Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 1 of 53 IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA MIAMI DIVISION www.flsb.uscourts.gov In re: BankUnited Financial Corporation, CRE America Corporation and BankUnited Financial Services, Incorporated, Debtors. 1 Official Committee of Unsecured Creditors of BankUnited Financial Corporation, CRE America Corporation and BankUnited Financial Services, Incorporated, Plaintiff, v. Alfred R. Camner and Humberto L. Lopez, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Chapter 11 Case No. 09-19940-LMI (Jointly Administered) Adversary No. 10-_____________ COMPLAINT FOR RECOVERY OF DAMAGES This adversary proceeding is commenced pursuant to Rule 7001(1) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") by the duly appointed Official Committee of Unsecured Creditors of the above-captioned Debtors (the "Committee"), on behalf of the bankruptcy estate of Debtor BankUnited Financial Corporation, to recover 1 The Debtors' cases are being jointly administered. -1US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 2 of 53 damages against, individually, Alfred R. Camner ("Camner") and Humberto L. Lopez ("Lopez") (collectively "Defendants"). Plaintiff shows as follows: PRELIMINARY STATEMENT 1. Debtor BankUnited Financial Corporation (the "Holding Company") is incorporated in the State of Florida and headquartered in Coral Gables, Florida. The Holding Company is the former holding company of BankUnited, FSB (the "Bank"), a federally chartered savings bank. The Bank was wholly-owned by, and was the primary asset of, the Holding Company. The Holding Company and its subsidiaries, including the Bank, are referred to collectively herein as the "Company." 2. Defendants are former senior officers of the Holding Company who held their respective offices during the operative events. Each Defendant while an executive officer acted as an agent of the Holding Company and owed fiduciary duties to the Holding Company to discharge his officer duties in good faith, with the care an ordinarily prudent person in a like position (having the special skills and knowledge reasonably expected of a person in his position) would exercise under similar circumstances, and in the Holding Company's best interests. Among the duties of Defendants in their respective capacities as CEO and CFO of the Holding Company were to take such actions as necessary to cause effective internal controls over financial accounting and over risk management to be implemented by the Company, and to cause financial information presented to the Holding Company's Board to be accurate. In performing their duties as officers and therefore agents of the Holding Company, Defendants were not shielded by the business judgment rule. 3. The Holding Company was a publicly traded corporation that filed regular reports with the United States Securities and Exchange Commission ("SEC"). These reports -2US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 3 of 53 included financial information upon which the Holding Company's board of directors (the "Holding Company's Board") and the investing public relied. 4. The Holding Company raised capital during the Relevant Period (as defined below), a substantial portion of which it contributed to the Bank to support the Bank's lending activities. 5. As explained in the following paragraphs, from January 1, 2007 through May, 2009 (the "Relevant Period"), one or more of Defendants presented incomplete and inaccurate information to the Holding Company's Board and to the investing public about (a) the financial condition of the Holding Company and the Bank, and (b) the Bank's risk management policies and overall risk to the Holding Company presented by the nontraditional residential loan portfolio of the Bank. The nontraditional residential loan portfolio consisted primarily of Option Adjustable Rate Mortgages known as "Option ARMs." 6. The incomplete and inaccurate information presented by Defendants to the Holding Company's Board during the Relevant Period prevented the Board from accurately assessing the risk posed to the Holding Company by the Option ARM portfolio, from taking action to control the growth of the Option ARM portfolio, and from making informed decisions about whether the Holding Company should invest capital in the repurchase of its stock in the market place and pay dividends to the Holding Company's shareholders. 7. Defendants breached their fiduciary duties of care and loyalty to the Holding Company by not discharging their respective responsibilities as officers of the Holding Company: (1) to devote sustained, affirmative attention to seeing to it that effective internal controls were established and maintained over the Holding Company's financial -3US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 4 of 53 accounting and reporting; (2) to see to it that effective systems and procedures were implemented and sufficient and qualified personnel were employed to enable the Holding Company to account for and accurately report the Holding Company's consolidated financial results; (3) to see to it that effective internal risk assessment and management functions were implemented to enable the Holding Company's Board to assess and manage the risks in the Bank's loan portfolio; (4) to provide accurate and complete disclosures to the Holding Company's Board regarding (a) the financial condition of the Holding Company; (b) the effectiveness of the Holding Company's internal controls over financial accounting and reporting, and (c) the effectiveness of the systems, procedures, and personnel in place to enable the Holding Company and its subsidiaries properly to account for and accurately to report on the financial results of the Holding Company on a consolidated basis; (5) to avoid material misrepresentations and omissions in consolidated financial statements presented to the Holding Company's Board and filed with federal regulators; and (6) to protect the Holding Company against the diminution in value of its interest in the Bank by seeing to it that the Bank was managed properly. 8. By breaching their fiduciary duties to the Holding Company in their respective capacities as officers of the Holding Company, Defendants injured the Holding Company by (a) causing the Holding Company improvidently to expend valuable capital to repurchase shares of the Holding Company's stock and pay dividends on the Holding Company's stock; (b) causing the Holding Company's Board to approve the infusion of $80 million of the Holding Company's funds into the Bank at a time when the Bank had no realistic prospect for survival; (c) deepening the Holding Company's eventual insolvency through the improvident incurrence of additional debt at a time when the Holding -4US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 5 of 53 Company's insolvency was unavoidable, which artificially prolonged the Holding Company's existence and caused it to incur additional losses; (d) failing to protect the Holding Company's assets by causing or acquiescing in the unsafe and unsound lending practices of the Bank, which caused the Bank to be closed by the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC") to be appointed receiver for the Bank on May 21, 2009, rendering valueless the Holding Company's interest in the Bank and precipitating the Holding Company's bankruptcy; and (e) failing to cause the Holding Company to exercise its authority as the controlling shareholder of the Bank, to correct the Bank's unsafe and unsound practices. 