giannoulias Defendants deny that they caused 

any of the alleged losses. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 5:

On April 23, 2010, the Illinois Department of Financial and Professional Regulation 

(“IDFPR”) closed Broadway and appointed the FDIC as Receiver. At failure, the Bank’s assets 

were $1.06 billion. The estimated loss to the FDIC’s Deposit Insurance Fund from the Bank’s 

failure is $391.4 million. 

ANSWER:

The Giannoulias Defendants admit that the IDFPR closed the Bank on April 23, 2010, 

which, upon information and belief, had approximately $1.06 billion in assets, and appointed the 

FDIC as Receiver. The Giannoulias Defendants are without knowledge or information sufficient 

to form a belief as to the alleged loss to the FDIC’s Deposit Insurance Fund. The Giannoulias 

Defendants deny that they caused any of the alleged losses. The Giannoulias Defendants deny 

all remaining allegations in this paragraph. 

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II. PARTIES 

ALLEGATION NO. 6:

The FDIC is a corporation organized and existing under the laws of the United States of 

America. 12 U.S.C. § 1811, et seq. The FDIC is an instrumentality of the United States of 

America and is charged with, among other things, the orderly liquidation of failed financial 

institutions. Pursuant to 12 U.S.C. §1821(d)(2), the FDIC as Receiver succeeds to all of the 

rights, powers and privileges of the insured institution as well as the rights of any stockholder, 

member, account holder, depositor or officer or director with respect to the assets of the 

institution. 

ANSWER:

The Giannoulias Defendants admit only that this paragraph purports to summarize the 

organization, existence and powers of the FDIC pursuant to 12 U.S.C. § 1811, et seq. The 

Giannoulias Defendants deny any allegations in this paragraph that are different from, contrary 

to and/or which seek to characterize or draw legal conclusions from the express terms of 12 

U.S.C. § 1811, et seq. The Giannoulias Defendants further admit only that this paragraph 

attempts to summarize the powers of the FDIC-R pursuant to 12 U.S.C. § 1821(d)(2). The 

Giannoulias Defendants deny all allegations in this paragraph that are different from, contrary to 

and/or which seek to characterize or draw legal conclusions from the express terms of 12 U.S.C. 

§ 1821(d)(2). 

ALLEGATION NO. 7:

Broadway was a state-chartered, nonmember bank established by the IDFPR and insured 

by the FDIC. Broadway was a wholly-owned subsidiary of Broadway Bancorp, Inc. The Bank’s 

principal place of business was Chicago, Illinois. 

ANSWER:

The Giannoulias Defendants admit the allegations in this paragraph. 

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THE DIRECTOR DEFENDANTS 

ALLEGATION NO. 8:

Demetris Giannoulias was the Bank’s President and Chief Executive Officer (from 2006 

through closure) and a member of its Board of Directors (from 1994 through closure). From 

2005 through closure, he also was a member of the Loan Committee. Demetris Giannoulias 

approved each of the 20 Loss Loans. 

ANSWER:

The Giannoulias Defendants admit that Demetris Giannoulias was the Bank’s President 

and Chief Executive Officer from approximately 2006 through the Bank’s closure and a director 

from approximately 1994 through the Bank’s closure. The Giannoulias Defendants admit that 

Demetris Giannoulias was a member of the Bank’s Loan Committee from approximately 2005 

through sometime in 2009 or 2010. The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to whether Demetris Giannoulias approved each of the 

20 Loss Loans because they are not in possession of materials that would permit them to admit 

or deny such allegations. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 9:

George Giannoulias was a member of the Bank’s Board of Directors (from 1999 through 

closure). In 2006, he became Chairman of the Board of Directors. From 2005 through closure, 

he also was a member of the Loan Committee. George Giannoulias approved each of the 20 

Loss Loans. 

ANSWER:

The Giannoulias Defendants admit that George Giannoulias was a director from 

approximately 1999 through the Bank’s closure, was a member of the Bank’s Loan Committee 

from approximately 2005 through the Bank’s closure, and was Chairman of the Bank’s Board of 

Directors since approximately 2006. The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to whether George Giannoulias approved each of the 20 

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Loss Loans because they are not in possession of materials that would permit them to admit or 

deny such allegations. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 10:

James McMahon was a member of Broadway’s Board of Directors from 2003 through 

December 22, 2008. As a member of the Board, McMahon approved four of the Loss Loans, 

including the $28 million loan to Normandy Shores, LLC, which caused over $19 million in 

losses to the Bank. Despite his Board responsibilities, McMahon repeatedly missed critical 

Board meetings. 

ANSWER:

The Giannoulias Defendants state that, upon information and belief, James McMahon 

was a director from approximately 2003 through approximately late 2008. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to whether James 

McMahon approved four of the Loss Loans because they are not in possession of materials that 

would permit them to admit or deny such allegations. The Giannoulias Defendants deny the 

remaining allegations in this paragraph. 

ALLEGATION NO. 11:

Sean Conlon was a member of Broadway’s Board of Directors from 2005 through 

December 22, 2009. As a member of the Board, Conlon approved the 15 Loss Loans that were 

presented to the Board during his tenure. 

ANSWER:

The Giannoulias Defendants state that, upon information and belief, Sean Conlon was an 

outside director from approximately 2005 through approximately late 2009. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to whether Sean 

Conlon approved 15 of the Loss Loans because they are not in possession of materials that would 

permit them to admit or deny such allegations. The Giannoulias Defendants deny the remaining 

allegations in this paragraph. 

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ALLEGATION NO. 12:

Steven Dry was a member of Broadway’s Board of Directors from 2005 through closure. 

As a member of the Board, Dry approved the 15 Loss Loans that were presented to the Board 

during his tenure. 

ANSWER:

The Giannoulias Defendants state that, upon information and belief, Steven Dry was an 

outside director from approximately 2005 through the Bank’s closure. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to whether 

Steven Dry approved 15 of the Loss Loans because they are not in possession of materials that 

would permit them to admit or deny such allegations. The Giannoulias Defendants deny the 

remaining allegations in this paragraph. 

ALLEGATION NO. 13:

Donna Zagorski was a member of Broadway’s Board of Directors from 2006 through 

closure. As a member of the Board, Zagorski approved the 14 Loss Loans that were presented to 

the Board during her tenure. 

ANSWER:

The Giannoulias Defendants state that, upon information and belief, Donna Zagorski was 

an outside director from approximately 2006 through the Bank’s closure. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to whether Donna 

Zagorski approved 14 of the Loss Loans because they are not in possession of materials that 

would permit them to admit or deny such allegations. The Giannoulias Defendants deny the 

remaining allegations in this paragraph. 

ALLEGATION NO. 14:

Steven Balourdos was a member of Broadway’s Board of Directors from 2006 through 

closure. As a member of the Board, Balourdos approved the 14 Loss Loans that were presented 

to the Board during his tenure. 

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ANSWER:

The Giannoulias Defendants state that, upon information and belief, Steven Balourdos 

was an outside director from approximately 2006 through approximately early 2010. The 

Giannoulias Defendants deny that Steven Balourdos was an outside director at the time of the 

Bank’s closure. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to whether Steven Balourdos approved 14 of the Loss Loans because they are 

not in possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants deny the remaining allegations in this paragraph. 

THE OFFICER DEFENDANTS 

ALLEGATION NO. 15:

Gloria Sguros was a Vice-President for Lending at Broadway from 2005 through closure. 

During that same period, she was a member of the Loan Committee and, in that position, 

approved all of the Loss Loans. 

ANSWER:

The Giannoulias Defendants state that, upon information and belief, Gloria Sguros was a 

Vice-President of Lending at the Bank from approximately 2005 through approximately 2008 or 

2009 and that she was a member of the Loan Committee during much of that time period. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

whether Gloria Sguros approved each of the 20 Loss Loans because they are not in possession of 

materials that would permit them to admit or deny such allegations. The Giannoulias Defendants 

deny the remaining allegations in this paragraph. 

ALLEGATION NO. 16:

Anthony D’Costa was a Vice-President for Lending at Broadway from 2005 through 

closure. In 2006, he became a member of the Loan Committee. He approved each of the Loss 

Loans considered by the Loan Committee while he was a member, with the exception of the 

Water Street Realty Loan on which he did not express an opinion. 

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ANSWER:

The Giannoulias Defendants state that, upon information and belief, Anthony D’Costa 

was a Vice-President for Lending at the Bank from approximately 2005 or 2006 through the 

Bank’s closure and a member of the Loan Committee. The Giannoulias Defendants are without 

knowledge or information sufficient to form a belief as to whether Anthony D’Costa approved 

each of the 20 Loss Loans (with the exception of Water Street Realty) because they are not in 

possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants deny the remaining allegations in this paragraph. 

III. JURISDICTION AND VENUE 

ALLEGATION NO. 17:

The Court has subject matter jurisdiction over this action under 28 U.S.C. §§ 1331 and 

1345. 

ANSWER:

The Giannoulias Defendants admit that this Court has subject matter jurisdiction over this 

matter. 

ALLEGATION NO. 18:

Venue is proper in this district under 28 U.S.C. § 1391(b). 

ANSWER:

The Giannoulias Defendants admit that venue is proper in this district. 

ALLEGATION NO. 19:

The Court has personal jurisdiction over Defendants under 735 ILCS § 5/2-209, et seq. 

ANSWER:

The Giannoulias Defendants admit that this Court has personal jurisdiction over them. 

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IV. BACKGROUND FACTS 

A. Introduction 

ALLEGATION NO. 20:

From 2000 through 2009, Broadway’s assets grew by more than 500 percent. This 

explosive growth was fueled by an unsustainable expansion of the Bank’s CRE and ADC loans 

far in excess of the Bank’s peer group. These types of loans, which are highly sensitive to 

market fluctuations, require close monitoring, lending expertise and respect for lending risk. 

None of these were present at Broadway Bank. 

ANSWER:

The Giannoulias Defendants admit that the Bank’s assets grew from 2000 through 2009. 

Answering further, the Giannoulias Defendants admit that CRE and ADC loans generally require 

monitoring, lending expertise, and awareness of lending risk. The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the percentage growth of the 

Bank’s assets. The Giannoulias Defendants deny the remaining allegations in this paragraph. 

ALLEGATION NO. 21:

Regarding the 20 Loss Loans at issue, Defendants failed to implement procedures that 

would have lessened the risks of the Bank’s lending practices. Underwriting was perfunctory or 

non-existent. Limits on loan to value ratios repeatedly were ignored. Loans were made without 

appraisals or with grossly deficient appraisals. Construction draws were used for improper 

purposes with little or no active monitoring by the Bank. Little or no attention was paid to 

whether loan guarantors had sufficient liquidity to protect the Bank’s interest. Loans were made 

to uncreditworthy borrowers with a history of bad loans - - in some cases with Broadway itself. 

In some instances, loans were made to assist other financial institutions avoid regulatory 

intervention or loss recognition. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

B. The Bank’s Loan Policy 

ALLEGATION NO. 22:

Broadway’s loan policy (the “Loan Policy”) required diligent underwriting in conformity 

with state and federal law, close monitoring of concentrations of credit and rigorous 

documentation and prudent evaluation of borrower and project risk. In approving the Loss 

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Loans, however, Defendants routinely ignored and repeatedly failed to enforce the Loan Policy’s 

provisions. The Bank’s loan approval policies and procedures also were frequently bypassed. 

ANSWER:

The Giannoulias Defendants admit that the Bank had a loan policy, and that the Loan 

Policy required underwriting in conformity with state and federal law, monitoring of 

concentrations of credit and documentation and evaluation of borrower and project risk. The 

Giannoulias Defendants deny the remaining allegations in this paragraph. 

C. Broadway’s Regulatory History 

ALLEGATION NO. 23:

Defendants were warned by state and federal bank examiners of the significant 

weaknesses in Broadway’s lending and loan administration practices. The criticisms and 

warnings had no effect on the approval of the 20 Loss Loans. 

ANSWER:

The Giannoulias Defendants admit that the Bank, at times, received comments 

concerning its lending and loan administration practices from state and federal bank examiners. 

The Giannoulias Defendants deny the remaining allegations in this paragraph. 

The January 2007 Examination 

ALLEGATION NO. 24:

In January 2007, IDFPR examined Broadway’s condition as of September 30, 2006. In 

the Report of Examination (“RoE”), the examiners noted their concern with the Bank’s 

increasing concentrations in “construction and development, total out-of-area, State of New 

York, collateral type [hotel/motel] and relationship” loans. Examiners also noted weaknesses in 

loan administration and underwriting, including failing to obtain current financial statements 

from borrowers and the failure to obtain global cash flow analyses from borrowers with multiple 

loans. Additionally, the examiners criticized Broadway’s Allowance for Loan and Lease Losses 

(“ALLL”) methodology for failing to include an impairment analysis and failing to downgrade 

loans that were classified at previous examinations. The regulators concluded that Defendants’ 

failure to ensure accurate ALLL calculations overstated the Bank’s financial performance. 

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ANSWER:

The Giannoulias Defendants admit that, in approximately January 2007, IDFPR 

examined the Bank’s condition as of September 30, 2006. The Giannoulias Defendants state that 

the 2007 ROE is the best evidence of its contents and deny the remaining allegations in this 

paragraph that are contrary thereto. 

ALLEGATION NO. 25:

As part of the January 2007 examination, state regulators made several recommendations 

to enhance risk management practices and maintain more accurate reporting procedures. 

Defendants ignored these recommendations. In March 2007, the regulators met with 

management to discuss the examination findings. In April 2007, the RoE was provided to the 

Board of Directors. 

ANSWER:

The Giannoulias Defendants admit that, as part of the 2007 examination, IDFPR made 

certain recommendations to enhance risk management practices and reporting procedures. The 

Giannoulias Defendants state that the 2007 ROE is the best evidence of its contents and deny the 

allegations in the first sentence of this paragraph that are contrary thereto. Answering further, 

the Giannoulias Defendants admit that the regulators met with the Bank’s management to discuss 

the examination findings and that the ROE was provided to the Board of Directors in 

approximately April 2007. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to when the regulators met with the Bank’s management to discuss 

the examination findings. 

