UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION

FEDERAL DEPOSIT INSURANCE )

CORPORATION AS RECEIVER FOR )

BROADWAY BANK, )

)

Plaintiff, )

) Case No. 12 CV 1665

v. )

) JURY DEMANDED

DEMETRIS GIANNOULIAS, GEORGE )

GIANNOULIAS, JAMES MCMAHON, )

SEAN CONLON, STEVEN DRY, DONNA )

ZAGORSKI, STEVEN BALOURDOS, )

GLORIA SGUROS, ANTHONY D’COSTA )

)

)

Defendants. )

FIRST AMENDED COMPLAINT

Plaintiff the Federal Deposit Insurance Corporation, as Receiver for Broadway Bank 

(“FDIC-R”), for its First Amended Complaint, states:

I. INTRODUCTION

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”).

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.

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

Director Defendants and Officer Defendants recklessly implemented a strategy of rapidly

growing Broadway’s assets by approving high-risk 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.

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 

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. 

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.

II. PARTIES

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

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

the institution.

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. 

THE DIRECTOR DEFENDANTS

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. 

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. 

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. 

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.

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

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

Board during his tenure.

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. 

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.

THE OFFICER DEFENDANTS

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. 

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. 

III. JURISDICTION AND VENUE

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

and 1345. 

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

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

seq.

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IV. BACKGROUND FACTS

A. Broadway’s Lending Operations and Concentrations

20. Broadway Bank was an institution driven by a disregard for risk and a willingness 

to lend millions of dollars to uncreditworthy borrowers for speculative commercial building 

projects not only in Illinois, where the Bank was located, but in New York, Florida, California 

and other locales. 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. 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.

21. Broadway’s concentrations in CRE and ADC loans were well in excess of its peer 

group banks. In 2007, 2008 and 2009, Broadway’s ADC loans represented 307%, 390% and 

793% of total capital. During that same period, Broadway’s peers reduced their exposure to

ADC loans. In 2007, 2008 and 2009, the ADC loans held by Broadway’s peer group were 

147%, 139% and 97% of total capital. The same trends applied to Broadway’s CRE 

concentration. In 2007, 2008 and 2009, Broadway’s CRE loans represented 409%, 574% and 

1157% of total capital. In contrast, in 2007, 2008 and 2009, the CRE loans held by Broadway’s 

peer group were 309%, 307% and 267% of total capital.

22. The risks associated with Broadway’s portfolio were exacerbated because many 

of these projects were located outside of Illinois. The Bank did not have sufficient staff to 

monitor these out-of-state projects adequately and deferred excessively to its borrowers 

regarding market evaluations and risk. On April 23, 2010, when the Bank was closed, more than 

half of the Bank’s loan portfolio was secured by projects outside of Illinois.

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23. In addition to risks posed to the Bank by the out-of-territory CRE and ADC 

loans, Broadway’s lending portfolio also was compromised by Defendants’ decisions to approve 

an excessive number of loans for condominium development and hospitality industry 

construction, even though those markets were saturated and showed signs of decline when the 

loans were made. 

24. During this period of reckless growth and excessive CRE, ADC and out-ofterritory loan concentrations, Defendants failed to implement procedures that would have 

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

B. The Bank’s Loan Policy

25. On paper, Broadway’s loan policy (the “Loan Policy”) appeared to protect the 

Bank from the shortcomings described above. 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 

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. 

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C. Broadway’s Regulatory History

26. 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.

The January 2007 Examination

27. 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.

28. 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. 

The March 2008 Examination

29. In March 2008, the FDIC and IDFPR conducted a joint investigation of the 

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Bank’s condition as of December 31, 2007. 

30. 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. 

31. 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. 

32. 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.

33. 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. 

2008 Visitations and Communications

34. 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. 

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35. 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 chargeoff 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. 

36. 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. 

The April 2009 Examination

37. 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. 

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38. 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.

D. The Loss Loans and the Damage They Caused

39. 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

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D'C

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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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40. 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.

41. 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. 

42. 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.