9. Moreover, during the one year period preceding the filing of the above- captioned chapter 11 case (the "Bankruptcy Case"), the Defendants breached their fiduciary duties of care and loyalty to the Holding Company by approving and directing two payments by the Holding Company to the Bank that constituted fraudulent transfers under applicable law. PARTIES 10. Plaintiff is the Official Committee of Unsecured Creditors of BankUnited Financial Corporation, CRE America Corporation and BankUnited Financial Services, Incorporated and, by order dated September 29, 2009 has been granted standing to investigate, assert and pursue the claims asserted in this Complaint. [ECF No. 279.] 11. On information and belief, Defendant Camner is a resident of Miami-Dade County, Florida. Camner was the chief executive officer ("CEO") of the Holding Company and the Chairman of the Holding Company's Board from 1993 until about October 20, 2008. -5US2008 1144828.23 Case 11-03055-LMI 12. Doc 1 Filed 12/05/11 Page 6 of 53 On information and belief, Defendant Lopez is a resident of Miami-Dade County, Florida. Lopez is a Certified Public Accountant ("CPA") who served as the Holding Company's Chief Financial Officer ("CFO") from 2001 to about May 22, 2009. 13. The debtors are BankUnited Financial Corporation, a Florida corporation, CRE America Corporation, a Florida corporation, and BankUnited Financial Services, Incorporated, a Florida corporation (collectively, the "Debtors"). JURISDICTION AND VENUE 14. The Committee brings this adversary proceeding pursuant to Bankruptcy Rule 7001(1). 15. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. ? 1334. 16. The adversary proceeding relates to In re BankUnited Financial Corporation, Chapter 11 Case No. 09-19940-LMI, pending in the United States Bankruptcy Court for the Southern District of Florida, Miami Division. It is a non-core proceeding. Plaintiff consents to the entry of final orders and judgments by the Bankruptcy Judge. 17. Venue of this adversary proceeding is proper in this district pursuant to 28 U.S.C. ? 1409. FACTUAL BACKGROUND I. Procedural History 18. On May 22, 2009 (the "Petition Date"), Debtors filed voluntary petitions for relief under Chapter 11 of Title 11, United States Code (the "Bankruptcy Code") in this court (the "Bankruptcy Court" or the "Court"). The Debtors are operating their businesses -6US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 7 of 53 and managing their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 19. On May 21, 2009, the OTS closed the Bank and appointed the FDIC as receiver. The FDIC subsequently transferred the Bank's assets and most of its liabilities to a newly chartered federal savings bank (the "New Bank") organized under the laws of the United States and having its principal place of business in Coral Gables, Florida. 20. The Debtors' primary assets consist of cash, tax attributes, and litigation 21. On May 29, 2009, the acting United States Trustee for Region 21 claims. appointed the Committee and filed an appropriate notice of appointment. [ECF No. 33]. 22. On August 31, 2009, the Committee filed the Motion of the Official Committee of Unsecured Creditors for Derivative Standing to Investigate, Assert and Prosecute Claims Against Officers, Directors and Prepetition Professionals in the Bankruptcy Proceeding [ECF No. 228] (the "Derivative Standing Motion"). This motion was granted, as orally modified, by an Order issued on September 29, 2009 [ECF No. 279], conferring on Plaintiff standing to file and prosecute this Complaint. II. Defendants Direct and Oversee the Rapid Growth of Assets via the Origination of Risky Option ARM Residential Mortgages 23. The Bank was a federally chartered savings bank located in Coral Gables, Florida and was the largest independent bank headquartered in the state of Florida. 24. The Company operated under a fiscal year ("Fiscal Year") running from October 1 through September 30. In this Complaint, a fiscal year of the Company will be identified by the calendar year in which the fiscal year ends. Thus, for example, the period -7US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 8 of 53 from October 1, 2006 through September 30, 2007 will be referred to as the Company's 2007 Fiscal Year. The first quarter of the Company's Fiscal Year ran from October 1 to December 31 ("1Q"), the second fiscal quarter ran from January 1 to March 31 ("2Q"), the third fiscal quarter ran from April 1 to June 30 ("3Q"), and the fourth fiscal quarter ran from July 1 to September 30 ("4Q"). 25. The Bank conducted traditional banking activities, including residential real estate lending, which was the largest portion of the Bank's loan portfolio. In the case of residential real estate lending, as described in more detail below, the Bank focused on offering nontraditional mortgage products to its customers. 26. Around 2003, Defendants implemented a new business strategy under which the Bank rapidly expanded the number and amount of the residential mortgage loans it originated. This growth continued through the fourth quarter of Fiscal Year 2007. Defendants certified SEC reports stating that the value of the Bank's one-to-four family residential mortgage loan portfolio grew from approximately $3.3 billion as of September 30, 2003, to approximately $4.7 billion as of September 30, 2004, to $6.7 billion as of September 30, 2005, to $9.7 billion as of September 30, 2006, and to $10.8 billion as of September 30, 2007. 27. This growth in purported loan value was attributable principally to a large expansion of the Bank's Option ARM loan portfolio, a strategy promoted by Defendant Camner, who effectively controlled the Holding Company through his stock ownership and his roles as the Holding Company's CEO and Board Chairman. 28. An Option ARM is an adjustable rate mortgage loan which permits the borrower to select from a menu of monthly payment options. Option ARMs provide a -8US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 9 of 53 borrower with flexibility to select the amount of the monthly payment from among several options without triggering a default of the mortgage. Under an Option ARM, the borrower may elect initially to make lower monthly loan payments and limit the amount of annual increases in the required monthly payment. 