The March 2008 Examination 

ALLEGATION NO. 26:

In March 2008, the FDIC and IDFPR conducted a joint investigation of the Bank’s 

condition as of December 31, 2007. 

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ANSWER:

The Giannoulias Defendants admit that in approximately March 2008, the FDIC and 

IDFPR conducted a joint investigation of the Bank’s condition as of December 31, 2007. 

ALLEGATION NO. 27:

The regulators again found the Bank’s overall condition less than satisfactory and 

criticized the deteriorating quality of the Bank’s assets. They also criticized the Bank’s 

inadequate loan review and watch-list programs, its ALLL methodology and its failure to 

improve credit risk management practices, including failing to properly identify and report 

developing risks and downgrade credit ratings in a timely manner. 

ANSWER:

The Giannoulias Defendants state that the 2008 ROE is the best evidence of its contents 

and deny the allegations in this paragraph that are contrary thereto. 

ALLEGATION NO. 28:

The criticism of the ALLL calculations once again suggested that the Defendants were 

understating the losses imbedded in the Bank’s portfolio. Based on the Bank’s deficiencies, the 

examiners required a $5.1 million adjustment to the ALLL, as of April 30, 2008. 

ANSWER:

The Giannoulias Defendants state that the 2008 ROE is the best evidence of its contents 

and deny the allegations in the first sentence in this paragraph that are contrary thereto. Upon 

information and belief, the Giannoulias Defendants admit that the examiners requested a $5.1 

million adjustment to ALLL, as of approximately April 30, 2008. The Giannoulias Defendants 

deny the remaining allegations in this paragraph. 

ALLEGATION NO. 29:

On June 24, 2008, federal and state regulators met with the Board of Directors to discuss 

the regulators’ concerns. At that meeting, regulators discussed with the Board a draft 

Memorandum of Understanding (“MOU”), which directed the Bank to take steps to improve its 

lending operations and to reduce risk in its loan portfolio. The regulators provided a sustained 

and constructive critique of the Bank’s operations and, through the MOU, sought a written 

commitment from Defendants to address the criticisms and reduce the Bank’s excessive risktaking. 

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ANSWER:

The Giannoulias Defendants admit that the Bank’s Board of Directors met with federal 

and state regulators to discuss the regulators’ joint investigation on or around June 24, 2008 and 

that a draft Memorandum of Understanding was discussed. The Giannoulias Defendants state 

that the draft Memorandum of Understanding is the best evidence of its contents and deny all of 

the remaining allegations in this paragraph that are contrary thereto. The Giannoulias 

Defendants deny the remaining allegations in this paragraph. 

ALLEGATION NO. 30:

Defendants ignored the regulators. Indeed, immediately following the June 24, 2008 

meeting, the Board of Directors approved two grossly imprudent loans which resulted in losses 

to the Bank of approximately $12 million. 

ANSWER:

The Giannoulias Defendants admit that two of the Loss Loans were approved on or 

around June 24, 2008. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the alleged loss from these two Loss Loans, but the Giannoulias 

Defendants deny that they caused the alleged losses. The Giannoulias Defendants deny the 

remaining allegations in this paragraph. 

2008 Visitations and Communications 

ALLEGATION NO. 31:

In a July 22, 2008 communication to the Board of Directors, the FDIC warned that a high 

volume of adversely classified ADC loans in the Bank’s portfolio, primarily related to projects 

located in Florida, had eroded Broadway’s earnings and undermined its capital. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to July 22, 2008 communication referred to in this paragraph. 

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ALLEGATION NO. 32:

On September 17, 2008, Broadway entered into the MOU to address the weaknesses 

noted in the March 2008 examination. The MOU required a workout plan for classified assets, 

development of a sound loan review and grading system, more accurate charge-off losses and 

special mention deficiencies, complete loan documentation (including global cash flows for 

borrowers with multiple loans or projects) and provisions for loan and lease losses and ongoing 

review of ALLL adequacy. Defendants ignored the MOU’s requirements. 

ANSWER:

The Giannoulias Defendants admit that the Bank entered into a Memorandum of 

Understanding in the Fall of 2008. The Giannoulias Defendants state the Memorandum of 

Understanding is the best evidence of its contents and deny the allegations in the second sentence 

in this paragraph that are contrary thereto. The Giannoulias Defendants deny the remaining 

allegations in this paragraph. 

ALLEGATION NO. 33:

On December 16, 2008, as a result of the significant deterioration of Broadway’s assets, 

IDFPR and the FDIC conducted a joint visitation. The regulators concluded that the 

deterioration of Broadway’s assets was continuing and noted a dramatic increase in loan 

delinquencies in October 2008 and November 2008 as a result of grossly improvident 

transactions approved by Defendants, notwithstanding regulatory criticisms. 

ANSWER:

The Giannoulias Defendants admit that the IDFPR and the FDIC conducted a joint 

visitation in late 2008. The Giannoulias Defendants are without knowledge or information 

sufficient as to form a belief as what the regulators concluded, but the Giannoulias Defendants 

deny the existence of any grossly improvident transactions approved by the Giannoulias 

Defendants in contravention of any regulatory criticisms. The Giannoulias Defendants deny the 

remaining allegations in this paragraph. 

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The April 2009 Examination 

ALLEGATION NO. 34:

In April 2009, the FDIC and IDFPR jointly examined Broadway’s condition as of 

March 31, 2009. The regulators found the Bank to be deeply troubled and examiners informed 

the Board of Directors that (a) the Bank’s asset quality was critically deficient; (b) adverse 

classifications were at unacceptable levels; (c) the Bank’s internal grading system was 

inadequate and understated the nature of the Bank’s problems; (d) the Bank’s underwriting was 

substandard and the loan files were grossly incomplete; (e) management had not adequately 

analyzed or monitored the Bank’s securities portfolio; and (f) the Loan Committee failed to keep 

accurate minutes of its deliberations. The regulators again noted that Defendants had not 

properly computed ALLL reserves and ordered a $19 million adjustment. The regulators 

concluded that “management performance is deficient” and that Defendants’ failure to recognize 

and curtail risk was a significant cause of the Bank’s poor financial condition. 

ANSWER:

The Giannoulias Defendants admit that, in approximately April 2009, the IDFPR and the 

FDIC examined the Bank’s condition as of March 31, 2009. The Giannoulias Defendants state 

the 2009 ROE is the best evidence of its contents and deny the remaining allegations in this 

paragraph that are contrary thereto. 

ALLEGATION NO. 35:

On July 20, 2009, regulators informed the Board that Broadway was undercapitalized. 

On February 4, 2010, regulators informed the Board that Broadway’s capital level had dropped 

to significantly undercapitalized. On April 23, 2010, Broadway was closed by the IDFPR and 

the FDIC was appointed receiver. 

ANSWER:

The Giannoulias Defendants admit that the regulators informed the Bank’s Board of 

Directors that the Bank was undercapitalized in the second half of 2009. The Giannoulias 

Defendants admit that the regulators informed the Bank’s Board of Directors that the Bank’s 

capital level had dropped in approximately the First Quarter of 2010. The Giannoulias 

Defendants admit that the Bank was closed by the IDFPR on April 23, 2010, at which time the 

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FDIC was appointed receiver. The Giannoulias Defendants deny the remaining allegations in 

this paragraph. 

D. The Loss Loans and the Damage They Caused 

ALLEGATION NO. 36:

The loans made and approved by Defendants caused significant injury to the Bank. The 

following table lists 20 such Loss Loans and identifies the Officer Defendants and Director 

Defendants who voted to approve each loan. 

Loss Loan 

D. Giannoulias G. Giannoulias Balourdos Conlon Dry McMahon Zagorski Sguros D’Costa 

1. Gold Johnson Hold. LLC X X X X X X X X 

2. Wilshire Blvd. BH, LLC X X X X X X X X 

3. Federal Street L.A. LLC X X X X X X X X 

4. Water Street Realty Group, LLC X X X X X X X X 

5. Southside House LLC* X X X X 

6. 625 W. Div. Condos, LP* X X X X 

7. Shubh Oceanic LLC* X X X X 

8. Prospect R. Equities LLC X X X X X X X X 

9. Prospect R. Equities LLC X X X X X X X X 

10. ASAT, Inc. X X X X X X X X 

11. 261 E. 78 Realty Corp. X X X X X X X X 

12. Lynn & Anderson Homes, LLC X X X X X X X X X 

13. Shubh Hotels S. LLC X X X X X X X X 

14. Shubh Boca Condo LLC X X X X X X X X 

15. Lawrence Prop. LLC* X X X X 

16. John R. DeSilva X X X X X X X X 

17. 4750 N. Winthrop* X X X X 

18. The Bedford Lofts LLC X X X X X X X X 

19. Krieger SPE, LLC X X X X X X X X X 

20. Normandy Shores LLC X X X X X X 

* Loan approved by Loan Committee only; no Board of Directors approval required. 

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ANSWER:

The Giannoulias Defendants admit only that the allegations in this paragraph attempt to 

tabulate certain loans made by Broadway Bank and the persons who approved those loans. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

which Officer Defendants or Director Defendants approved the Loss Loans because they are not 

in possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants deny the remaining allegations in this paragraph. 

ALLEGATION NO. 37:

With regard to these loans, Defendants routinely failed to assess the repayment abilities 

of borrowers and guarantors, relied excessively on brokered deposits to finance the expanding 

loan portfolio, violated the Bank’s loan policies, allowed use of interest reserves without 

adequately considering borrowers’ repayment abilities, made out-of-territory loans without 

sufficient staff to monitor performance, failed to monitor the use of loan funds, and renewed 

loans without adequate underwriting or obtaining sufficient security. The Loss Loans were made 

in violation of the general safety and soundness standards of 12 C.F.R. §364.101, Appendix A, 

the general underwriting standards of 12 C.F.R. §364.101, Appendix A and the real estate 

lending standards of 12 C.F.R. §365.2, Appendix A. Much of this imprudent lending occurred 

after the real estate market began its precipitous decline. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 38:

The Bank repeatedly understated the losses imbedded in its portfolio by manipulation of 

loss reserves, overstating income and engaging in transactions designed to artificially remove 

non-performing assets from the Bank’s balance sheet. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 39:

The indiscriminate use of interest reserves funded by loan proceeds gave the appearance 

that the loans were performing when, in fact, the interest payments came only from the Bank. 

Few of these borrowers or guarantors contributed their own funds to reduce the debt or meet 

interest obligations. The risk of these transactions was borne almost entirely by the Bank. 

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ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 40:

The current estimated losses from the 20 Loss Loans total approximately $114 million. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged losses for the 20 Loss Loans. 

Wilshire Blvd. BH, LLC 

ALLEGATION NO. 41:

In May 2008, Officer Defendants Sguros and D’Costa and Director Defendants Demetris 

Giannoulias and George Giannoulias, as members of the Loan Committee, approved a one-year 

$22.04 million interest-only loan to Wilshire Blvd. BH, LLC, guaranteed by Hagop Sarisian. 

The purpose of the loan was to refinance the land loan on a vacant site in Beverly Hills, 

California and to provide funds to redevelop the property into a luxury condominium with retail 

space and parking. The interest payments were funded by an interest reserve created by the 

loan’s proceeds. On June 24, 2008, the Board of Directors, including Demetris Giannoulias, 

George Giannoulias, Balourdos, Conlon, Dry and Zagorski, approved the loan immediately

following a meeting with federal regulators that sharply criticized the making of such loans. 

ANSWER:

The Giannoulias Defendants admit that a one-year approximately $22.04 million interestonly loan was approved on or around June 24, 2008 and that this loan was guaranteed by Hagop 

Sarisian. The Giannoulias Defendants admit that the purpose of the loan included refinancing a 

development site in Beverly Hills, California and providing funds to redevelop the property into 

a condominium with retail space and parking. The Giannoulias Defendants admit that interest 

payments were originally to be made from an interest reserve funded by the loan proceeds but 

deny that there was anything improper or imprudent with this arrangement. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the 

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composition of the Loan Committee or the Board with respect to the approval of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. The Giannoulias Defendants admit that they met with federal regulators on or 

around June 24, 2008. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 42:

The Officer Defendants and Director Defendants caused this loan to be made at the 

request of Connaught Real Estate Finance (“CREF”) of which Director Defendant Conlon was a 

major shareholder. CREF loaned Wilshire Blvd. BH, LLC an additional $6.8 million; it was 

essential to CREF’s financial interests that Broadway make the loan. Despite his interest in 

CREF and CREF’s interest in Wilshire Blvd., Defendant Conlon did not recuse himself from the 

Bank’s approval process and voted to approve the loan. 

ANSWER:

The Giannoulias Defendants admit that CREF approached the Bank about a loan to 

Wilshire Blvd. BH, LLC and that CREF loaned approximately $6.8 million to Wilshire Blvd. 

BH, LLC. The Giannoulias Defendants further deny that the loan was essential to CREF’s 

financial interests that the Bank make the loan. The Giannoulias Defendants are without 

knowledge or information sufficient to form a belief as to the truth of the allegation that 

Defendant Conlon owned an interest in CREF. The Giannoulias Defendants further are without 

knowledge or information sufficient to form a belief as to the truth of the remaining allegations 

in this paragraph because they are not in possession of materials that would permit them to admit 

or deny such allegations. 

ALLEGATION NO. 43:

The making of this loan and the Federal Street loan on the heels of the June 24, 2008 

meeting with federal and state regulators reflects Defendants’ disdain for the regulatory process 

and disregard for the regulators’ expressed concern that Defendants’ conduct jeopardized the 

Bank’s safety and soundness. 

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ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 44:

The loan had numerous other deficiencies including, but not limited to, the following: 

a. Defendants caused the loan to be made even though there had been a major 

downturn in southern California’s housing market, which was expected to further 

deteriorate, causing collateral values to plummet. 

b. Defendants failed to require proper underwriting. The borrower had no ability to 

repay the loan. The guarantor’s finances were not verified. His self-prepared 

financial statement showed that most of his assets were illiquid. In violation of 

the Bank’s loan policy, he did not provide his 2005 or 2007 tax returns. In 

violation of the Bank’s loan policy, a credit report was not obtained. 

c. The loan evidenced Defendants’ repeated disregard of regulatory warnings about 

the Bank’s underwriting and its over-concentration of ADC/CRE out-of-territory 

loans. 