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

million. 

Wilshire Blvd. BH, LLC

44. 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 

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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.

45. 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. 

46. 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.

47. 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 

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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.

48. 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.

49. The Bank has sustained estimated damages of $3.4 million plus accrued interest 

on this loan.

Federal Street L.A. LLC

50. 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.

51. 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.

52. The loan had numerous other deficiencies including, but not limited to, the 

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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.

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

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

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

was made to pursue either Winter or Fishman as guarantors.

54. The Bank has sustained estimated damages of $8.5 million plus accrued interest 

on this loan.

Loans to Atul Bisaria and Entities He Owned or Controlled 

55. 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 

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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.

56. 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.” 

57. 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-ofterritory 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 

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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. 

58. 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.

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

to pursue Bisaria.

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

on these loans.

Loans to Yaron Hershco or Entities that He Owned or Controlled 

(a) Gold Johnson Holding, LLC

61. 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. 

62. 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. 

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63. 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.

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

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

65. Since Herscho never obtained construction financing for the project, the loan went 

into default. 

66. 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. 

67. 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 

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significantly. 

68. 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. 

69. 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.

70. 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-to-value 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 overconcentrations of ADC/CRE out-of-territory loans.

71. 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 

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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. 

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

these loans. 

(b) Prospect Equities, LLC

73. 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 eighteenmonth $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. 

74. 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.

75. 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 selfprepared, 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. 

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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. 

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-ofterritory loans. 

76. At maturity, the borrowers defaulted on both loans. 

77. The Bank has sustained estimated damages of $8.1 million plus accrued interest 

on these loans.

(c) Water Street Realty Group, LLC

78. 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.” 

79. 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 

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McMahon, also approved the loan. 

80. 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. 

81. 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 

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

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

Bank took no efforts to pursue Hershco. 

83. The Bank has sustained estimated damages of $4.5 million plus accrued interest 

on this loan.

Normandy Shores, LLC

84. 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.

85. 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. 

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.

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86. When the interest reserve was depleted, the loan went into default. Defendants 

did not pursue the guarantor to mitigate the Bank’s losses. 

87. The Bank has sustained estimated damages of $19.5 million plus accrued interest 

on this loan.

ASAT, Inc.

88. 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.

89. 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, selfprepared 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. 

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90. When the loan went into default, Defendants did not pursue the borrowers. 

91. The Bank has sustained estimated damages of $8.2 million plus accrued interest 

on this loan.

261 East 78 Realty Corp.

92. 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 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.

93. 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. 

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.

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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.

94. When the interest reserve was depleted, the loan went into default. Defendants 

took no action to pursue the borrowers.

95. The Bank has sustained estimated damages of $4.6 million plus accrued interest 

on this loan.

Loan to John R. DeSilva

96. 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.

97. 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.

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d. The loan and its renewal evidenced Defendants’ disregard of repeated 

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

98. When the interest reserve was depleted, the loan went into default. Defendants 

took no action to pursue DeSilva.

99. The estimated damages to the Bank related to this loan are $10 million, plus 

accrued interest. 

Loans to Stark and Perlmutter or Entities They Owned or Controlled 

(a) The Bedford Lofts, LLC

100. 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. 

101. 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 

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underwriting. 

102. When the interest reserves from the loan renewals were exhausted, the loans went 

into default. 

103. The Bank sustained estimated damages of $1.5 million plus accrued interest on 

this loan.

(b) Southside House, LLC

104. 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.

105. 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.

c. The loan evidenced Defendants’ disregard for repeated regulatory

warnings about loans outside of the Bank’s territory.

106. 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. 

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107. The Bank has sustained estimated damages of $1.5 million plus accrued interest 

on this loan.

625 W. Division Condominiums, L.P.

108. 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.

109. 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.

110. When the interest reserve was depleted, the borrowers defaulted on the loan. 

Defendants took no action to pursue the Breugelmans. 

111. The Bank has sustained estimated damages of $1.9 million plus accrued interest 

on this loan.