29. The payment options available to Option ARM borrowers have consequences for these borrowers. The loan will negatively amortize when the borrower elects a payment option that does not cover fully the interest accruing on the loan. In a negatively amortizing loan, unpaid accrued interest is added to the principal balance of the loan, upon which interest is calculated. One consequence of a negatively amortizing loan is that the borrower's obligation on the loan increases monthly rather than decreasing or remaining constant following the monthly payment. At an event specified in the loan documents, the minimum monthly payment is "recast" to require payments that will fully amortize the outstanding loan balance over the remaining loan term. This recasting causes required monthly payments to increase, often dramatically, resulting in what the banking industry refers to as "payment shock." 30. Option ARMs increased as a percentage of the Bank's one-to-four family residential mortgage loan portfolio from 33.2 percent in September 2004 to 69.5 percent in September 2007. 31. The Bank originated many Option ARM loans based on little or no documentation from borrowers of the type required to qualify for traditional loan products. Many borrowers obtained Option ARMs without providing documents to the Bank verifying either their assets, income, or employment status, or a combination of these criteria. -9US2008 1144828.23 Case 11-03055-LMI 32. Doc 1 Filed 12/05/11 Page 10 of 53 As of March 31, 2008, only 17.4 percent of all loans (including Option ARMs) in the Bank's one-to-four family residential mortgage loan portfolio consisted of "full documentation employment verified" ("Full Documentation") loans. Approximately 73.6 percent of this loan portfolio consisted of "stated income verified assets and employment" or "reduced documentation employment verified" (collectively, "Limited Documentation") loans, and 9 percent consisted of no documentation ("No Documentation") loans. With respect to the Option ARM loans in the portfolio, only 12.4 percent were Full Documentation loans, while 56.3 percent were Limited Documentation loans, and the remaining 31.3 percent were No Documentation loans. III. Bank Regulators Express Concern and Propose Interagency Guidance Regarding "Nontraditional" Mortgages in December 2005 33. In December 2005, federal bank regulators ("Bank Regulators") expressed concerns about nontraditional loan products, including Option ARMs. Bank Regulators were particularly concerned about Option ARMs based on reduced documentation, such as the No Documentation and Limited Documentation loans made by the Bank. 34. On December 29, 2005, Bank Regulators published Proposed Guidance on Nontraditional Mortgage Product Risk ("Proposed Guidance") and solicited public comments. The Proposed Guidance was published in the Federal Register at 70 Fed. Reg. 77,249. The term "nontraditional mortgage products" was defined to include interest-only mortgages and Option ARMs. 35. The Proposed Guidance characterized Option ARMs and interest-only mortgages as "nontraditional mortgage loans." It stated that, in order to manage the risks associated with nontraditional mortgage loans, management of financial institutions should - 10 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 11 of 53 "[r]ecognize that many nontraditional mortgage loans, particularly when combined with risklayering features, are untested in a stressed environment, and, therefore, warrant strong risk management standards, capital levels commensurate with the risk, and an allowance for loan and lease losses that reflects the collectibility of the portfolio." Proposed Guidance, 70 Fed. Reg. at 77,252. The Proposed Guidance noted such "risk-layering" practices as loans underwritten with "less stringent or no income and asset verification requirements ('reduced documentation')." Id. 36. The Proposed Guidance further stated that (a) financial "institutions should recognize that the limited performance history of [nontraditional mortgage] products, particularly in a stressed environment, increases performance uncertainty"; (b) "institutions should ensure that portfolio and risk management practices keep pace with the growth and changing risk profile of their nontraditional mortgage loan portfolios"; (c) "active portfolio management is especially important for institutions that project or have already experienced significant growth or concentrations of nontraditional mortgages"; and (d) institutions "should adopt more robust risk management practices and manage these exposures in a thoughtful, systematic manner by," among other things, "[e]stablishing appropriate [Allowance for Loan and Lease Losses ("ALLL")] levels that consider the credit quality of the portfolio and conditions that affect collectibility" and "[m]aintaining capital at levels that reflect portfolio characteristics and the effect of stressed economic conditions on collectibility." Proposed Guidance, 70 Fed. Reg. at 77,250, 77,253. 37. In terms of specific risk management practices, the Proposed Guidance advised financial institutions to (a) "[d]evelop[] written policies that specify acceptable product attributes, production and portfolio limits, sales and securitization practices, and risk - 11 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 12 of 53 management expectations"; (b) "[e]stablish[] appropriate ALLL levels that consider the credit quality of the portfolio and conditions that affect collectibility"; and (c) "[m]aintain[] capital at levels that reflect portfolio characteristics and the effect of stressed economic conditions on collectibility." Proposed Guidance, 70 Fed. Reg. at 77,253. 38. Notwithstanding the concerns expressed by Bank Regulators in the Proposed Guidance, the Bank, under the auspices of the Camner-controlled Holding Company, continued to promote the origination of Option ARM loans throughout 2006 and part of 2007, often on a reduced documentation or no documentation, stated income basis, and the Option ARM portfolio continued to grow. A. 39. Proposed Guidance: Allowance for Loan and Lease Losses - "ALLL" The Proposed Guidance emphasized that banks holding nontraditional loan product portfolios needed to determine an adequate ALLL to manage the risks created by the nontraditional loan products. 40. The ALLL is an accounting book entry that functions as a valuation reserve banks establish to recognize estimated loan impairment before probable losses on individual loans are confirmed. The ALLL is an estimate of probable, but unconfirmed, uncollectible amounts in the loan portfolio as of the financial statement date, and is used to reduce the book value of loans and leases to the amount expected to be collected. 