ANSWER:

The Giannoulias Defendants deny the allegations in subparagraph (a). The Giannoulias 

Defendants deny that this loan was approved without proper underwriting. The Giannoulias 

Defendants deny that the borrower had no ability to repay the loan. The Giannoulias Defendants 

deny that a credit report was not obtained. The Giannoulias Defendants are without knowledge 

or information sufficient to form a belief as to the truth of the remaining allegations in 

subparagraph (b) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants deny the allegations in subparagraph 

(c). 

ALLEGATION NO. 45:

Upon depletion of the interest reserve, the borrower and guarantor defaulted on the loan. 

The loan went into foreclosure. Defendants took no action to pursue the loan’s guarantor to 

mitigate the Bank’s losses. 

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ANSWER:

The Giannoulias Defendants admit that this loan went into default. The Giannoulias 

Defendants are without knowledge or information to form a belief as to the depletion of the 

interest reserve or the foreclosure of the loan because they are not in possession of materials that 

would permit them to admit or deny such allegations. The Giannoulias Defendants deny the 

allegations in the third sentence in this paragraph. 

ALLEGATION NO. 46:

The Bank has sustained estimated damages of $3.4 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages for this loan. 

Federal Street L.A. LLC 

ALLEGATION NO. 47:

In June 2008, Officer Defendants Sguros and D’Costa and Director Defendants Demetris 

Giannoulias and George Giannoulias, as members of the Loan Committee, approved a one-year 

$26.88 million interest-only loan to Federal Street L.A. LLC, guaranteed by Michael Winter and 

Judi Fishman, to acquire and refurbish an apartment building in Los Angeles, California and 

convert the building to condominiums. The interest payments were to be funded by an interest 

reserve and cash flow, if any, from the borrower’s property. On June 24, 2008, the Board of 

Directors, including Demetris Giannoulias, George Giannoulias, Balourdos, Conlon, Dry and 

Zagorski, approved the loan immediately following the June 24, 2008 meeting with the state and 

federal regulators that sharply criticized the making of such loans. 

ANSWER:

The Giannoulias Defendants admit that a one-year interest-only loan for approximately 

$26.88 million to Federal Street L.A. LLC was approved on or around June 24, 2008 and that the 

loan was guaranteed by Michael Winter and Judi Fishman. The Giannoulias Defendants admit 

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23 

that the loan was supposed to be used for the acquisition of an apartment building in Los 

Angeles, California. The Giannoulias Defendants admit that interest payments were originally to 

be made from an interest reserve to be funded by the loan applicant and by the cash flow from 

the property, but deny that there was anything improper or imprudent with this arrangement. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the composition of the Loan Committee or Board with respect to the approval of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. The Giannoulias Defendants admit that they met with federal regulators on or 

around June 24, 2008. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 48:

The making of this loan and the Wilshire Blvd. loan on the heels of the June 24, 2008 

meeting with federal and state regulators reflects Defendants’ disdain for the regulatory process 

and disregard for the regulators’ expressed concern that Defendants’ conduct jeopardized the 

Bank’s safety and soundness. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 49:

The loan had numerous other deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrower did not 

have the ability to repay the loan. The guarantors did not submit an application; 

their finances were not verified. Their financial statements showed that the 

guarantors’ assets were illiquid. In violation of the Bank’s loan policy, Winter 

did not provide his 2006 tax returns. Although Winter had other loans at the 

Bank, he was not required to provide a global cash flow analysis to assess his 

repayment ability. 

b. Defendants caused the loan to be made on the basis of an “as completed” 

appraisal instead of the property’s value “as is.” Had the “as is” value been used, 

the loan would have violated the loan-to-value ratio required by the Loan Policy. 

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24 

c. The loan evidenced Defendants’ disregard of repeated regulatory warnings about 

the Bank’s underwriting and over-concentrations of ADC/CRE out-of-territory 

loans. 

d. In August 2009, after the original note had matured, Defendant members of the 

Loan Committee approved a renewal of the loan even though financial 

information provided by guarantor Winter demonstrated that his financial 

condition was deteriorating. Further, several interest payments on this loan had 

been late and Winter was having difficulty making payments on other of his loans 

at the Bank. The renewal was made without requiring a new appraisal, despite the 

continuing downturn in the economy and real estate market. 

ANSWER:

The Giannoulias Defendants deny that this loan was approved without proper 

underwriting. The Giannoulias Defendants deny that Winter did not provide his 2006 tax 

returns. The Giannoulias Defendants deny that Winter did not provide information concerning a 

global cash flow analysis to the Bank. The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to the truth of the remaining allegations in 

subparagraph (a) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants deny the allegations in subparagraph 

(b). The Giannoulias Defendants deny the allegations in subparagraph (c). The Giannoulias 

Defendants admit that this loan was renewed. The Giannoulias Defendants deny the 

characterization of the economy and real estate market in subparagraph (d). The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the truth of the 

remaining allegations in subparagraph (d) because they are not in possession of materials that 

would permit them to admit or deny such allegations, but deny any suggestion that the 

Giannoulias Defendants acted improperly or imprudently. 

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ALLEGATION NO. 50:

Within a few months after the loan was renewed, the loan defaulted. No effort was made 

to pursue either Winter or Fishman as guarantors. 

ANSWER:

The Giannoulias Defendants admit that this loan went into default but are without 

knowledge or information sufficient to form a belief as to the time of the default of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. The Giannoulias Defendants deny the allegations in the second sentence in this 

paragraph. 

ALLEGATION NO. 51:

The Bank has sustained estimated damages of $8.9 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

Loans to Atul Bisaria and Entities He Owned or Controlled 

ALLEGATION NO. 52:

In April 2007 and August 2007, Officer Defendants Sguros and D’Costa and Director 

Defendants Demetris Giannoulias and George Giannoulias, as members of the Loan Committee, 

approved two loans totaling $26.2 million to Atul Bisaria and entities owned or controlled by 

him. The loans included an eighteen-month $10.2 million interest-only loan to Shubh Boca 

Condominium LLC and Bisaria to acquire land and build an office condominium in Boca Raton, 

Florida, and an eighteen-month $16 million interest-only loan to Shubh Hotels Springdale LLC 

and Bisaria to refinance and reflag a hotel in Cincinnati, Ohio. The Board of Directors, 

including Defendants Demetris Giannoulias, George Giannoulias, Balourdos, Conlon, Dry and 

Zagorski, also approved these loans. The interest payments for each loan were funded by an 

interest reserve created out of the loan’s proceeds. 

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ANSWER:

The Giannoulias Defendants admit that two loans totaling approximately $26.2 million 

were extended to Atul Bisaria and entities owned or controlled by him in approximately 2007. 

The Giannoulias Defendants admit that one of these loans was an eighteen-month interest-only 

loan for approximately $10.2 million to Shubh Boca Condominium LLC, which was supposed to 

be used to build an office condominium in Boca Raton, Florida. The Giannoulias Defendants 

admit that the second loan was an eighteen-month interest-only loan for approximately $16 

million to Shubh Hotels Springdale, which to be used to refinance and remodel a hotel located in 

Cincinnati, Ohio. The Giannoulias Defendants are without knowledge or information sufficient 

to form a belief as to the composition of the Loan Committee or the Board with respect to the 

approval of these two loan because they are not in possession of materials that would permit 

them to admit or deny such allegations. The Giannoulias Defendants admit that interest 

payments on the Shubh Hotels Springdale LLC loan and the Shubh Boca Condominium LLC 

loan were originally to be made from an interest reserve funded by the loan proceeds but deny 

that there was anything improper or imprudent with such an arrangement. 

ALLEGATION NO. 53:

Additionally, in August 2007, Defendant members of the Loan Committee approved a 

two-year $3.2 million interest-only loan to Shubh Oceanic, LLC, Bisaria, and his wife, ostensibly 

to purchase a passenger boat and transport it to Mumbai, India, to be used for “special events.” 

ANSWER:

The Giannoulias Defendants admit that a two-year interest-only loan for approximately 

$3.2 million was approved for Shubh Ocean, LLC, Atul Bisaria, and Mihu Bisaria in 

approximately 2007. The Giannoulias Defendants admit that this loan was supposed to be used 

for the acquisition of a passenger boat to be transported to India to be used for private parties and 

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27 

corporate events. The Giannoulias Defendants deny any suggestion that there was anything 

improper or imprudent about this boat loan. 

ALLEGATION NO. 54:

These loans shared numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loans without proper underwriting. All three loans were 

based on the same self-prepared and unaudited financial information for Bisaria, 

which was incomplete and inadequate. Bisaria did not submit loan applications 

for any of the transactions. His tax returns were incomplete. The borrowers 

themselves had no ability to pay down the loans and Bisaria’s assets were illiquid. 

b. The loans improperly were approved on the value of the projects “as completed;” 

if based on the value of the properties “as is,” the loans would have exceeded the 

Loan Policy’s permitted loan-to-value ratio. 

c. The loans evidenced Defendants’ disregard of repeated regulatory warnings about 

the Bank’s over-concentrations of ADC/CRE out-of-territory loans. 

d. Defendants failed to monitor and administer the loans properly. Although more 

than $2.5 million in construction draws were disbursed on the hotel loan, when 

the Bank inspected the property, no major construction had occurred. 

e. In December 2008, Defendant members of the Loan Committee renewed both the 

office building and hotel loans for six additional months despite a poor history of 

loan performance. New appraisals, updated financials and/or additional collateral 

were not obtained. 

f. Defendant members of the Loan Committee imprudently increased the boat loan 

by $200,000 to meet the working capital requirements of Bisaria’s hotel business 

in Detroit, Michigan, without requiring updated financial information or new 

appraisals. 

ANSWER:

The Giannoulias Defendants deny that the loans were approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants deny that the Shubh Boca Condominium loan or the Shubh Oceanic 

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28 

loan were approved on an “as completed” basis. The Giannoulias Defendants are without 

knowledge or information sufficient to form a belief as to the truth of the remaining allegations 

in subparagraph (b) because they are not in possession of materials that would permit them to 

admit or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants deny the allegations in subparagraph 

(c). The Giannoulias Defendants deny the allegations in the first sentence in subparagraph (d). 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the truth of the remaining allegations in subparagraph (d) because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the truth of the allegations in 

subparagraph (e) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants deny that the Loan Committee acted 

imprudently with respect to the boat loan. The Giannoulias Defendants are without knowledge 

or information sufficient to form a belief as to the truth of the remaining allegations in 

subparagraph (f) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. 

ALLEGATION NO. 55:

In December 2008, when the loans were renewed, Bisaria and entities he owned and 

controlled had substantial obligations to Mutual Bank of Harvey, Illinois (“Mutual Bank”), an 

institution on the brink of failure. Ultimately, Bisaria’s loans at Mutual Bank defaulted. 

Defendants undertook insufficient due diligence on these and other of Bisaria’s positions at other 

banks or simply ignored the risk. 

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ANSWER:

The Giannoulias Defendants deny that they undertook insufficient due diligence on 

Bisaria or that they ignored any risk associated with Bisaria. The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the truth of the remaining 

allegations in this paragraph, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. 

ALLEGATION NO. 56:

After the loans were renewed, they went into default. Defendants took no action to 

pursue Bisaria. 

ANSWER:

The Giannoulias Defendants admit that the loans went into default. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to when the loans 

went into default. The Giannoulias Defendants deny the allegations in the second sentence in 

this paragraph. 

ALLEGATION NO. 57:

The Bank has sustained estimated damages of $21.4 million plus accrued interest on 

these loans. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on these loans. 

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Loans to Yaron Hershco or Entities that He Owned or Controlled 

(a) Gold Johnson Holding, LLC 

ALLEGATION NO. 58:

In June 2007, Officer Defendants Sguros and D’Costa and Director Defendants Demetris 

Giannoulias and George Giannoulias, as members of the Loan Committee, approved a one-year 

$21 million loan to 167 Johnson Street, LLC, which was owned by Yaron Hershco. The Board 

of Directors, including Defendants Demetris Giannoulias, George Giannoulias, McMahon, 

Balourdos, Conlon, Dry and Zagorski, also approved the loan. 

ANSWER:

The Giannoulias Defendants admit that a one-year approximately $21 loan was approved 

for 167 Johnson Street, LLC, which was owned by Yaron Hershco, in approximately 2007. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the composition of the Loan Committee or the Board with respect to the approval of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. 

ALLEGATION NO. 59:

Hershco was one of the Bank’s largest borrowers. The purpose of this loan was to 

refinance the mortgage on vacant land located in Brooklyn, New York, and pay pre-construction 

expenses to develop a multi-unit rental building on that land. 

ANSWER:

The Giannoulias Defendants admit that Hershco was one of the Bank’s larger borrowers. 

The Giannoulias Defendants admit that the purpose of the 167 Johnston Street, LLC loan was to 

refinance the mortgage on a development site in Brooklyn, New York and to pay preconstruction expenses to develop a multi-unit rental building. The Giannoulias Defendants deny 

the remaining allegations in this paragraph. 

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ALLEGATION NO. 60:

Defendants approved the loan even though (a) the borrower had no ability to repay the 

loan and repayment of the loan depended entirely upon the borrower obtaining construction 

financing (which he never did); (b) the borrower did not provide his 2006 income tax return, a 

Loan Policy violation; (c) the loan-to-value ratio of the borrower’s existing Broadway loan 

portfolio using “as is” appraisals for the collateral exceeded 98 %, a Loan Policy violation; 

(d) no global cash flow or global liability analysis was performed, a violation of the Loan Policy; 

and (e) the borrower’s net worth cannot be determined from the loan file, because the borrower’s 

financial statement presented only the “equity” for his holdings, without any detail on the 

liabilities attached to each of the holdings nor any of the payment obligations for any of these 

liabilities. 

