Ashton Ryan Jr. ran his fledgling real estate business the same way he ran First NBC Bank — controlling "virtually every decision," a lawsuit alleges.
Now, as a federal grand jury continues to probe the New Orleans-based community bank's $1 billion collapse — with an eye toward potentially bringing criminal charges — investigators have turned their attention to a 161-acre Mandeville land deal that Ryan has worked to develop since the early 2000s.
According to a breach-of-contract lawsuit filed in November, Ryan allegedly stiffed a Slidell construction firm, Phoenix Civil Contractors, for nearly $5.5 million he owed them. Instead, he set up a loan and credit line for Phoenix at First NBC, keeping it active for seven years.
The lawsuit alleges that Ryan essentially used the bank's money as a personal kitty to, at the very least, stave off his own obligations. Each time Phoenix's loan from the bank became due, he referenced his own debt in bank paperwork to justify the loan's creditworthiness and extend it.
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Court records show that the grand jury is now investigating the arrangement, apparently to determine whether it violated state and federal banking regulations and whether Ryan intended to benefit from such violations.
The Phoenix lawsuit, filed in 22nd Judicial District Court in St. Tammany Parish, lists as defendants Wadsworth Estates, a limited-liability corporation that shares Ryan's Kenner address, as well as Ryan and his business partner, Metairie developer Warren Treme. The lawsuit alleges fraud, unjust enrichment and unfair trade practices.
Almost as striking is the admission by Ryan's attorney, Eddie Castaing, that the claims have drawn the scrutiny of federal investigators. Castaing made the admission — a rare public acknowledgement of a secretive legal proceeding — in a subsequent court filing in which he requested a stay in the civil case, citing the grand jury proceeding.
"The U.S. Attorney's Office (in New Orleans) is conducting a pending, ongoing and active grand jury investigation of Ryan, Treme and Wadsworth Estates and related companies regarding the development of the St. Tammany property owned by Wadsworth Estates, and the related acts of Ryan and Treme," Castaing's motion says in part.
It warns that if the civil case proceeds while the grand jury's work is ongoing, Ryan's and Treme's "risk of self-incrimination is real and immediate."
A hearing on Castaing's motion is scheduled for later this month. It is common for civil proceedings to be put on hold when they are overtaken by criminal investigations.
In a separate filing, both Ryan and Treme have denied the allegations against them.
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Reached by phone Friday, Castaing declined comment.
Treme did not respond to a message seeking comment.
Phoenix's attorney, Paul Harrison of Mandeville, did not return a call.
The Advocate reported in September that federal prosecutors had convened a grand jury to investigate potential charges related to First NBC's collapse. The step, though significant, was hardly a surprise to most legal observers, given the size of the bank's losses, which came at a time when bank failures are increasingly rare. The collapse was the costliest failure of an American bank since 2010.
However, until now, it's been unclear what potential crimes prosecutors might be looking at, though Ryan's alleged recklessness has always seemed to be at the forefront. Earlier internal and external reviews of First NBC concluded that Ryan, the bank's founder and longtime CEO, had an unusual appetite for risk and exerted a “dominant influence” over its operations.
Castaing's motion suggests that the probe is looking into the possibility the bank's failure can't be chalked up only to some bad loans. His filing suggests that prosecutors are evaluating whether Ryan or other bank executives and directors were negligent, failed in their fiduciary duty to oversee the business or benefited personally from a business relationship, like extending the line of credit.
That's a key question for prosecutors as they consider bringing charges. Bank directors, in particular, are typically given considerable latitude to use their best business judgment, experts say. If they can plausibly argue they were acting in good faith on an informed basis, their exposure tends to be limited.
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The grand jury has also explored First NBC's dealings with Gregory St. Angelo, who served as the bank's attorney and took out multiple loans from the bank. In a 2014 deposition in a civil case, he estimated his loans from the bank totaled about $20 million, though he said he was not the lone guarantor on some of that debt.
It's all part of a larger pattern of aggressive and risky loan-making by Ryan. He issued or renewed loans to numerous distressed clients even after their long-term prospects were exposed as questionable, in some cases for larger amounts and easier terms than other banks would have granted.
By the end of 2016, Ryan had been ousted as CEO of First NBC but remained as president of the bank and its parent company. He resigned altogether in April 2017, weeks before First NBC failed.
In the wake of the collapse, Phoenix isn't the first borrower to file a suit arguing it shouldn't be responsible for its debts to the bank. Among the reasons Phoenix and others have said they should get relief: They borrowed more than they could handle at Ryan's urging, and First NBC's loan underwriting and risk selection were substandard.
What's potentially unique in this case may be Ryan's alleged personal ties to the loan recipient. "In other words, Mr. Ryan would extend Phoenix's loan/line of credit because the defendants failed to pay Phoenix under the terms of the subject construction contract," the lawsuit alleges.
Phoenix's work on the Mandeville project, which spanned seven years beginning in 2009, included utility work as well as installing drainage, roadways and other infrastructure to develop the property, located on La. 1088.
Although Phoenix largely went unpaid, it regularly mailed invoices or delivered them to Treme.
"When questioned as to why Phoenix was not being paid, Mr. Treme constantly stated that he would have to check with 'Ashton,' " the lawsuit states.
Treme made only one partial payment for the work: $156,143.
Phoenix is now facing bankruptcy because it cannot afford its loan and interest payments, the lawsuit contends, noting that the debt was subsequently taken over by the Federal Deposit Insurance Corp., which became the receiver of First NBC after it failed.
Ryan had extended the financing until mid-2016, the lawsuit says, which coincides with a point when the bank's operations had come under increasing scrutiny as it began uncovering issues with its internal controls.
The Mandeville project, known as Wadsworth Estates, initially included a planned mix of single-family homes, townhouses and a 36-acre mixed-use commercial area, but the residential component was scrapped about five years ago in favor of plans to turn the site into a high-end business park and commercial development.
The project included the Azby Fund, a New Orleans-based philanthropic foundation that was the site's primary landholder.
Patrick Fitzmorris, assistant managing director of the foundation, declined comment on Phoenix's lawsuit, to which his foundation is not a party. He would not say whether the foundation has received a grand jury subpoena for information.
Despite the litigation, the 161-acre tract is now "probably the prime shovel-ready site in St. Tammany Parish," according to Fitzmorris, who said the foundation would use the property's proceeds to help support its charitable giving.
Though it's likely to be be split up and resubdivided, the entire 161 acres could carry a price tag of $30 million to $50 million, he said.
From a banker's perspective, the lawsuit's allegations raise several questions, according to Paul Bonitatibus, a former president of First Metropolitan Bank in Metairie, which was acquired by Hibernia National Bank in 1985.
On the one hand, Bonitatibus speculated as to whether Ryan's relationship with Phoenix was properly disclosed to other First NBC executives as the loan was being issued and renewed. If not, it could have run afoul of federal banking regulations that govern insider loans, which include transactions involving bank officers, directors or entities to which they are linked.
But Bonitatibus also noted that Phoenix wasn't obligated to accept the loan instead of forcing the payment in the first place.
Regardless, he pointed to a common theme that runs through the case and others that have emerged since the bank failed. "That claim of Ashton (Ryan) using undue influence to make loans was the common one," he said.