41. The Proposed Guidance counseled financial institutions to segment their nontraditional mortgage loan portfolios into pools of loans with similar risk characteristics in order to calculate the institution's ALLL. Specifically, the Proposed Guidance stated that, In establishing an appropriate ALLL and considering the adequacy of capital, institutions should segment their nontraditional mortgage loan - 12 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 13 of 53 portfolios into pools with similar credit risk characteristics. The basic segments typically include collateral and loan characteristics, geographic concentrations, and borrower qualifying attributes. Credit risk segments should also distinguish among loans with differing payment and portfolio characteristics, such as borrowers who habitually make only minimum payments, mortgages with existing balances above original balances due to negative amortization, and mortgages subject to sizable payment shock. The objective is to identify key credit quality indicators that affect collectibility for ALLL measurement purposes and important risk characteristics that influence expected performance so that migration into or out of key segments provides meaningful information about future loss exposure for purposes of determining the level of capital to be maintained. Proposed Guidance, 70 Fed. Reg. at 77,255. B. Proposed Guidance: Stress Testing 42. The Proposed Guidance also advised banks to conduct "stress tests" of their Option ARM and other nontraditional loan portfolios to better assess and manage the risks these loans presented when compared to the risks posed by traditional residential mortgage loans. These stress tests were expected to enhance predictability about how nontraditional loan portfolios would perform during stressed economic conditions and to provide banks information critical to managing and mitigating those risks in advance of the occurrence of stressed economic conditions. 43. The Proposed Guidance counseled institutions to perform stress tests on key performance drivers such as interest rates, employment levels, economic growth, housing value fluctuations, and other factors beyond the institution's immediate control. Stress tests typically assume rapid deterioration in one or more factors and attempt to estimate the potential influence on default rates and loss severity. Through stress testing, an institution should be able to identify, monitor and manage risk, as well as develop appropriate and cost-effective loss mitigation strategies. The stress testing results should provide direct feedback in determining underwriting standards, product terms, portfolio concentration limits, and capital levels. Proposed Guidance, 70 Fed. Reg. at 77,255. - 13 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 14 of 53 C. In Response to the Proposed Guidance, Defendants Failed to Take Steps to Ensure that the Holding Company's Risk Management Procedures Incorporated Stress Testing and that its Internal Controls over Financial Accounting Were Modified to Include a Reliable ALLL Calculation Model 44. Even though the performance of the Bank's Option ARM portfolio remained untested under stressed economic conditions, and despite the concerns Bank Regulators expressed in the Proposed Guidance regarding the performance uncertainty presented by nontraditional mortgage products such as Option ARMs because such loans were untested under stressed economic conditions, Defendants, as the most senior officers of the Holding Company (the Bank's controlling shareholder), made no efforts in 2006 to cause the Bank to implement stress testing of the Bank's Option ARM portfolio as set forth in the Proposed Guidance. 45. In addition, Defendants in 2006 did not take action to ensure that the Holding Company's internal controls over financial accounting incorporated the modifications to the ALLL calculation methodology described in the Proposed Guidance. 46. Rather, under the leadership of Defendants, the Holding Company permitted the Bank in 2006 to continue increasing its originations of Option ARM loans without subjecting the Option ARM loan portfolio to stress testing, and the Option ARMs continued to increase as a percentage of the Bank's overall residential mortgage portfolio. 47. Despite warnings in the Proposed Guidance regarding the importance of sound underwriting standards for nontraditional mortgage products, in 2006, the risk in the Bank's Option ARM portfolio increased because, among other reasons, borrowers with lower credit scores were given loans and other qualifying criteria for some of the Bank's nontraditional mortgage loan programs were eased. - 14 US2008 1144828.23 Case 11-03055-LMI IV. Doc 1 Filed 12/05/11 Page 15 of 53 The Final Guidance Reiterates Concerns Regarding Nontraditional Mortgage Products 48. On September 25, 2006, Bank Regulators issued final guidance ("Final Guidance") to address the risks posed by nontraditional mortgage products. The Final Guidance was published in the Federal Register at 71 Fed. Reg. 58,609, 58,618. 49. The Final Guidance applies to "all residential mortgage loan products that allow borrowers to defer repayment of principal or interest," including "all interest-only products and negative amortization mortgages," except for reverse mortgages. It defines "nontraditional mortgage loans" to include interest-only mortgages and Option ARMs. 50. The Final Guidance emphasized that many nontraditional mortgages were untested under stressed economic conditions, particularly loans that include risk-layering features such as less stringent income and asset verification requirements (i.e., "reduced documentation" basis loans). 51. The Final Guidance counseled banks to implement stress testing of nontraditional loan portfolios and a robust ALLL methodology as part of their respective strategies to manage and mitigate risks presented by nontraditional loans. A. 52. Final Guidance: ALLL The Final Guidance stated: [Institutions should establish] appropriate ALLL levels that consider the credit quality of the portfolio and conditions that affect collectibles .... *** Institutions should establish an appropriate allowance for loan and lease losses (ALLL) for the estimated credit losses inherent in their nontraditional mortgage loan portfolios. They should also consider the higher risk of loss posed by layered risks when establishing their ALLL. - 15 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 16 of 53 [I]nstitutions should recognize that their limited performance history with these products, particularly in a stressed environment, increases performance uncertainty. Final Guidance, 71 Fed. Reg. at 58,616. 53. The Final Guidance further stated that when establishing an appropriate ALLL, "institutions should segment their nontraditional mortgage loan portfolios into pools with similar credit risk characteristics." Specifically, The basic segments typically include collateral and loan characteristics, geographic concentrations, and borrower qualifying attributes. Segments could also differentiate loans by payment and portfolio characteristics, such as loans on which borrowers usually make only minimum payments, mortgages with existing balances above original balances, and mortgages subject to sizable payment shock. The objective is to identify credit quality indicators that affect collectibility for ALLL measurement purposes. Final Guidance, 71 Fed. Reg. at 58,616. 