ANSWER:

The Giannoulias Defendants admit that the borrower ultimately did not obtain 

construction financing, but deny that the borrower had no ability to repay the loan when the loan 

was approved. The Giannoulias Defendants deny the remaining allegations in subparagraph (a). 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the truth of the remaining allegations in this paragraph because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. 

ALLEGATION NO. 61:

In August, 2007, the Loan Committee (Defendants Sguros, D’Costa, Demetris 

Giannoulias and George Giannoulias) renewed the loan for one year. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. 

ALLEGATION NO. 62:

Since Herscho [sic] never obtained construction financing for the project, the loan went 

into default. 

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32 

ANSWER:

The Giannoulias Defendants admit that Hershco did not obtain construction financing for 

this project, but deny that the project went into default because of this. 

ALLEGATION NO. 63:

To avoid recognizing losses attendant to the loan’s nonperformance and to cover up the 

imprudent initial loan approval, in December 2008, Officer Defendants Sguros and D’Costa and 

Director Defendants Demetris Giannoulias and George Giannoulias, as members of the Loan 

Committee, approved the sale of the Hershco note with the Bank providing the financing. The 

Board of Directors, including Defendants Demetris Giannoulias, George Giannoulias, Balourdos, 

Conlon, Dry and Zagorski, also approved the transaction. 

ANSWER:

The Giannoulias Defendants admit that the Hershco note was sold with the Bank 

providing the financing in approximately 2008. The Giannoulias Defendants deny that this sale 

was done in order to cover up any imprudent initial loan approval or to avoid recognizing the 

losses. The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to which Officer Defendants or Director Defendants approved the sale. The 

Giannoulias Defendants deny the remaining allegations in this paragraph. 

ALLEGATION NO. 64:

The Bank financed the sale of the note with a new two-year $22.1 million interest-only 

loan to Gold Johnson Holding, LLC. The loan was approved based on the original appraisal, 

even though the credit analysis recognized that the property had declined in value significantly. 

ANSWER:

The Giannoulias Defendants admit that the Bank financed the sale of the note with a twoyear approximately $22.1 million interest-only loan to Gold Johnson Holding, LLC. The 

Giannoulias Defendants deny the remaining allegations in the first sentence in this paragraph. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the truth of the allegations in the second sentence in this paragraph because they are not in 

Case: 1:12-cv-01665 Document #: 150 Filed: 11/27/13 Page 32 of 82 PageID #:2668
33 

possession of materials that would permit them to admit or deny such allegations, but deny any 

suggestion that the Giannoulias Defendants acted improperly or imprudently. 

ALLEGATION NO. 65:

Gold Johnson Holding, LLC was owned or controlled by Sam Chang, one of Broadway’s 

largest borrowers, with loans from the Bank totaling approximately $44 million. Chang was a 

developer of hotel properties in New York with a history of distressed projects. Chang was 

experiencing severe difficulties with other banks. 

ANSWER:

The Giannoulias Defendants admit that Gold Johnson Holding, LLC was owned or 

controlled by Sam Chang and that Chang was one of the Bank’s larger borrowers. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the total amount of loans held by Chang at the Bank because they are not in possession of 

materials that would permit them to admit or deny such allegations. The Giannoulias Defendants 

admit that Chang was a developer of hotel properties in New York, but deny that he had a history 

of distressed projects. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the truth of the allegations in the third sentence in this paragraph. 

ALLEGATION NO. 66:

By December 2008, Chang had substantial outstanding commitments to Mutual Bank that 

were lurching towards default. Defendants’ due diligence on Chang and his relationship to 

Mutual Bank either was insufficient or Defendants simply ignored the risk. 

ANSWER:

The Giannoulias Defendants deny that they undertook insufficient due diligence on 

Chang or that they ignored any risk associated with Chang. The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the truth of the remaining 

allegations in this paragraph, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. 

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34 

ALLEGATION NO. 67:

This loan had numerous other deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. Gold Johnson 

Holdings, LLC had no assets with which to pay back the loan. The stated value of 

Chang’s assets did not take into account his compromised financial condition or 

his multiple loans from Broadway and from other banks. 

b. Defendants approved the loan based on the assumption that Hershco had 

purchased the rights to additional buildable square footage, increasing the land’s 

value. Defendants, however, performed no due diligence on whether such 

additional rights were ever obtained. Hershco had not obtained these rights. 

c. In violation of the Loan Policy, Defendants approved the loan before receiving a 

completed appraisal. When the appraisal was received, it resulted in a loan-tovalue ratio in excess of that allowed under the Loan Policy. 

d. Approval of this loan evidenced Defendants’ disregard of repeated regulatory 

warnings about the Bank’s underwriting and over-concentrations of ADC/CRE 

out-of-territory loans. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants are unable to answer the allegations in subparagraphs (b) and (c) 

because it is unclear as to which loan(s) the allegations refer. The Giannoulias Defendants deny 

the allegations in subparagraph (d). 

ALLEGATION NO. 68:

In effect, Defendants caused a large, nonperforming loan to be transferred to a borrower 

with equally poor prospects of repayment. Defendants’ initial imprudent approval of the loan to 

167 Johnson Street LLC and Hershco ultimately led to the imprudent approval of the loan to 

Gold Johnson Holding LLC and Chang, which resulted in significant losses to the Bank, as the 

Board and senior management attempted to avoid the consequences of their initial negligence. 

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35 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 69:

The Bank has sustained estimated damages of $11 million plus accrued interest on these 

loans. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on these loans. 

(b) Prospect Equities, LLC 

ALLEGATION NO. 70:

In June 2007, the same time that Defendants approved the $21 million loan to Hershco’s 

entity 167 Johnson Street, the Bank made two other loans, totaling $15.5 million, to Hershco and 

a second Herscho entity, Prospect Equities, LLC. The first loan was an eighteen-month 

$9 million interest-only loan to purchase raw land in Brooklyn, New York. The second was an 

eighteen-month $6.5 million revolving line of credit to develop the property. Both loans were 

collateralized by the raw land. Interest payments were funded by an interest reserve created out 

of the loan proceeds. 

ANSWER:

The Giannoulias Defendants admit that the Bank made two loans to Hershco and 

Prospect Equities, LLC in approximately 2007. The Giannoulias Defendants admit that one of 

those loans was an eighteen-month approximately $9 million interest-only loan for the 

acquisition of a development site in Brooklyn, New York. The Giannoulias Defendants deny the 

remaining allegations in the second sentence in this paragraph. The Giannoulias Defendants 

admit that the second loan was an eighteen-month approximately $6.5 million revolving line of 

credit to construct homes in Brooklyn, New York. The Giannoulias Defendants deny the 

allegations in fourth sentence in this paragraph. The Giannoulias Defendants are without 

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36 

knowledge or information sufficient to form a belief as to the funding of the interest payments on 

these loans because they are not in possession of materials that would permit them to admit or 

deny such allegations, but deny any suggestion that the Giannoulias Defendants acted improperly 

or imprudently. 

ALLEGATION NO. 71:

Officer Defendants Sguros and D’Costa and Director Defendants Demetris Giannoulias 

and George Giannoulias, as members of the Loan Committee, approved these loans. The loans 

also were approved by the Board of Directors, including Defendants Demetris Giannoulias, 

George Giannoulias, Conlon, Dry, Balourdos, and Zagorski. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph because they are not in possession of 

materials that would permit them to admit or deny such allegations. 

ALLEGATION NO. 72:

These loans had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loans without proper underwriting. Neither the 

borrower nor the guarantor submitted adequate financial information or tax 

returns. Defendants did not verify the assets described in the self-prepared, 

unaudited financial statements submitted by the borrower and guarantor. 

b. Defendants approved the loan even though the loan-to-value ratio did not meet the 

standards set forth in the Loan Policy. 

c. Monitoring of the borrowers’ construction draws was inadequate. Virtually all of 

the construction funds were drawn by the time construction was only 50% 

complete. 

d. In June 2008, the Defendants increased the second note to $7.1 million even 

though the borrower had sold part of the collateral securing the loan and no new 

collateral was provided. 

e. Defendants renewed the loan in March 2009, even though the borrowers’ 

financial difficulties were known, the project was not completed and the project’s 

value had dramatically decreased. 

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37 

f. Defendants’ approval of this loan and renewals evidenced their disregard of 

repeated regulatory warnings about the Bank’s underwriting and loan 

administration practices and over-concentrations of ADC/CRE out-of-territory 

loans. 

ANSWER:

The Giannoulias Defendants deny that the loans were approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants are unable to answer subparagraph (b) because it is unclear as to which 

loan(s) the allegations refer. The Giannoulias Defendants deny the allegations in the first 

sentence in subparagraph (c). The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to the truth of the remaining allegations in 

subparagraph (c) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the truth of the allegations in subparagraphs (d) and (e) because 

they are not in possession of materials that would permit them to admit or deny such allegations, 

but deny any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants deny the allegations in subparagraph (f). 

ALLEGATION NO. 73:

At maturity, the borrowers defaulted on both loans.

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ANSWER:

The Giannoulias Defendants admit that the loans went into default but the Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the timing of 

the default because they are not in possession of materials that would permit them to admit or 

deny such allegations. 

ALLEGATION NO. 74:

The Bank has sustained estimated damages of $8.1 million plus accrued interest on these 

loans. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on these loans. 

(c) Water Street Realty Group, LLC 

ALLEGATION NO. 75:

In April 2008, with the real estate market in shambles, the Bank made a one-year 

$8 million loan to Hershco and a third Herscho entity, Water Street Realty Group, LLC. 

Defendants approved this loan even though at the time, Hershco had five other loans with the 

Bank with a total principal balance of over $40 million. Much of Hershco’s loan portfolio was in 

distress. Hershco gave no clear or specific purpose for the loan other than for use towards his 

“future real estate investments.” 

ANSWER:

The Giannoulias Defendants admit that a one-year approximately $8 million loan was 

made to Hershco and Water Street Realty Group, LLC in approximately 2008. The Giannoulias 

Defendants deny the characterization of the real estate market in the first sentence in this 

paragraph. The Giannoulias Defendants are without knowledge or information sufficient to form 

a belief as to the truth of the allegations in the second and third sentences in this paragraph 

because they are not in possession of materials that would permit them to admit or deny such 

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39 

allegations, but deny any suggestion that the Giannoulias Defendants acted improperly or 

imprudently. The Giannoulias Defendants admit that this loan was to be used toward future real 

estate investments, but deny that Hershco gave no clear or specific purpose for this loan. 

ALLEGATION NO. 76:

The loan was approved by Officer Defendant Sguros and Director Defendants Demetris 

Giannoulias and George Giannoulias, as members of the Loan Committee; Officer Defendant 

D’Costa was noted as “absent.” The Board of Directors, including Director Defendants 

Demetris Giannoulias, George Giannoulias, Balourdos, Conlon, Dry, Zagorski and McMahon, 

also approved the loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph because they are not in possession of 

materials that would permit them to admit or deny such allegations. 

ALLEGATION NO. 77:

The loan was secured by a second lien on an apartment building in Brooklyn, New York, 

and a first lien on eight of the units, the value of which was undetermined when the loan closed. 

Hershco built the project as condominiums but, when the real estate market fell, he began renting 

the units to generate cash flow. In February, 2009, less than a year after the $8 million loan was 

made, it became apparent that the value of the collateral was insufficient to protect the Bank. 

ANSWER:

The Giannoulias Defendants admit that the loan was secured by a second mortgage and 

assignment of rents on a mixed use development and that the Bank was to receive a first 

mortgage on eight residential units within that development concurrent with the closing. The 

Giannoulias Defendants deny the remaining allegations in the first sentence in this paragraph. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

the truth of the remaining allegations in this paragraph, but deny any suggestion that the 

Giannoulias Defendants acted improperly or imprudently. 

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ALLEGATION NO. 78:

This loan had numerous deficiencies including, but not limited to, the following: 

a. The Loan Committee and Board of Directors approved the loan even though there 

had been a major downturn in the real estate market. The Bank increased its 

exposure to a single high-volume borrower at a time when collateral values were 

plummeting. 

b. The Loan Committee and Board of Directors failed to require proper 

underwriting. The borrower had insufficient liquid assets with which to repay the 

loan. The income to be generated from the collateral property was insufficient to 

service the loan obligations. The calculation of the borrower’s cash flow from 

which the principal and interest was to be paid was based his adjusted gross 

income, which, given the declining real estate market, similarly was subject to 

decline. Moreover, the credit analysis did not describe his obligations to other 

lenders. 

c. The loan was inadequately collateralized. The credit analysis improperly 

calculated the loan-to-value ratio based on the purported value of the project “as 

completed.” Had the “as is” loan-to-value ratio been used, as it should have, the 

loan-to-value ratio would have violated the Bank’s loan policy and 12 C.F.R. 

§ 365.2, Appendix A. Moreover, the loan-to-value ratio of Hershco’s portfolio at 

Broadway was based on “as completed” values and/or outdated appraisals, which 

did not reflect the declining real estate market. 

d. The loan presentation did not specify what the money would be used for, saying 

only that funds would be used for unspecified “future real estate investments.” 

Given the declining real estate market when the loan was made, and the 

borrower’s large preexisting indebtedness to the Bank, this was imprudent. 

e. The loan evidenced the Loan Committee and Board of Directors’ repeated 

disregard of regulatory warnings about the Bank’s underwriting and overconcentration of ADC/CRE out-of-territory loans. 

ANSWER:

The Giannoulias Defendants admit that the loan was approved. The Giannoulias 

Defendants deny the characterization of the real estate market in the first sentence in 

subparagraph (a). The Giannoulias Defendants admit that the Bank increased its exposure to this 

borrower based on this loan, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants deny the remaining allegations in 

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41 

subparagraph (a). The Giannoulias Defendants deny that the loan was approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (b) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants deny the allegations in the first sentence in paragraph (c). The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the truth of the remaining allegations in subparagraph (c) because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants deny 

the allegations in subparagraphs (d) and (e). 