Loans to Lawrence Properties, 4750 N. Winthrop,

James Gouskos and Alexander Dobroveanu

112. In March and April 2007, Officer Defendants Sguros and D’Costa and Director 

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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. 

113. 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. 

114. 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, selfprepared, 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. 

115. 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. 

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116. The Bank has sustained estimated damages of $4 million plus accrued interest on 

these loans.

Krieger SPE, LLC

117. 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. 

118. 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. 

119. Loan proceeds of $1.5 million were used to establish an interest reserve to fund 

monthly interest payments for one year.

120. 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. 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. 

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121. In January 2009, when the loan came due, the borrowers defaulted. In February 

2010, the Bank foreclosed on the loan. 

122. The Bank has sustained estimated damages of $4.2 million plus accrued interest 

on this loan.

Lynn & Anderson Homes, LLC

123. In April 2007, the Bank extended a $9.1 million one-year, interest only, nonrevolving 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 Giannoulias, George Giannoulias, McMahon, Conlon, Dry, Balourdos and 

Zagorski, also approved the loan. 

124. 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. 

125. 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. 

126. Both the initial loan and subsequent modification had numerous deficiencies 

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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. 

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-value 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.

127. When the renewed loan came due in December 2008, the borrowers defaulted. 

The Bank took no action to pursue Lalwani or Assomul.

128. The Bank has sustained estimated damages of $1.9 million plus accrued interest 

on this loan. 

CLAIMS FOR RELIEF

COUNT I

(Gross Negligence – Director Defendants and Officer Defendants)

129. FDIC-R realleges and incorporates by reference the allegations contained in 

paragraphs 1 through 128 as if fully set forth herein.

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130. 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. 

131. 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.

132. 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. 

133. 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; 

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(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. 

134. 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. 

135. 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. 

136. 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. 

COUNT II

(Breach of Fiduciary Duty of Care – Director Defendants and Officer Defendants)

137. FDIC-R realleges and incorporates by reference the allegations contained in 

paragraphs 1 through 128, as if fully set forth herein.

138. 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.

139. The Officer Defendants and Director Defendants owed Broadway fiduciary duties 

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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.

140. 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. 

141. 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 

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about the Bank’s lending operations. 

142. 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. 

143. 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.

COUNT III

(Negligence – Director Defendants and Officer Defendants)

144. FDIC-R realleges and incorporates by reference the allegations contained in 

paragraphs 1 through 128, as if fully set forth herein.

145. The allegations of negligence in this Count III are pleaded in the alternative to the 

allegations of breach of fiduciary duty in Count II.

146. 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 

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monitoring the performance of loans to minimize the Bank’s risk of loss.

147. 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. 

148. 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.

149. 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.

150. 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.

FOR THESE REASONS, the Federal Deposit Insurance Corporation as Receiver for 

Broadway Bank, seeks judgment in its favor, and against Defendants, for damages in an amount 

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in excess of $114 million, plus accrued interest, and whatever further and other relief the Court 

deems just and proper. 

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JURY DEMAND

THE FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR 

BROADWAY BANK REQUESTS A TRIAL BY JURY ON ALL ISSUES TRIABLE OF 

RIGHT BY JURY.

Dated: May 23, 2012 Respectfully submitted,

/s/ F. Thomas Hecht

One of the Attorneys for the Federal Deposit 

Insurance Corporation as Receiver for Broadway

Bank 

F. Thomas Hecht 

Susan G. Feibus 

Dean Polales

Richard Tilghman

UNGARETTI & HARRIS LLP

3500 Three First National Plaza

Chicago, Illinois 60602

(312) 977-4400 

(312) 977-4405 (facsimile)

John Letteri

Counsel, Professional Liability Unit

Federal Deposit Insurance Corporation

3501 Fairfax Drive

Arlington, VA 22226

(703) 562-6297

CERTIFICATE OF SERVICE

The undersigned certifies that a copy of the foregoing was served on all counsel of record 

via electronic case filing procedures on May 23, 2012.

/s/ F. Thomas Hecht

F. Thomas Hecht

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