54. The Final Guidance also stated that "understanding characteristics that influence expected performance also provides meaningful information about future loss exposure that would aid in determining adequate capital levels." 55. Capital levels are financial ratios that generally provide information about a banking institution's ability to cover future withdrawals. The ratios compare the amount of capital maintained by a bank to its assets. When a bank's capital levels decrease there is a corresponding decrease in the bank's ability to pay-out on withdrawal requests, which increases the likelihood of insolvency. Capital levels are important metrics Bank Regulators closely monitor. - 16 US2008 1144828.23 Case 11-03055-LMI B. 56. Doc 1 Filed 12/05/11 Page 17 of 53 Final Guidance: Stress Testing Regarding stress testing, the Final Guidance stated that institutions should perform sensitivity analyses on key portfolio segments to identify and quantify events that may increase risks in the portfolio. The Final Guidance further stated that the sensitivity analyses "should generally include stress tests on key performance drivers such as interest rates, employment levels, economic growth, housing value fluctuations, and other factors beyond the institution's immediate control," and that stress tests "typically assume rapid deterioration in one or more factors and attempt to estimate the potential influence on default rates and loss severity." 57. The Final Guidance explained how stress testing would benefit a bank's risk management policies, stating that: "Stress testing should aid an institution in identifying, monitoring and managing risk, as well as developing appropriate and cost effective loss mitigation strategies. The stress testing results should provide direct feedback in determining underwriting standards, product terms, portfolio concentration limits, and capital levels." V. Bank Regulators Issue ALLL Policy Statement 58. On December 13, 2006, Bank Regulators issued an Interagency Policy Statement on ALLL ("2006 ALLL Policy Statement"), which replaced the 1993 Interagency Policy Statement on ALLL. The 2006 ALLL Policy Statement stated: "The ALLL represents one of the most significant estimates in a [bank or bank holding company's] financial statements and regulatory reports. Because of its significance, each institution has a responsibility for developing, maintaining and documenting a comprehensive, systematic, and consistently applied process for determining the amounts of the ALLL . ..." Defendants - 17 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 18 of 53 had a fiduciary duty to the Holding Company to ensure this responsibility was fulfilled, so that accurate financial statements could be issued by the Holding Company and presented to the Holding Company's Board. 59. The 2006 ALLL Policy Statement further stated: "An appropriate ALLL covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio." 60. The 2006 ALLL Policy Statement emphasized that banks could not rely solely on historical losses or recent trends in losses to determine the appropriate ALLL. In this regard, it stated: While historical loss experience provides a reasonable starting point for the institution's analysis [of the ALLL], historical losses, or even recent trends in losses, do not by themselves form a sufficient basis to determine the appropriate level for the ALLL. Management should also consider those qualitative or environmental factors that are likely to cause estimated credit losses associated with the institution's existing portfolio to differ from historical loss experience, including but not limited to: o Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses. o Changes in international, national, regional, and local economic and business conditions and developments that affect the collectibility of the portfolio, including the condition of various market segments. o Changes in the nature and volume of the portfolio and in the terms of loans. o Changes in the experience, ability, and depth of lending management and other relevant staff. o Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans. o Changes in the quality of the institution's loan review system. - 18 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 19 of 53 o Changes in the value of underlying collateral for collateral-dependent loans. o The existence and effect of any concentrations of credit, and changes in the level of such concentrations. o The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio. 2006 ALLL Policy Statement at 8-9. 61. According to the 2006 ALLL Policy Statement, "An institution's failure to analyze the collectibility of the loan portfolio and maintain and support an appropriate ALLL in accordance with GAAP and supervisory guidance is generally an unsafe and unsound practice." 2006 ALLL Policy Statement at 5. VI. Defendants Fail to Ensure the Timely Implementation of Effective Risk Assessment Procedures and Internal Controls over Financial Accounting as Prescribed by Regulators A. 62. Robust Stress Testing Is Not Performed Until 2008 at the Earliest Both the December 2005 Proposed Guidance and September 2006 Final Guidance expressed serious concerns by Bank Regulators that nontraditional mortgage products such as Option ARM loans had not been tested during stressed economic conditions. 63. By late 2006, the residential real estate markets in Florida, California, Nevada and in other markets where the Bank originated Option ARMs were declining. 64. These negative economic developments underscored the need to conduct robust stress testing to assess accurately the impact the Bank's nontraditional loan portfolio would have on the financial condition of the Bank and the Holding Company if the declining economic conditions persisted or the conditions worsened. - 19 US2008 1144828.23 Case 11-03055-LMI 65. Doc 1 Filed 12/05/11 Page 20 of 53 In January 2007, the Office of Thrift Supervision ("OTS"), the Holding Company's and the Bank's primary regulator, criticized the Bank for its failure to conduct robust stress testing to evaluate reliably the risks created by the Bank's substantial Option ARM portfolio. The OTS directed the Bank to develop and implement a methodology for stress testing the Option ARM portfolio by March 31, 2007. 66. In March 2007, the Bank's board of directors (the "Bank's Board") adopted a "Nontraditional Mortgage Policy," which purported to address material elements of the Final Guidance. The Nontraditional Mortgage Policy stated that the Bank would perform semi-annual stress testing on key segments of the Bank's nontraditional mortgage portfolio. Regarding the ALLL, the Nontraditional Mortgage Policy stated that current historical data does not support additional loan loss factors based on stratifications in the option ARM portfolio, and that (contrary to the Final Guidance) Option ARMS would not be segregated when analyzing the appropriateness of the ALLL. 67. On August 27, 2007, the OTS was told that a stress testing methodology was being developed, and that so-called "basic" stress testing would be implemented by September 2007, with a "robust" stress test methodology to be implemented in 2008. 