ALLEGATION NO. 79:

In February 2009, Water Street Realty Group, LLC filed for bankruptcy. The Bank took 

no efforts to pursue Hershco. 

ANSWER:

The Giannoulias Defendants admit that Water Street Realty Group, LLC filed for 

bankruptcy in approximately 2009. The Giannoulias Defendants deny the allegations in the 

second sentence in this paragraph. 

ALLEGATION NO. 80:

The Bank has sustained estimated damages of $4.3 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

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Normandy Shores, LLC 

ALLEGATION NO. 81:

In May 2006, Officer Defendant Sguros and Director Defendants Demetris Giannoulias 

and George Giannoulias, as members of the Loan Committee, approved a two-year $28 million, 

interest-only loan to Normandy Shores, LLC, guaranteed by Les G. Jones. The Board of 

Directors, including Defendants Demetris and George Giannoulias, Conlon, McMahon and Dry, 

also approved the loan. The loan’s purpose was to refinance a land loan and development of a 

townhouse condominium project in Miami Beach, Florida. The first year of interest payments 

was funded by a loan reserve created out of the loan proceeds. 

ANSWER:

The Giannoulias Defendants admit that a two-year approximately $28 million loan was 

approved in approximately 2006 for Normandy Shores, LLC, which was guaranteed by Les G. 

Jones. The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the composition of the Loan Committee or the Board with respect to the approval of 

this loan because they are not in possession of materials that would permit them to admit or deny 

such allegations. The Giannoulias Defendants admit that the loan was to be used for the 

development of a townhouse condominium project in Miami Beach, Florida. The Giannoulias 

Defendants admit that interest payments on this loan were originally to be made from an interest 

reserve funded by the loan proceeds but deny that there was anything improper or imprudent 

with such an arrangement. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 82:

The loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. In violation of the 

Loan Policy, neither the borrower nor the guarantor submitted a loan application 

or tax returns. The guarantor’s financial information demonstrated that his net 

worth was limited and generally illiquid. The guarantor (who had lived in Brazil 

for the preceding five years) did not have the ability to repay the loan. 

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b. Defendants caused the loan to be approved even though it was based on the 

appraised value of the property “as completed” as opposed to its value “as is.” 

Had the “as is” value been used, the loan would have violated the Loan Policy’s 

allowed loan-to-value ratio. Indeed, the “as is” value of the collateral was less 

than the loan amount. 

c. Even though construction was behind schedule and millions of dollars over 

budget, Defendants made no effort to protect the Bank either by requiring 

additional collateral or modifying the loan’s terms. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting and that the guarantor did not have the ability to repay the loan when the loan was 

approved. The Giannoulias Defendants are without knowledge or information sufficient to form 

a belief as the truth of the remaining allegations in subparagraph (a) because they are not in 

possession of materials that would permit them to admit or deny such allegations, but deny any 

suggestion that the Giannoulias Defendants acted improperly or imprudently. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as the truth of the 

allegations in subparagraph (b) because they are not in possession of materials that would permit 

them to admit or deny such allegations, but deny any suggestion that the Giannoulias Defendants 

acted improperly or imprudently. The Giannoulias Defendants deny that they took no effort to 

protect the Bank. The Giannoulias Defendants are without knowledge or information sufficient 

to form a belief as the truth of the remaining allegations in subparagraph (c) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. 

ALLEGATION NO. 83:

When the interest reserve was depleted, the loan went into default. Defendants did not 

pursue the guarantor to mitigate the Bank’s losses.

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ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the depletion of the interest reserve or the default of the loan because they are not in 

possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants deny the allegations in the second sentence in this paragraph. 

ALLEGATION NO. 84:

The Bank has sustained estimated damages of $19.4 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

ASAT, Inc. 

ALLEGATION NO. 85:

In May 2007, Officer Defendants Sguros and D’Costa and Director Defendants Demetris 

Giannoulias and George Giannoulias, as members of the Loan Committee, approved a two-year 

$12.7 million interest-only construction loan to ASAT, Inc. and Mohammed Siddiqui. The 

Board of Directors, including Defendants Demetris Giannoulias and George Giannoulias, 

Balourdos, Conlon, Dry and Zagorski, also approved the loan. The loan’s purpose was to 

develop a mixed-use building in Chicago. The interest payments were funded by an interest 

reserve created out of the loan proceeds. 

ANSWER:

The Giannoulias Defendants admit that a two-year approximately $12.7 million interestonly construction loan was approved in approximately 2007 for ASAT, Inc. and Mohammed 

Siddiqui. The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the composition of the Loan Committee or the Board with respect to the approval of 

this loan because they are not in possession of materials that would permit them to admit or deny 

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45 

such allegations. The Giannoulias Defendants admit the allegations in the third sentence in this 

paragraph. The Giannoulias Defendants admit that interest payments on this loan were originally 

to be made from an interest reserve funded by the loan proceeds but deny that there was anything 

improper or imprudent with such an arrangement. 

ALLEGATION NO. 86:

The loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrowers did 

not submit a loan application. Siddiqui’s unaudited, self-prepared financial 

statements contained little detail; his tax returns lacked information about his 

business income. The borrowers were not required to provide global cash flow 

analyses. 

b. When the interest reserve funded by the loan was depleted, the loan went into 

default. Construction draws continued to be funded even though the borrower 

was in default, the loan had not yet been renewed, and it was evident that the 

Bank would not be repaid. 

c. In August 2009, three months after the borrower’s default, the loan was renewed 

without an updated appraisal despite the borrowers’ obviously deteriorating 

financial conditions and the deterioration of the real estate market. 

d. The loan and its imprudent renewal evidenced Defendants’ disregard for repeated 

regulatory warnings about the Bank’s loan administration practices. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the truth of the allegations in subparagraph (b) because they are not in possession of materials 

that would permit them to admit or deny such allegations, but deny any suggestion that the 

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Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants deny the 

characterization of the real estate market in subparagraph (c). The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the truth of the remaining 

allegations in subparagraph (c) because they are not in possession of materials that would permit 

them to admit or deny such allegations, but deny any suggestion that the Giannoulias Defendants 

acted improperly or imprudently. The Giannoulias Defendants deny the allegations in 

subparagraph (d). 

ALLEGATION NO. 87:

When the loan went into default, Defendants did not pursue the borrowers. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 88:

The Bank has sustained estimated damages of $8.1 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

261 East 78 Realty Corp. 

ALLEGATION NO. 89:

In April 2007, Officer Defendants Sguros and D’Costa and Director Defendants Demetris 

Giannoulias and George Giannoulias, as members of the Loan Committee, approved a one-year 

$10 million interest-only loan to 261 East 78 Realty Corp. and Lee Moncho. The Board of 

Directors, including Defendants Demetris and George Giannoulias, Balourdos, Conlon, Dry and 

Zagorski, also approved the loan. The loan’s purpose was to refinance property and acquire an 

adjacent building in New York, New York. The plan was to redevelop the properties as a 

medical office building. The interest payments were funded by an interest reserve created out of 

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47 

the loan proceeds. Between June 2008 and September 2009, the loan was renewed four times 

and, at the last renewal, the loan was increased by $2.475 million. 

ANSWER:

The Giannoulias Defendants admit that a one-year approximately $10 million interestonly loan was approved in approximately 2007 for 261 East 78 Realty Corp. and Lee Moncho. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the composition of the Loan Committee or the Board with respect to the approval of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. The Giannoulias Defendants admit that the loan’s purpose was to acquire a 

development site with subsequent construction of a medical office building. The Giannoulias 

Defendants admit that interest payments on this loan were originally to be made from an interest 

reserve funded by the loan proceeds but deny that there was anything improper or imprudent 

with such an arrangement. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the truth of the allegations in the sixth sentence in this paragraph

because they are not in possession of materials that would permit them to admit or deny such 

allegations, but deny any suggestion that the Giannoulias Defendants acted improperly or 

imprudently. 

ALLEGATION NO. 90:

The loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrowers did 

not submit a loan application. The borrowers had no capacity to repay the loan. 

Unaudited, self-prepared financial statements showed that virtually all of 

Moncho’s assets were illiquid. His tax returns did not include information about 

his business income. 

b. Defendants approved the loan before a completed appraisal on the property was 

received. 

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48 

c. Defendants took no steps to obtain additional security or modify the loan’s terms 

when it became clear that neither the borrowers nor the collateral could support 

the loan. 

d. Defendants’ multiple renewals of the loan were imprudent. Each of the four loan 

renewals was made after the loan had defaulted and the real estate market was in 

sharp decline. The September 2009 renewal and loan increase was without Board 

of Directors’ approval. 

e. The loan and its renewals evidenced Defendants’ disregard for regulatory 

warnings about the Bank’s underwriting and over-concentrations of ADC/CRE 

out-of-territory loans. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting and that the borrowers did not have the capacity to repay the loan when the loan 

was approved. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the truth of the allegations in subparagraph (b) because they are not in possession of materials 

that would permit them to admit or deny such allegations, but deny any suggestion that the 

Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants deny the 

allegations in subparagraph (c). The Giannoulias Defendants deny that they acted imprudently 

with respect to this loan. The Giannoulias Defendants deny the characterization of the real estate 

market in subparagraph (d). The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the truth of the remaining allegations in subparagraph (d) because 

they are not in possession of materials that would permit them to admit or deny such allegations, 

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49 

but deny any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants deny the allegations in subparagraph (e). 

ALLEGATION NO. 91:

When the interest reserve was depleted, the loan went into default. Defendants took no 

action to pursue the borrowers. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the depletion of the interest reserve or default of the loan because they are not in 

possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants deny the allegations in the second sentence in this paragraph. 

ALLEGATION NO. 92:

The Bank has sustained estimated damages of $5 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

Loan to John R. DeSilva 

ALLEGATION NO. 93:

In March 2007, Officer Defendants Sguros and D’Costa and Director Defendants 

Demetris Giannoulias and George Giannoulias, as members of the Loan Committee, approved a 

one-year $10.5 million interest-only loan to John DeSilva. The Board of Directors, including 

Defendants Demetris and George Giannoulias, Balourdos, Conlon, Dry and Zagorski, also 

approved the loan. The loan’s primary purposes were to refinance and renovate investment 

properties in Florida, buy out DeSilva’s business partner in a Florida resort, acquire a personal 

residence in Florida, and renovate other properties in California and Florida. The loan was 

collateralized by a first mortgage on two of the Florida properties. Interest payments were 

funded by an interest reserve created out of the loan’s proceeds. 

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ANSWER:

The Giannoulias Defendants admit that a one-year approximately $10.5 million interestonly loan was approved in approximately 2007 for John DeSilva. The Giannoulias Defendants 

are without knowledge or information sufficient to form a belief as to the composition of the 

Loan Committee or the Board with respect to the approval of this loan because they are not in 

possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants admit the allegations in the third and fourth sentences in this paragraph. 

The Giannoulias Defendants admit that interest payments on this loan were originally to be made 

from an interest reserve funded by the loan proceeds but deny that there was anything improper 

or imprudent with such an arrangement. 

ALLEGATION NO. 94:

The loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrower did not 

submit a loan application; DeSilva’s unaudited financial statements showed that 

virtually all of his assets were illiquid. 

b. Defendants allowed the loan to be funded before the Board of Directors approved 

the loan and before a completed appraisal had been received. 

c. In June 2008, Defendants allowed the loan to be renewed and increased by over 

$2 million after the loan had matured and defaulted, without an updated appraisal. 

Defendants approved this increase even though the borrower’s financial condition 

had deteriorated and the value of the collateral had decreased. 

d. The loan and its renewal evidenced Defendants’ disregard of repeated regulatory 

warnings about the Bank’s underwriting and over-concentrations of ADC/CRE 

out-of-territory loans. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

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in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants deny that they allowed the loan to be funded before the Board of 

Directors confirmed the loan. The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to the truth of the remaining allegations in 

subparagraph (b) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants admit that the loan was renewed and 

increased after the Bank received additional collateral. The Giannoulias Defendants deny that 

the loan was renewed without an updated appraisal. The Giannoulias Defendants are without 

knowledge or information sufficient to form a belief as to the truth of the remaining allegations 

in subparagraph (c) because they are not in possession of materials that would permit them to 

admit or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants deny the allegations in subparagraph 

(d). 

ALLEGATION NO. 95:

When the interest reserve was depleted, the loan went into default. Defendants took no 

action to pursue DeSilva. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the depletion of the interest reserve or default of the loan because they are not in 

possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants deny the allegations in the second sentence in this paragraph. 

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ALLEGATION NO. 96:

The estimated damages to the Bank related to this loan are $8.1 million, plus accrued 

interest. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

Loans to Stark and Perlmutter or Entities They Owned or Controlled 

(a) The Bedford Lofts, LLC 

ALLEGATION NO. 97:

In February, 2007, the Bank made a $6.2 million construction loan to the Bedford Lofts, 

LLC, Menachem Stark, and Israel Perlmutter to develop a condominium project in Brooklyn, 

New York. The loan was approved by Officer Defendants Sguros and D’Costa and the Board of 

Directors, including Demetris Giannoulias and George Giannoulias, Balourdos, Conlon, Dry and 

Zagorski. Interest payments were funded by an interest reserve created from the loan proceeds. 

ANSWER:

The Giannoulias Defendants admit that an approximately $6.2 million construction loan 

was approved in approximately 2007 for Bedford Lofts, LLC, Menachem Stark, and Israel 

Perlmutter to develop a condominium project in Brooklyn, New York. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the 

composition of the Loan Committee or the Board with respect to the approval of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. The Giannoulias Defendants admit that interest payments on this loan were 

originally to be made from an interest reserve funded by the loan proceeds but deny that there 

was anything improper or imprudent with such an arrangement. 

