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First NBC Bank of New Orleans failed in 2017, leaving the Federal Deposit Insurance Corp. on the hook for almost $1 billion.

Federal banking regulators said six former board members of the failed First NBC Bank were grossly negligent in their oversight of the bank and former Chief Executive Ashton Ryan, according to court documents unsealed Tuesday by a federal judge.

The lawsuit, filed by the Federal Deposit Insurance Corp. in 2020, is seeking more than $164 million from Ryan, the board members and their insurance companies over a series of loans that Ryan and the board members approved or signed off on before the bank's collapse.

The six former nonexecutive directors of the bank named in the suit are William D. Aaron, Jr., William Carrouche, Hermann Moyse, III, Grish Roy Pandit, Stephen Petagna, and R. Michael Wilkinson. All were members of the bank board's loan committee and signed off on loans that were part of the alleged fraud, according to the FDIC.

Several of the bad loans in the lawsuit approved by board members have been detailed in earlier filings or reports by regulators and federal prosecutors, who are pursuing a separate criminal case against Ryan, other bank executives and borrowers.

They include millions of dollars in loans the FDIC alleged the bank made to an oil-drilling concern even though the lender had little to no experience with this type of lending and oil prices "were in a virtual free fall."

In addition, the FDIC alleged that directors voted to approve tens of millions of dollars in loans to real estate developers despite the opposition of the loan committee's chairman and signs that the borrower's finances were in trouble before the loans were approved.

The allegations are contained in a lawsuit filed under seal two years ago. On Tuesday, U.S. Civil District Court Judge Jane Triche Milazzo unsealed the case, ruling that settlement negotiations had irretrievably broken down.

Criminal trial ahead

Ryan, 74, faces criminal charges after being indicted in July, 2020 on 43 counts of bank fraud, filing false reports, and conspiracy, in what federal prosecutors in New Orleans allege was a wide-ranging scheme to defraud the bank and its shareholders through a series of fraudulent loans to clients.

As well as Ryan, several former bank officers and clients — mostly property developers — have been charged with similar crimes. The federal criminal probe has continued to expand since the first charges were brought in 2018, with the latest alleged co-conspirator charged as recently as December, 2021.

Ryan has maintained his innocence.

The bank was closed down in spring 2017 by Louisiana state regulators and ultimately liquidated by the FDIC, with most of its performing loans and deposits going to Hancock Whitney Bank. The FDIC took on about $1 billion bad loans and subsequently sold those at a deep discount and has filed various lawsuits in an effort to recoup the shortfall.

Pointing fingers elsewhere

A statement by Baker Donelson, the law firm representing five of the six former directors (excluding Petagna), said the board members weren't to blame for the bank's collapse.

"The directors, who were not bank employees and were independent of the bank’s management, emphatically deny the agency’s allegations that they caused the bank any losses," the Baker Donelson statement said.

"They sat on the bank’s board with twelve other 'outside' directors, and were singled out by the FDIC because they served on the bank’s loan committee and are covered by the bank’s insurance policies," the statement continues.

Indeed, in the same lawsuit, the FDIC is suing 10 insurance companies for policies totaling as much as $15 million that they wrote to insure against liability of the banks directors and officers.

Ryan is being sued for $113 million, while Ryan and the directors are being sued for $51 million.

The Baker Donelson lawyers also note that the federal prosecutor's criminal charges alleges that Ryan and his co-conspirators duped the bank's board while continuing their yearslong scheme to arrange loans fraudulently for their clients and line their own pockets.

The FDIC has also filed suit against First NBC's former auditor, the accounting firm Ernst & Young, alleging that the firm missed clear red flags related to several soured loans and failed to raise the alarm to the bank's board of directors.

The accounting firm has maintained that it did nothing wrong and planned to defend its work in court.