68. Through August 27, 2007, under the leadership of Defendants, the Holding Company had not required the Bank to perform, or devise a methodology to perform, even "basic" stress testing of the Option ARM portfolio. 69. Throughout 2007, the Bank's loan portfolio deteriorated significantly. Nonperforming loans increased from $44.7 million for the quarter ending December 31, 2006 to $180.8 million for the quarter ending September 30, 2007--more than a fourfold increase. The percentage of negatively amortizing loans also increased substantially. While - 20 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 21 of 53 80 percent of the Option ARMs were negatively amortizing for the quarter ending December 31, 2006, nearly 90 percent were negatively amortizing by the quarter ending September 30, 2007. This increase portended a severe deterioration in the performance of the Bank's residential loan portfolio. 70. It was not until November 16, 2007, however, that what was described as a "basic" stress test model for the Option ARM portfolio was developed and a "test run" of this model conducted. 71. In January 2008, the Bank's Board and the Holding Company's Board were advised by the Bank's management that "a more robust stress testing model (which will likely include housing price appreciation [and] credit/loss mitigation factors)" would be developed by March 2008. 72. Through March 2008, under the leadership of Defendants, the Holding Company had not required the Bank to conduct the robust stress testing of the Option ARM portfolio prescribed by the Final Guidance and required by the OTS to have been due by March 2007. As a result, the risks associated with the Option ARM portfolio could not be assessed or managed properly, nor could accurate information about the financial condition of the Holding Company and the Bank be provided to the Holding Company's Board through at least March 2008. B. 73. The ALLL Methodology Remains Inadequate Through 2008 In January 2007, the OTS advised that the Company's ALLL methodology did not comply fully with the Final Guidance. The OTS directed that a more robust ALLL - 21 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 22 of 53 methodology that satisfied all of the criteria described in the Final Guidance be developed by March 31, 2007. 74. Although the March 2007 Nontraditional Mortgage Policy purported to address the Final Guidance, in August 2007, the OTS advised that the ALLL methodology as described in the Nontraditional Mortgage Policy was inconsistent with the Final Guidance. The OTS directed that the ALLL methodology be upgraded to conform fully to the Final Guidance. 75. In July 2008, the Holding Company belatedly retained Promontory Financial Group, LLC ("Promontory") to develop a comprehensive ALLL model that would meet all of the regulatory criteria. Promontory is a consulting firm to financial institutions that assists them in meeting regulatory requirements and strengthening credit and risk management controls. 76. In August 2008, the OTS again criticized the Company's ALLL methodology, noting this time that the methodology failed to conform fully with the 2006 ALLL Policy Statement. 77. For example, the 2006 ALLL Policy Statement instructed financial institutions to "periodically validate the ALLL methodology," and that the "validation process should include procedures for a review, by a party who is independent of the institution's credit approval and ALLL estimation process." Through August 2008, the Holding Company, under the leadership of Defendants, had not required the implementation of such a validation process. 78. The 2006 ALLL Policy Statement also instructed financial institutions to implement ALLL policies having "an effective loan review system and controls" "responsive - 22 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 23 of 53 to changes in internal and external factors affecting the level of credit risk in the portfolio." Yet, through August 2008, the ALLL values reflected in the Company's financial statements were calculated using initial in-house evaluations performed when a loan became greater than 180 days delinquent to determine the "fair value of residential properties" and establish losses on loans greater than 180 days past due. The "fair value" figure was not updated on even a quarterly basis to reflect rapidly deteriorating market conditions and any continued decline in real property values. And because the evaluations were not appraisals, the evaluations did not take into consideration the actual condition of the property underlying the loan. Moreover, there had been no formal comparisons between the in-house evaluations to the actual appraisals obtained on those properties which were foreclosed in order to assess the reliability of the in-house evaluations and adjust for material variance. 79. Under the leadership of Defendants, an ALLL methodology that did not comply fully with the 2006 ALLL Policy Statement had been permitted to be maintained through August 2008. 80. The OTS identified these and other deficiencies in the ALLL methodology, and in August 2008, directed that the ALLL methodology be conformed fully to the 2006 ALLL Policy Statement and the Final Guidance. 81. By September 19, 2008, however, the ALLL methodology remained deficient, and the OTS issued cease and desist orders to the Holding Company and the Bank. 82. Evidencing the fact that the Holding Company, under the leadership of Defendants, had failed to require the Bank to employ a compliant ALLL methodology, the cease and desist order to the Holding Company (the "Holding Company's Order") required - 23 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 24 of 53 the Holding Company to, among other things, ensure that the Bank complies with all the terms of the cease and desist order issued to the Bank (the "Bank's Order"). 83. The Bank's Order directed the Bank's Board to prepare and submit a detailed plan regarding the ALLL to ensure that the Bank: maintains and adheres to ALLL policies, procedures, timeframes, and calculation inputs and criteria that provide for the timely establishment and maintenance of adequate and appropriate ALLL (ALLL Program). The ALLL Program shall, at a minimum: (a) address the concerns and recommendations noted in the 2008 Examination; and (b) fully comply with (i) Generally Accepted Accounting Principles (GAAP), (ii) OTS Chief Executive Officer Letter No. 250 (December 13, 2006) [which incorporated the 2006 ALLL Policy Statement], (iii) Section 261 of the OTS Examination Handbook, and (iv) all other applicable regulatory guidance regarding ALLL. The [Bank's] Board shall make any changes to the ALLL Program required by the Regional Director within thirty (30) days after receipt. Thereafter, the Board shall adopt and ensure that the revised ALLL Program is fully implemented and adhered to by the [Bank]. 