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ALLEGATION NO. 98:

This loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrowers’ 

financial statements showed that they were highly illiquid and unable to pay the 

loan. Perlmutter lacked sufficient credit to obtain a credit score; Stark’s credit 

score was poor. 

b. Despite the real estate market’s condition, the depletion of the interest reserve and 

the borrowers’ deteriorating financial condition, the Defendant members of the 

Loan Committee (Demetris and George Giannoulias, Sguros, and D’Costa) 

renewed the loan twice, without requiring an updated appraisal or complete and 

current financial information from the borrowers. These renewals included new 

interest reserves, which masked borrower repayment stress. 

c. Approving this loan and its renewals evidenced Defendants’ disregard of repeated 

regulatory warnings about out-of-territory loans and poor underwriting. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting and that the borrowers were unable to pay the loan when the loan was approved. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the truth of the remaining allegations in subparagraph (a) because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants 

admit that the loan was renewed twice and that the renewals included interest reserves, but deny 

that there was anything improper or imprudent with including interest reserves. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the truth of the 

remaining allegations in subparagraph (b) because they are not in possession of materials that 

would permit them to admit or deny such allegations, but deny any suggestion that the 

Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants deny the 

allegations in subparagraph (c). 

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ALLEGATION NO. 99:

When the interest reserves from the loan renewals were exhausted, the loans [sic] went 

into default. 

ANSWER:

The Giannoulias Defendants admit that the loan went into default. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the reason for 

the default because they are not in possession of materials that would permit them to admit or 

deny such allegations. 

ALLEGATION NO. 100:

The Bank sustained estimated damages of $1.5 million plus accrued interest on this loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

(b) Southside House, LLC 

ALLEGATION NO. 101:

In December 2007, Officer Defendants Sguros and D’Costa and Director Defendants 

Demetris Giannoulias and George Giannoulias, as members of the Loan Committee, approved a 

one-year $1.5 million interest-only loan to South Side House, LLC, Menachem Stark, and Israel 

Perlmutter. The loan’s purpose was to provide undefined working capital for the borrowers’ 

New York-based real estate business. The last four interest payments were funded by an interest 

reserve. 

ANSWER:

The Giannoulias Defendants admit that a one-year approximately 1.5 million interestonly loan was approved in approximately 2007 for South Side House, LLC, Menachem Stark, 

and Israel Perlmutter. The Giannoulias Defendants admit that the loan’s purpose was to provide 

funds for working capital needs for the borrowers’ New-York based real estate businesses, but 

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deny that this purpose was “undefined.” The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to the composition of the Loan Committee or the Board 

with respect to the approval of this loan because they are not in possession of materials that 

would permit them to admit or deny such allegations. The Giannoulias Defendants are without 

knowledge or information sufficient to form a belief as to the last four interest payments because 

they are not in possession of materials that would permit them to admit or deny such allegations, 

but deny any suggestion that the Giannoulias Defendants acted improperly or imprudently. 

ALLEGATION NO. 102:

The loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrowers did 

not submit a loan application; their unaudited financial statements contained little 

detail; virtually all of the borrowers’ assets were illiquid and the borrowers did 

not have the ability to repay the loan. 

b. The loan presentation did not adequately describe the purpose of the loan, merely 

stating that the loan would be used for “working capital” for the borrowers’ real 

estate business. 

c. The loan was secured by a $1.5 million second mortgage on a property in New 

York behind a $29 million mortgage. 

d. The loan evidenced Defendants’ disregard for repeated regulatory warnings about 

loans outside of the Bank’s territory. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting and that the borrowers did not have the ability to repay the loan when the loan was 

approved. The Giannoulias Defendants are without knowledge or information sufficient to form 

a belief as to the truth of the remaining allegations in subparagraph (a) because they are not in 

possession of materials that would permit them to admit or deny such allegations, but deny any 

suggestion that the Giannoulias Defendants acted improperly or imprudently. The Giannoulias 

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Defendants deny the allegations in subparagraph (b). The Giannoulias Defendants admit the 

allegations in subparagraph (c). The Giannoulias Defendants deny the allegations in 

subparagraph (d). 

ALLEGATION NO. 103:

The borrower defaulted on the first mortgage and foreclosure proceedings were initiated 

by the first mortgage holder, extinguishing the Bank’s interest in the collateral. Defendants took 

no action to pursue Stark and Perlmutter. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in the first sentence in this paragraph because they are not

in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants deny the allegations in the second sentence in this paragraph. 

ALLEGATION NO. 104:

The Bank has sustained estimated damages of $1.9 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

625 W. Division Condominiums, L.P. 

ALLEGATION NO. 105:

In December 2007, Officer Defendants Sguros and D’Costa and Director Defendants 

Demetris Giannoulias and George Giannoulias, as members of the Loan Committee, approved a 

nine-month $5.35 million interest-only loan to 625 W. Division Condominiums, L.P., John 

Breugelmans, and Jan-Peter Breugelmans. The loan’s purpose was to refinance raw land in 

Chicago, Illinois, at a time when the real estate market was in sharp decline. The interest 

payments were funded by an interest reserve created out of the loan proceeds. 

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ANSWER:

The Giannoulias Defendants admit that a nine-month approximately $5.35 million 

interest-only loan was approved in approximately 2007 for 625 W. Division Condominiums, 

L.P., John Breugelmans, and Jan-Peter Breugelmans. The Giannoulias Defendants are without 

knowledge or information sufficient to form a belief as to the composition of the Loan 

Committee or the Board with respect to the approval of this loan because they are not in 

possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants admit that the loan’s purpose was to refinance property located in 

Chicago, Illinois. The Giannoulias Defendants deny the characterization of the real estate 

market in the second sentence in this paragraph. The Giannoulias Defendants admit that interest 

payments on this loan were originally to be made from an interest reserve funded by the loan 

proceeds but deny that there was anything improper or imprudent with such an arrangement. 

ALLEGATION NO. 106:

The loan had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrowers’ 

financial statements showed that virtually all of their assets were illiquid. The 

borrowers did not submit tax returns in violation of the Bank’s Loan Policy. 

b. Defendants approved the loan even though the appraisal of the subject property 

was over a year old and did not reflect its current value. 

c. In September 2009, Defendants approved a renewal of the loan even though the 

investors who were expected to make the payments for the renewal term had been 

indicted and the borrower had been unable to obtain funding to redevelop the 

land. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting. The Giannoulias Defendants are without knowledge or information sufficient to 

form a belief as to the truth of the remaining allegations in subparagraph (a) because they are not 

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in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the truth of the allegations in subparagraph (b) because they are not in possession of materials 

that would permit them to admit or deny such allegations, but deny any suggestion that the 

Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants admit 

that the loan was renewed in approximately the second half of 2009 but deny that this renewal 

was improper or imprudent. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the truth of the remaining allegations in subparagraph (c) because 

they are not in possession of materials that would permit them to admit or deny such allegations, 

but deny any suggestion that the Giannoulias Defendants acted improperly or imprudently. 

ALLEGATION NO. 107:

When the interest reserve was depleted, the borrowers defaulted on the loan. Defendants 

took no action to pursue the Breugelmans. 

ANSWER:

The Giannoulias Defendants admit that the loan went into default, but they are without 

knowledge or information sufficient to form a belief as to the reason for the default or the timing 

relative to the interest reserve because they are not in possession of materials that would permit 

them to admit or deny such allegations. The Giannoulias Defendants deny the allegations in the 

second sentence in this paragraph. 

ALLEGATION NO. 108:

The Bank has sustained estimated damages of $2.8 million plus accrued interest on this 

loan. 

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ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

Loans to Lawrence Properties, 4750 N. Winthrop, James Gouskos and 

Alexander Dobroveanu 

ALLEGATION NO. 109:

In March and April 2007, Officer Defendants Sguros and D’Costa and Director 

Defendants Demetris Giannoulias and George Giannoulias, as members of the Loan Committee, 

approved two loans to James Gouskos, Alexander Dobroveanu, and real estate entities owned by 

them known as Lawrence Properties, LLC and 4750 N. Winthrop, LLC. 

ANSWER:

The Giannoulias Defendants admit that two loans were approved in approximately 2007 

for James Gouskos, Alexander Dobroveanu, and real estate entities owned by them known as 

Lawrence Properties, LLC and 4750 N. Winthrop, LLC. The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the composition of the Loan 

Committee or the Board with respect to the approval of these loans because they are not in 

possession of materials that would permit them to admit or deny such allegations. 

ALLEGATION NO. 110:

The April 2007 loan was a five-year $2.9 million loan to refinance a commercial property 

in Chicago secured by a mortgage on the commercial property being refinanced by the loan. The 

March 2007 loan was a six-month $2.7 million interest-only loan secured by a mortgage on a 

vacant lot in Chicago on which the borrower was planning to develop a mixed use condominium 

building. The interest payments on the March 2007 loan were funded by an interest reserve 

created out of the loan proceeds. 

ANSWER:

The Giannoulias Defendants admit that a five-year approximately $2.9 million loan to 

refinance commercial property in Chicago, secured by a mortgage on the commercial property 

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being refinanced, was approved in approximately 2007 for Lawrence Properties, LLC. The 

Giannoulias Defendants admit that a six-month approximately $2.7 million interest-only loan 

secured by a mortgage on a development site in Chicago was approved in approximately 2007 

for 4750 N. Winthrop, LLC. The Giannoulias Defendants admit that interest payments on the 

March 2007 loan were originally to be made from an interest reserve funded by the loan 

proceeds but deny that there was anything improper or imprudent with such an arrangement. 

ALLEGATION NO. 111:

These loans had numerous deficiencies including, but not limited to, the following: 

a. Defendants approved the loan without proper underwriting. The borrowers did 

not submit a loan application. Their unaudited, self-prepared, outdated financial 

statements showed that their assets were limited and illiquid. The Bank’s cash 

flow analysis of the April 2007 loan showed that the expected rental income for 

the property could not service the debt. 

b. In violation of the Loan Policy, the appraisal for the March 2007 loan was 

received after the loan was approved. 

c. Defendants renewed the March 2007 loan, even though the borrowers had 

defaulted when the six-month interest reserve was depleted. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting. Defendants are without knowledge or information to form a belief as to the truth 

of the remaining allegations in subparagraph (a) because they are not in possession of materials 

that would permit them to admit or deny such allegations, but deny any suggestion that the 

Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants are 

without knowledge or information sufficient to form a belief as to the truth of the allegations in 

subparagraphs (b) and (c) because they are not in possession of materials that would permit them 

to admit or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. 

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ALLEGATION NO. 112:

After the loans closed, a second bank claimed to have a first mortgage on certain property 

securing the loans. Defendants did not conduct proper due diligence on this issue or protect the 

Bank’s interest. When the renewed interest reserve was depleted, the March 2007 loan went into 

default. Likewise, the borrower defaulted on the April 2007 loan. Broadway commenced 

foreclosure proceedings on both loans, but these proceedings were fatally compromised by the 

second bank’s claim that it had a first mortgage on the property. 

ANSWER:

The Giannoulias Defendants admit the allegations in the first sentence in this paragraph. 

The Giannoulias Defendants deny the allegations in the second sentence in this paragraph. The 

Giannoulias Defendants admit that both loans went into default and that the Bank commenced 

foreclosure proceedings. The Giannoulias Defendants deny that the foreclosure proceedings 

were compromised by the second bank’s claim that it had a first mortgage on the property. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the truth of the remaining allegations in this paragraph because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. 

ALLEGATION NO. 113:

The Bank has sustained estimated damages of $4.2 million plus accrued interest on these 

loans. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

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Krieger SPE, LLC 

ALLEGATION NO. 114:

In January 2007, the Bank made a two-year, $15.35 million, interest-only loan to Krieger 

SPE, LLC, Andrew Krieger, and Valerie Krieger, the stated purpose of which, according to the 

credit analysis, was “to refinance [the borrowers’] real estate portfolio.” The credit analysis did 

not identify the loans to be refinanced. 

ANSWER:

The Giannoulias Defendants admit that a two-year approximately $15.35 million, 

interest-only loan was approved in approximately 2007 for Krieger SPE, LLC, Andrew Krieger, 

and Valerie Krieger. The Giannoulias Defendants admit that the purpose of the loan was to 

refinance existing mortgages on property. The Giannoulias Defendants deny the remaining 

allegations in this paragraph. 

ALLEGATION NO. 115:

The loan was approved by Officer Defendants Sguros and D’Costa and Director 

Defendants Demetris Giannoulias and George Giannoulias, as members of the Loan Committee. 

The Board of Directors, including Director Defendants Demetris Giannoulias, George 

Giannoulias, McMahon, Conlon, Dry, Balourdos and Zagorski, also approved the loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the composition of the Loan Committee or the Board with respect to the approval of 

this loan because they are not in possession of materials that would permit them to admit or deny 

such allegations. 

ALLEGATION NO. 116:

Loan proceeds of $1.5 million were used to establish an interest reserve to fund monthly 

interest payments for one year. 

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ANSWER:

The Giannoulias Defendants admit that interest payments on the loan were originally to 

be made from an interest reserve funded by the loan proceeds but deny that there was anything 

improper or imprudent with such an arrangement. 

ALLEGATION NO. 117:

This loan had numerous deficiencies including, but not limited to, the following: 

a. The Loan Committee and Board of Directors failed to require proper 

underwriting. The borrowers’ unaudited financial statements showed that they 

had insufficient liquid assets with which to repay the loan. From the borrowers’ 

tax returns, it was apparent that the borrowers lacked sufficient cash flow to make 

the interest payments once the interest reserve was depleted. 

b. In addition to selling their personal residence, the sources of repayment for the 

loan were a yet-to-be-obtained construction loan with another lender and 

liquidation of the collateral. There was no analysis in the loan file confirming that 

construction financing could be obtained or an explanation as to how the proceeds 

of a construction loan could be used to repay Broadway’s loan. 

d. [sic] The loan was outside of the Bank’s geographic area, where the Bank did not have 

 staff or familiarity with the local real estate market to allow it to adequately assess 

 or monitor the loan. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting and that the borrowers had no ability repay the loan when the loan was approved. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the truth of the remaining allegations in subparagraph (a) because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants 

admit that sources of repayment for this loan included, among other things, the sale of a personal 

residence and construction loan, but deny that these were the only sources of repayment. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

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the truth of the remaining allegations in subparagraph (b) because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants deny 

the allegations in subparagraph (d). 

ALLEGATION NO. 118:

In January 2009, when the loan came due, the borrowers defaulted. In February 2010, 

the Bank foreclosed on the loan. 

ANSWER:

The Giannoulias Defendants admit that the borrower defaulted, but they are without 

knowledge or information sufficient to form a belief as to the reason or date for the default 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. The Giannoulias Defendants admit that the Bank foreclosed on the loan in 

approximately 2010. 

ALLEGATION NO. 119:

The Bank has sustained estimated damages of $4.5 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

Lynn & Anderson Homes, LLC 

ALLEGATION NO. 120:

In April 2007, the Bank extended a $9.1 million one-year, interest only, non-revolving 

line of credit to Lynn & Anderson Homes LLC, Fuel Group, LLC, Northgate Investment, LLC, 

Indira Lalwani, and Raj Assomul. The loan was approved by Officer Defendants Sguros and 

D’Costa and Director Defendants Demetris Giannoulias and George Giannoulias, as members of 

the Loan Committee. The Board of Directors, including Director Defendants Demetris 

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Giannoulias, George Giannoulias, McMahon, Conlon, Dry, Balourdos and Zagorski, also 

approved the loan. 

ANSWER:

The Giannoulias Defendants admit that an approximately $9.1 million one-year, interest 

only, non-revolving line of credit was approved in approximately 2007 for Lynn & Anderson 

Homes LLC, Fuel Group, LLC, Northgate Investment, LLC, Indira Lalwani, and Raj Assomul. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the composition of the Loan Committee or the Board with respect to the approval of this loan 

because they are not in possession of materials that would permit them to admit or deny such 

allegations. 

ALLEGATION NO. 121:

The loan’s purpose was to refinance a property in Tampa, Florida and fund the 

development of townhomes and condominiums at the site. The loan proceeds were to finance 

the first phase of project costs and fund an interest reserve. At origination, the appraised value of

the collateral property “as is” was $2.7 million, which was well below the loan amount. 

ANSWER:

The Giannoulias Defendants admit the first and second sentences in this paragraph, but 

deny that there is anything improper or imprudent with funding an interest reserve from loan 

proceeds. The Giannoulias Defendants admit that the appraised “as is” value of the collateral 

property was approximately $2.7 million but state that this appraisal amount was above the 

amount funded on this loan. The Giannoulias Defendants deny the remaining allegations in this 

paragraph. 

ALLEGATION NO. 122:

In April 2008, when the loan matured, the borrowers defaulted. By then, the appraised 

value of the collateral “as is” had dropped to $2.3 million. The borrowers were unable to obtain 

permanent construction financing for the project. Nonetheless, the Loan Committee (Defendants 

Demetris Giannoulias, George Giannoulias, Sguros and D’Costa) converted the loan from a line 

of credit to an interest-only loan of $2.4 million, the principal balance on the line of credit. 

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ANSWER:

The Giannoulias Defendants admit that the loan was renewed in approximately 2008 and 

that the “as is” appraisal at that time was approximately $2.3 million. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as to the truth of the 

allegations in the third sentence in this paragraph because they are not in possession of materials 

that would permit them to admit or deny such allegations. The Giannoulias Defendants admit 

that this loan was converted into an interest-only line of credit of approximately $2.4 million. 

The Giannoulias Defendants are without knowledge or information sufficient to form a belief as 

to the composition of the Loan Committee with respect to the renewal of this loan because they 

are not in possession of materials that would permit them to admit or deny such allegations. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the principal balance on the line of credit because they are not in possession of materials that 

would permit them to admit or deny such allegations. The Giannoulias Defendants deny the 

remaining allegations in this paragraph. 

ALLEGATION NO. 123:

Both the initial loan and subsequent modification had numerous deficiencies including, 

but not limited to, the following: 

a. The Loan Committee and Board of Directors failed to require proper 

underwriting. Lalwani’s unaudited personal financial statement showed that she 

had insufficient liquid assets or income with which to repay the loan. In violation 

of the Bank’s loan policy, the Loan Committee and Board of Directors failed to 

require current tax returns or income data from the borrowers before approving 

the loan. 

b. This was a speculative development project with insufficient funding. The loan 

funds and the borrower’s equity were insufficient to complete the first phase of 

the construction project and there was no funding in place to complete the second 

phase. Moreover, the borrower was unable to repay the loan at the end of its oneyear term since construction could not be finished and the individual 

condominium units sold within that time period. 

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c. In approving the original loan, the Loan Committee and Board of Directors 

improperly relied on the “as completed” value of the property rather than the “as 

is” value. Using the property’s “as is” value, the loan exceeded the allowable 

loan-to-valtie ratio under the Bank’s loan policy and violated 35 C.F.R. § 365.2, 

Appendix A. 

d. The Loan Committee approved the loan’s renewal even though the borrowers had 

been unable to start construction and had depleted their available cash. 

e. The loan was outside of the Bank’s geographic area, where the Bank did not have 

staff or familiarity with the local real estate market to allow it to adequately assess 

or monitor the loan. 

ANSWER:

The Giannoulias Defendants deny that the loan was approved without proper 

underwriting and that Lalwani was unable to repay the loan when the loan was approved. The 

Giannoulias Defendants deny that the Bank failed to require tax returns from the borrowers. The 

Giannoulias Defendants are without knowledge or information sufficient to form a belief as to 

the truth of the remaining allegations in subparagraph (a) because they are not in possession of 

materials that would permit them to admit or deny such allegations, but deny any suggestion that 

the Giannoulias Defendants acted improperly or imprudently. The Giannoulias Defendants deny 

the first sentence in subparagraph (b). The Giannoulias Defendants are without knowledge or 

information sufficient to form a belief as to the truth of the remaining allegations in 

subparagraph (b) because they are not in possession of materials that would permit them to admit 

or deny such allegations, but deny any suggestion that the Giannoulias Defendants acted 

improperly or imprudently. The Giannoulias Defendants are without knowledge or information 

sufficient to form a belief as to the truth of the allegations in subparagraph (c) because they are 

not in possession of materials that would permit them to admit or deny such allegations, but deny 

any suggestion that the Giannoulias Defendants acted improperly or imprudently. The 

Giannoulias Defendants admit that the loan was renewed. The Giannoulias Defendants are 

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without knowledge or information sufficient to form a belief as to the truth of the remaining 

allegations in subparagraph (d) because they are not in possession of materials that would permit 

them to admit or deny such allegations, but deny any suggestion that the Giannoulias Defendants 

acted improperly or imprudently. The Giannoulias Defendants deny the allegations in 

subparagraph (e). 

ALLEGATION NO. 124:

When the renewed loan came due in December 2008, the borrowers defaulted. The Bank 

took no action to pursue Lalwani or Assomul. 

ANSWER:

The Giannoulias Defendants admit that the borrower defaulted. The Giannoulias 

Defendants are without knowledge or information sufficient to form a belief as when the default 

occurred because they are not in possession of materials that would permit them to admit or deny 

such allegations. The Giannoulias Defendants deny the allegations in the second sentence in this 

paragraph. 

ALLEGATION NO. 125:

The Bank has sustained estimated damages of $2 million plus accrued interest on this 

loan. 

ANSWER:

The Giannoulias Defendants are without knowledge or information sufficient to form a 

belief as to the truth of the allegations in this paragraph. The Giannoulias Defendants deny that 

they caused the alleged damages on this loan. 

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CLAIMS FOR RELIEF 

COUNT I 

(Gross Negligence – Director Defendants and Officer Defendants) 

ALLEGATION NO. 126:

FDIC-R realleges and incorporates by reference the allegations contained in paragraphs 1 

through 125 as if fully set forth herein. 

ANSWER:

The Giannoulias Defendants repeat and incorporate their answers to paragraphs 1 through 

125. 

ALLEGATION NO. 127:

Section 1821(k) of the Financial Institutions Reform, Recovery and Enforcement Act 

(“FIRREA”) holds directors and officers of financial institutions personally liable for loss or 

damage caused by their “gross negligence,” as defined by applicable state law. 

ANSWER:

The Giannoulias Defendants admit that this paragraph purports to summarize Section 

1821(k) of FIRREA. Answering further, the Giannoulias Defendants deny any allegations in this 

paragraph that are different from, contrary to and/or seek to characterize or draw legal 

conclusions from the express terms of FIRREA. 

ALLEGATION NO. 128:

The Officer Defendants and Director Defendants owed Broadway a duty to use 

reasonable care, skill, and diligence in the performance of their duties, including, but not limited 

to: (a) conducting proper due diligence on each proposed loan to inform themselves about the 

risks such loan posed to the Bank before approving it; (b) complying with the Bank’s Loan 

Policy; (c) ensuring that the loans they approved were underwritten in a safe and sound manner; 

(d) ensuring that the loans they approved were secured by sufficiently valuable collateral and 

guarantees to prevent or minimize the Bank’s risk of loss; (e) ensuring that the loans they 

approved did not violate applicable banking laws and regulations; (f) ensuring that the loans they 

approved did not create unsafe and unsound concentrations of credit; and (g) properly 

monitoring the performance of loans to minimize the Bank’s risk of loss. 

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ANSWER:

The Giannoulias Defendants admit only that Illinois law imposes certain duties on 

directors and officers of a bank. Answering further, the Giannoulias Defendants deny all 

remaining allegations in this paragraph that are different from, contrary to and/or which seek to 

characterize or draw conclusions from Illinois or other applicable law. 

ALLEGATION NO. 129:

Given the Officer Defendants’ and Director Defendants’ knowledge of the Bank’s 

troubled condition, the receipt of multiple regulatory warnings and the impaired state of the real 

estate market, the Officer Defendants’ and Director Defendants’ responsibilities to the Bank 

were heightened. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 130:

Notwithstanding these obligations, the Officer Defendants and Director Defendants 

disregarded these duties and were grossly negligent by, among other things: (a) failing to 

conduct proper due diligence on each of the Loss Loans and failing to inform themselves about 

the risks the loans posed to the Bank before approving them; (b) disregarding the Bank’s loan 

policies and approving the Loss Loans on terms that violated the Bank’s Loan Policy; (c) failing 

to ensure that the Loss Loans were underwritten in a safe and sound manner; (d) failing to ensure 

that the Loss Loans were secured by sufficiently valuable collateral and guarantees to prevent or 

minimize the Bank’s risk of loss; (e) failing to ensure that the Loss Loans did not violate 

applicable banking laws and regulations; (f) failing to ensure that the Loss Loans did not create 

unsafe and unsound concentrations of credit; and (g) ignoring regulatory warnings about the 

Bank’s lending operations. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 131:

The Officer Defendants and Director Defendants knew or should have known of the risks 

that such deficient practices represented but they persisted in this grossly negligent conduct by 

approving the Loss Loans. This was very great or gross negligence. It also was reckless. 

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ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 132:

Defendant members of the Board of Directors were grossly inattentive to the affairs of 

the Bank – deferring excessively to the whims of the Giannoulias family. As a consequence, 

reports were not closely read, little or no due diligence into the Bank’s condition was done, 

regulatory criticisms were discounted, and, for Defendant McMahon, important Board meetings 

frequently were missed or ignored. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 133:

As a direct and proximate cause of the gross negligence of the Officer Defendants and 

Director Defendants, the Bank suffered damages in excess of $114 million. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

COUNT II 

(Breach of Fiduciary Duty of Care – Director Defendants and Officer Defendants) 

ALLEGATION NO. 134:

FDIC-R realleges and incorporates by reference the allegations contained in paragraphs 1 

through 125, as if fully set forth herein. 

ANSWER:

The Giannoulias Defendants repeat and incorporate their answers to paragraphs 1 through 

125. 

ALLEGATION NO. 135:

Based on their positions as officers and directors, the Officer Defendants and Director 

Defendants were fiduciaries of the Bank and owed the Bank fiduciary duties. 

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ANSWER:

The Giannoulias Defendants admit only that Illinois law imposes certain duties on 

directors and officers of a bank. Answering further, the Giannoulias Defendants deny all 

remaining allegations in this paragraph that are different from, contrary to and/or which seek to 

characterize or draw conclusions from Illinois or other applicable law. 

ALLEGATION NO. 136:

The Officer Defendants and Director Defendants owed Broadway fiduciary duties to 

exercise reasonable care, skill and diligence in the performance of their responsibilities, 

including: (a) conducting proper due diligence on each proposed loan to inform themselves 

about the risks the loans posed to the Bank before approving it; (b) complying with the Bank’s 

Loan Policy and approving loans on terms that complied with the Loan Policy; (c) ensuring that 

the loans they approved were underwritten in a safe and sound manner; (d) ensuring that the 

loans they approved were secured by sufficiently valuable collateral and guarantees to prevent or 

minimize the Bank’s risk of loss; (e) ensuring that the loans they approved did not violate 

applicable banking laws and regulations; (f) ensuring that the loans they approved did not create 

unsafe and unsound concentrations of credit; and (g) properly monitoring the performance of 

loans to minimize the Bank’s risk of loss. 

ANSWER:

The Giannoulias Defendants admit only that Illinois law imposes certain duties on 

directors and officers of a bank. Answering further, the Giannoulias Defendants deny all 

remaining allegations in this paragraph that are different from, contrary to and/or which seek to 

characterize or draw conclusions from Illinois or other applicable law. 