84. The Bank's Order found inadequate the methodology used to determine the ALLL values reported in the Holding Company's consolidated financial statements presented to the Holding Company's Board and filed with the SEC. 85. By October 2008, the ALLL model developed with assistance from Promontory was submitted to the OTS. The OTS did not deem even the Promontory-assisted model to be fully compliant with the Bank's Order. The OTS nonetheless found the Promontory-assisted ALLL model to be a vast improvement over the ALLL methodology previously employed. 86. From the Holding Company's initial engagement of Promontory in July 2008 to October 2008, a period of only four months was required to upgrade the ALLL methodology to a level approaching compliance with OTS directives and regulatory policy. Only after being prompted by the threat of sanction from the OTS did the Holding Company, - 24 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 25 of 53 under Defendants' leadership, finally cause the necessary resources to be committed to bringing the ALLL methodology into compliance. 87. After October 2008, Promontory continued working with the Holding Company and the Bank to improve the ALLL methodology. 88. Because Defendants, who were responsible, in their respective capacities as CEO and CFO of the Holding Company, for seeing to it that effective internal controls and procedures were implemented to ensure accurate execution of account level analyses of the ALLL in accordance with OTS directives, the 2006 Policy Statement, and the Final Guidance, failed to fulfill their responsibilities, the Holding Company was unable to make a timely filing with the SEC of its Form 10-K for Fiscal Year 2008 and ultimately did not file it at all. 89. In its notice of late filing of its 2008 Form 10-K (its 2008 Form NT 10-K), filed on December 16, 2008, the Holding Company announced that, although its ALLL analysis had not been completed, it expected to report a loss of at least $327 million for the preceding quarter. 90. Defendants publicly conceded in the 2008 Form NT 10-K that the implementation and execution of the Holding Company's "controls and procedures did not ensure the systematic and accurate execution of account level analyses related to the residential loan portfolio, including the [ALLL]." 91. Because of the delayed development and implementation of a compliant ALLL methodology, the Holding Company was unable to make a timely filing with the SEC of its Form 10-Q for the quarter ending December 31, 2008 and its Form 10-Q for the quarter ending March 31, 2009. - 25 US2008 1144828.23 Case 11-03055-LMI 92. Doc 1 Filed 12/05/11 Page 26 of 53 In the Holding Company's notice of late filing of its Form 10-Q for the quarter ending March 31, 2009 (its 2Q 2009 Form NT 10-Q), which was filed on May 12, 2009, the Company again announced it had identified "material weaknesses" in its "internal control over financial reporting," including the failure of the Company's "controls and procedures" to "ensure the systematic and accurate execution of account level analyses related to the residential loan portfolio, including the [ALLL]." 93. The Holding Company further announced it did not prepare its consolidated financial statements for Fiscal Year 2008, the 1Q 2009, or the 2Q 2009 because of "continuing adverse market conditions, the complexity of accounting and disclosure issues, which increased the need for additional review and analysis of our business including, without limitation, regulatory issues, liquidity and capital[,] and the material weaknesses in internal control over financial reporting." 94. The Holding Company's 2Q 2009 Form NT 10-Q included financial data the Company characterized as "preliminary," including the following ALLL values: $711,995,000 for the 4Q 2008; $926,639,000 for 1Q 2009; and $991,185,000 for 2Q 2009. In reporting these values, the Holding Company announced that the data was "unaudited" and "subject to change." 95. Notably, these "preliminary" ALLL values were several times greater than the ALLL values reported in the corresponding quarters for Fiscal Years 2007 and 2008: $58,623,000 for the 4Q 2007; $117,658,000 for the 1Q 2008; and $202,315,000 for the 2Q 2008. - 26 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 27 of 53 C. Defendants Breached the Fiduciary Duty of Care by Failing to Ensure the Timely Implementation of Effective Risk Assessment and Financial Accounting Mechanisms from 2006 through 2008 96. As CEO and CFO of the Holding Company, respectively, Defendants were responsible for ensuring the implementation of effective internal risk management procedures to enable the Holding Company to assess and manage the risks in the Bank's Option ARM portfolio and to provide accurate assessments of the Holding Company's consolidated financial condition in financial statements presented to the Holding Company's Board and to the investing public. Defendants owed a fiduciary duty to the Holding Company to ensure the accuracy of the Holding Company's financial reporting, including accurately representing the risks in the Option ARM portfolio and the probable losses arising from borrower delinquencies. As officers of the Holding Company, Defendants had an affirmative responsibility to ensure they and the Holding Company's Board received timely, accurate, and complete assessments of the Company's risks exposure. Defendants failed in this responsibility. 97. The rapid deterioration in the housing market and the deteriorating performance of the Bank's Option ARM portfolio in 2007 and 2008 underscored the need for Defendants to perform these duties with care and in the best interest of the Holding Company. 98. Yet, despite pronouncements in the Proposed Guidance (issued in December 2005), the Final Guidance (issued in September 2006), and OTS directives (issued throughout 2007) emphasizing the role of robust stress testing in managing risks, Defendants, as the most senior officers of the Holding Company, failed, until March 2008 at the earliest, to see to it that robust stress testing of the Option ARM portfolio was implemented. - 27 US2008 1144828.23 Case 11-03055-LMI 99. Doc 1 Filed 12/05/11 Page 28 of 53 In addition to the delay in the implementation of robust stress testing, notwithstanding the pronouncements regarding the importance of implementing an appropriate ALLL methodology in the Proposed Guidance (issued in December 2005), the Final Guidance (issued in September 2006), the 2006 ALLL Policy Statement (issued in December 2006), and OTS directives to the Bank (issued throughout 2007 and 2008), Defendants failed, until Promontory was engaged in July 2008, to take steps reasonably calculated to result in the implementation of effective controls and procedures that would have enabled the Holding Company accurately to determine and report ALLL values during the Relevant Period and avoid presenting incorrect financial information to the Holding Company's Board and others. 