ALLEGATION NO. 137:

Given the Officer Defendants’ and Director Defendants’ knowledge of the Bank’s 

troubled condition, the receipt of multiple regulatory warnings and the impaired state of the real 

estate market, the Officer Defendants’ and Director Defendants’ responsibilities to the Bank 

were heightened. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

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ALLEGATION NO. 138:

The Officer Defendants and Director Defendants breached these fiduciary duties by, 

among other things: (a) failing to conduct proper due diligence on each of the Loss Loans and 

failing to inform themselves about the risks such loans posed to the Bank before they approved 

them; (b) approving the Loss Loans on terms that violated the Bank’s loan policies; (c) failing to 

ensure that the Loss Loans were underwritten in a safe and sound manner; (d) failing to ensure 

that the Loss Loans were secured by sufficiently valuable collateral and guarantees in order to 

prevent or minimize the Bank’s risk of loss; (e) failing to ensure that the Loss Loans did not 

violate applicable banking laws and regulations; (f) failing to ensure that the Loss Loans did not 

create unsafe and unsound concentrations of credit; and (g) ignoring regulatory warnings about 

the Bank’s lending operations. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 139:

Defendant members of the Board of Directors were grossly inattentive to the affairs of 

the Bank – deferring excessively to the whims of the Giannoulias family. As a consequence, 

reports were not closely read, regulatory criticisms were discounted, and, for Defendant 

McMahon, important Board meetings frequently were missed or ignored. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 140:

As a direct and proximate cause of the breach of the fiduciary duty of care by the Officer 

Defendants and Director Defendants, the Bank suffered damages in excess of $114 million. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

COUNT III 

(Negligence – Director Defendants and Officer Defendants) 

ALLEGATION NO. 141:

FDIC-R realleges and incorporates by reference the allegations contained in paragraphs 1 

through 125, as if fully set forth herein. 

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ANSWER:

The Giannoulias Defendants repeat and incorporate their answers to paragraphs 1 through 

125. 

ALLEGATION NO. 142:

The allegations of negligence in this Count III are pleaded in the alternative to the 

allegations of breach of fiduciary duty in Count II. 

ANSWER:

The Giannoulias Defendants admit that the FDIC-R pleads Count III in the alternative to 

Count II. 

ALLEGATION NO. 143:

The Officer Defendants and Director Defendants owed Broadway a duty to use 

reasonable care, skill and diligence in the performance of their duties, including, but not limited 

to: (a) conducting proper due diligence on each proposed loan to inform themselves about the 

risks the loans posed to the Bank before approving it; (b) complying with the Bank’s Loan 

Policy; (c) ensuring that the loans they approved were underwritten in a safe and sound manner; 

(d) ensuring that the loans they approved were secured by sufficiently valuable collateral and 

guarantees to prevent or minimize the Bank’s risk of loss; (e) ensuring that the loans they 

approved did not violate applicable banking laws and regulations; (f) ensuring that the loans they 

approved did not create unsafe and unsound concentrations of credit; and (g) properly 

monitoring the performance of loans to minimize the Bank’s risk of loss. 

ANSWER:

The Giannoulias Defendants admit only that Illinois law purports to impose certain duties 

on directors and officers of a bank. Answering further, the Giannoulias Defendants deny all 

remaining allegations in this paragraph that are different from, contrary to and/or which seek to 

characterize or draw conclusions from Illinois or other applicable law. 

ALLEGATION NO. 144:

Given the Officer Defendants’ and Director Defendants’ knowledge of the Bank’s 

troubled condition, the receipt of multiple regulatory warnings and the impaired state of the real 

estate market, the Officer Defendants’ and Director Defendants’ responsibilities to the Bank 

were heightened. 

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ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 145:

Defendants, however, breached these duties and were negligent by, among other things: 

(a) failing to conduct proper due diligence on each of the Loss Loans and failing to inform 

themselves about the risks such loans posed to the Bank before they approved them; 

(b) approving the Loss Loans on terms that violated the Bank’s loan policies; (c) failing to ensure 

that the Loss Loans were underwritten in a safe and sound manner; (d) failing to ensure that the 

Loss Loans were secured by sufficiently valuable collateral and guarantees to prevent or 

minimize the Bank’s risk of loss; (e) failing to ensure that the Loss Loans did not violate 

applicable banking laws and regulations; (f) failing to ensure that the Loss Loans did not create 

unsafe and unsound concentrations of credit; and (g) ignoring regulatory warnings about the 

Bank’s lending operations. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 146:

Defendant members of the Board of Directors were grossly inattentive to the affairs of 

the Bank – deferring excessively to the whims of the Giannoulias family. As a consequence, 

reports were not closely read, regulatory criticisms were discounted, and, for Defendant 

McMahon, important Board meetings frequently were missed or ignored. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

ALLEGATION NO. 147:

As a direct and proximate cause of the negligence of the Officer Defendants and Director 

Defendants, the Bank suffered damages in excess of $114 million. 

ANSWER:

The Giannoulias Defendants deny the allegations in this paragraph. 

AFFIRMATIVE DEFENSES

For their Affirmative Defenses against the FDIC-R, Defendants state as follows: 

FIRST AFFIRMATIVE DEFENSE – BUSINESS JUDGMENT RULE

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1. The FDIC-R’s claims are barred in whole or in part by the business judgment rule 

because they are based on the well informed and good faith business judgments that Defendants 

made as officers or directors of the Bank in their honest belief that they were acting in the best 

interests of the Bank. The Giannoulias Defendants allege this affirmative defense without 

conceding that the business judgment rule can only be asserted as an affirmative defense, and the 

Giannoulias Defendants specifically reserve the right to assert the business judgment rule as an 

affirmative defense in the event that the Seventh Circuit ultimately determines that the business 

judgment rule can only be asserted as an affirmative defense. 

2. The business judgment rule establishes a presumption that corporate officers and 

directors make decisions on an informed basis, in good faith, and in the honest belief that they 

are acting in the best interest of the corporation.

3. The Giannoulias Defendants acted with due care, adequate information, and good 

faith in carrying out their duties as directors and officers of the Bank and in approving the 

alleged “Loss Loans.” The Bank had prior relationships with many of its borrowers at issue, 

who had successfully completed CRE and ADC projects and fully repaid prior loans. In 

approving the “Loss Loans,” the Giannoulias Defendants acted in good faith and reasonably and 

justifiably relied upon information, advice, or opinions about the loans at issue presented to them 

in the loan write-ups and presented to them by others, including without limitation, other Bank 

personnel, counsel, auditors, third-party loan reviewers, other experts, and regulators. In 

addition, the Bank’s management, including one or more of the Giannoulias Defendants, met 

extensively with borrowers and visited projects before and after the “Loss Loans” were 

approved. 

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4. The Director Defendants also reasonably relied upon the positive examination 

reports delivered to the Bank’s Directors during the time period that the loans at issue were 

approved. Between 2005 and 2010, the regulators provided constant ongoing supervision of the 

Bank. The regulators conducted five onsite examinations and three onsite visitations of the Bank 

during this period. The Bank also had numerous other formal and informal discussions with 

regulators and case managers, which provided regulators with even more supervision of the 

Bank. 

5. All of the alleged “Loss Loans” were initially approved when the Bank had an 

overall composite rating of “1”—the highest rating available, indicating that the Bank was 

considered to be “sound in every respect”—as reflected in the regulators’ Reports of 

Examination (“ROE” or “ROEs”). Indeed, during the period of substantial growth in the Bank’s 

loan portfolio from 2005 to 2007, the regulators upgraded Broadway’s overall composite rating 

from the second highest rating of a “2” to the highest rating of a “1.” In addition to receiving 

high overall composite ratings, the Bank received the highest management rating of a “1,” which 

indicates “strong performance by management” and “strong risk management practices,” in the 

2006 and 2007 ROEs. 

6. The 2005 through 2007 examination reports did not report that the Bank’s 

allowance for loan losses was deficient, that the loan officers lacked expertise to engage in 

commercial real estate lending, that the Bank’s commercial real estate loan program was doomed 

to fail, or that the Bank’s capital was deficient. The regulators also reviewed and approved the 

Bank’s loan concentrations, loan policies, and allowances for loan losses during this time period. 

7. The Giannoulias Defendants also were informed and reasonably believed that 

adequate policies, procedures, and controls were in place at the Bank. 

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SECOND AFFIRMATIVE DEFENSE – ILLINOIS BANKING ACT

1. The FDIC-R’s claims are barred in whole or in part by the Illinois Banking Act, 

205 ILCS § 5/16(7)(b). 

2. Under the Illinois Banking Act, the Director Defendants were entitled to rely 

upon “advice, information, opinions, reports or statements, including financial statements and 

financial data, prepared or presented by” credit analysts, employees, accountants or consultants 

whom the Director Defendants believed to be reliable and competent in the matter presented. 

3. The Director Defendants properly relied upon such information presented by 

credit analysts, employees, accountants, consultants, auditors, and third-party loan reviewers 

retained by the Bank. 

4. The Director Defendants also properly relied upon information presented by the 

FDIC and IDFPR regulators and examiners in written examination reports and in oral reports at 

board meetings, including the examiners’ repeated conclusion that the Bank was “sound in every 

respect” at the time the alleged “Loss Loans” were initially approved. 

THIRD AFFIRMATIVE DEFENSE – WAIVER AND ESTOPPEL

1. The FDIC-R’s claims are barred in whole or in part by the doctrines of waiver and 

estoppel. 

2. Upon information and belief, the FDIC-R was responsible for administering the 

Federal Street Loan after the closure of the Bank. 

3. Upon information and belief, the FDIC-R’s conduct in administering the loan 

caused a material decrease in the value of the loan. 

4. The FDIC-R intentionally relinquished and waived any right to complain and is 

now estopped from seeking relief concerning the Federal Street Loan for the decline in value 

arising out of the FDIC-R’s conduct. 

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FOURTH AFFIRMATIVE DEFENSE – FAILURE TO MITIGATE

1. The FDIC-R’s claims are barred in whole or in part by its failure to mitigate its 

alleged damages. 

2. The FDIC-R had a duty to make reasonable efforts to mitigate or reduce any 

losses alleged in the Complaint. 

 3. The FDIC-R failed to take reasonable steps to reduce the losses for the “Loss 

Loans” identified in the Complaint. Among other things, the FDIC-R, upon information and 

belief, failed to take actions to maximize the value of the collateral, failed to take the steps 

necessary to maximize the collection on the loans, sold loans at unreasonably low values, created 

incentives to obtain less than the maximum level of recovery available on loans, failed to 

adequately work out loans, and failed to take other actions which adversely affected collateral 

values and/or the loan recovery. 

FIFTH AFFIRMATIVE DEFENSE – COMPARATIVE NEGLIGENCE

1. The FDIC-R had a duty to exercise ordinary care in the management and 

disposition of the Bank’s assets. 

 2. The FDIC-R failed to exercise ordinary care in the management and disposition of 

the Bank’s assets including, inter alia, failing to take actions to maximize the value of the 

collateral, failing to take the steps necessary to maximize the collection on the loans, selling 

loans at unreasonably low values, creating incentives to obtain less than the maximum level of 

recovery available on loans, failing to adequately work out loans, and failing to take other 

actions which adversely affected collateral values and/or the loan recovery. 

 3. The losses attributed to those assets are a direct and proximate result of the FDICR’s negligence. 

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SIXTH AFFIRMATIVE DEFENSE – LACK OF STANDING

 1. The FDIC-R obtained its “status” vis-a-vis the Bank through a statutory 

receivership appointment by the IDFPR. The IDFPR closed the Bank and appointed the FDIC-R 

as receiver pursuant to the Illinois Banking Act, 205 ILCS 5/1, et seq. and the Federal Deposit 

Insurance Act, 12 U.S.C. § 1821, et seq. 

2. Those statutes, however, failed to provide the Bank with any right of predeprivation or post-deprivation judicial review, which is a constitutional requirement under the 

Due Process Clause and the Equal Protection Clause of the Fourteenth Amendment to the U.S. 

Constitution. 

3. These constitutional infirmities nullify the FDIC-R’s appointment as receiver and 

negate the FDIC-R’s standing to prosecute this action. 

RESERVATION OF RIGHT TO ADD AFFIRMATIVE DEFENSES

 The Giannoulias Defendants hereby reserve the right to assert additional affirmative 

defenses as this matter progresses. 

WHEREFORE, Defendants Demetris Giannoulias and George Giannoulias respectfully 

request that this Court enter judgment in their favor on all counts in Plaintiff Federal Deposit 

Insurance Corporation’s Second Amended Complaint, together with costs and any such 

additional relief in their favor as this Court deems just and proper. 

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Dated: November 27, 2013 Respectfully submitted, 

DEMETRIS GIANNOULIAS 

and GEORGE GIANNOULIAS 

By: /s/ William L. Charron 

 One of Their Attorneys 

William L. Charron, Esq. 

Bryan T. Mohler, Esq. 

PRYOR CASHMAN LLP 

7 Times Square 

New York, New York 10036 

T: (212) 421-4100 

F: (212) 326-0806 

wcharron@pryorcashman.com 

bmohler@pryorcashman.com 

-andEric Y. Choi, Esq. 

NEAL, GERBER & EISENBERG LLP 

Two North LaSalle Street, Suite 1700 

Chicago Illinois 60602 

T: (312) 827-1053 

F: (312) 980-0736 

echoi@ngelaw.com 

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CERTIFICATE OF SERVICE 

The undersigned certifies that a copy of the foregoing DEFENDANTS DEMETRIS 

GIANNOULIAS AND GEORGE GIANNOULIAS’ ANSWER AND AFFIRMATIVE DEFENSES TO 

SECOND AMENDED COMPLAINT was served on the following counsel of record: 

Susan G. Feibus 

Dean J. Polales 

F. Thomas Hecht 

Richard Henry Tilghman 

Ungaretti & Harris LLP 

70 W. Madison 

Suite 3500 

Chicago, Illinois 60602 

sgfeibus@uhlaw.com

djpolales@uhlaw.com 

fthecht@uhlaw.com

rhtilghman@uhlaw.com

Robert J. Ambrose 

Joseph W. Barber 

David C. Van Dyke 

Scott C. Frost 

Howard & Howard 

200 S. Michigan Ave. #1100 

Chicago, IL 60604 

rambrose@howardandhoward.com

jwbarber@howardandhoward.com

dvd@h2law.com

sfrost@howardandhoward.com

Randall M. Lending 

Rachel T. Copenhaver 

Vedder Price P.C. 

222 North LaSalle Street 

Suite 2600 

Chicago, IL 60601-1003 

T: (312) 609-7500 

rlending@vedderprice.com

rcopenhaver@vedderprice.com

this 27th day of November, 2013 via ECF and first class U.S. Mail, postage pre-paid. 

s/ Bryan T. Mohler 

An Attorney for Defendants 

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