100. Had Defendants timely acted in response to the 2005 Proposed Guidance by committing the necessary time, resources, and personnel to the project, a reliable ALLL methodology could have been developed in a matter of months--that is, by May or June 2006. 101. Had Defendants timely acted in response to the Final Guidance and the 2006 ALLL Policy Statement, a reliable ALLL model could have been developed in a matter of months--that is, by May or June 2007. 102. Instead, even as the decline in the housing market accelerated and the deterioration in the performance of the Bank's Option ARM portfolio accelerated throughout 2007 and 2008, Defendants failed, until Promontory was retained in July 2008, to take steps reasonably calculated to result in the implementation of a reliable ALLL methodology. - 28 US2008 1144828.23 Case 11-03055-LMI 103. Doc 1 Filed 12/05/11 Page 29 of 53 As a result, in its 2008 Form NT 10-K filed on December 16, 2008, the Holding Company admitted the failure of "the Company's controls and procedures" to "ensure the systematic and accurate execution of account level analyses related to the residential loan portfolio, including the [ALLL]," constituted a "material weakness" in its "internal controls over financial reporting" as of September 30, 2008. And for the quarter ending September 30, 2008 through the quarter ending March 31, 2009--the last full fiscal quarter before the Holding Company declared bankruptcy--the Holding Company only reported "preliminary" ALLL values that were "unaudited" and still "subject to change." 104. Defendants failed in their responsibilities, as CEO and CFO, respectively, of the Holding Company, to ensure timely implementation of risk management procedures to enable the Holding Company to assess effectively and manage the risks in the Bank's Option ARM portfolio and to provide accurate assessments of the Holding Company's consolidated financial condition. Defendants also failed in their responsibilities, as CEO and CFO, respectively, of the Holding Company, to ensure timely implementation of effective internal controls over financial reporting to enable the Holding Company and its subsidiaries accurately to account for and report the Holding Company's financial results on a consolidated basis. 105. These failures resulted in a misconception by the Holding Company's Board of (1) the magnitude of the risk posed by the Bank's Option ARM portfolio to the viability of the Holding Company and the Bank, and (2) the true financial condition of the Bank and the Holding Company. 106. Had Defendants not breached their fiduciary duties to the Holding Company in the manner described above, and had the Holding Company's Board been made - 29 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 30 of 53 aware of the true financial condition of the Holding Company and the Bank, the Holding Company's Board would have been in a position to make informed decisions about the wisdom of having the Holding Company continue to repurchase its stock, pay dividends, and contribute capital to the Bank, and about correcting the Holding Company's and the Bank's unsafe and unsound banking practices. VII. Defendants' Failures Deprive the Holding Company's Board of Accurate Information Critical to the Board's Decision-Making Process 107. During Fiscal Year 2007, notwithstanding the lack of a reliable ALLL calculation methodology, Defendants represented to the Holding Company's Board that the quarterly ALLL values were adequate to account for probable losses arising from borrower delinquencies. 108. During Fiscal Years 2007 and 2008, Defendants represented to the Holding Company's Board that the Bank's underwriting requirements, such as requiring high credit scores for borrowers and conservative loan-to-value ratios, adequately mitigated the risks presented by the Option ARM portfolio. 109. These representations are illustrated by statements set forth in the Holding Company's consolidated financial statements filed with the SEC, upon which the Holding Company's Board relied in making decisions, including decisions about the Holding Company's infusion of capital into the Bank, issuance of debt, repurchase of Company stock, and declaration of dividends. 110. For example, the Holding Company's 2007 Form 10-K (for the Fiscal Year ending September 30, 2007) and 1Q 2008 Form 10-Q (for the quarter ending December 31, 2007) state that "[t]he various risks of" the Holding Company's "loan portfolio are - 30 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 31 of 53 mitigated by" the Company's "underwriting requirements, which include credit qualifications and LTV ['loan-to-value'] ratios directly correlated to potential risk." 111. In addition, the Holding Company's 2007 Form 10-K, and the Form 10-Qs for the quarters ending March 31, 2007, June 30, 2007, December 31, 2007, March 31, 2008, and June 30, 2008 represented that the reported ALLL value was "established and maintained at levels that management believes are adequate to cover probable losses resulting from the inability of borrowers to make required payments on loans." The Holding Company's Form 10-Q for the quarter ending March 31, 2007 also represented that the ALLL was established at a level that "management believes to be appropriate given the composition of its loan portfolio." 112. Yet, because Defendants, as CEO and CFO, respectively, of the Holding Company, had failed to ensure the timely implementation of robust stress testing and failed to see to it that an ALLL methodology fully compliant with applicable regulatory directives and policy was developed and implemented in a timely manner, the ALLL values presented to the Holding Company's Board did not paint an accurate picture of (1) the risk to the Holding Company and the Bank inherent in the Option ARM portfolio, or (2) the financial condition of the Holding Company and the Bank. 113. Consequently, the Holding Company's Board was unable to make, on a well-informed basis, decisions that affected materially the interests of the Holding Company and its stakeholders. - 31 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 32 of 53 VIII. Relying on the Flawed Financial Information Provided by Defendants, the Company's Board Authorizes Capital Draining Stock Repurchases, Wasteful Dividend Payments, and Debt Issuances 114. The Holding Company's Board relied on the flawed information provided to them by Defendants and incorporated into the Holding Company's public filings, which masked the magnitude of the risk inherent in the Option ARM portfolio, when authorizing the Holding Company to repurchase the Holding Company's publicly traded stock through the quarter ending September 30, 2007, to pay dividends on the Holding Company's stock through the quarter ending June 30, 2008, and to issue additional debt based on disclosures to the investing public without taking other actions to reduce risks presented to the Option ARM portfolio. Investors would not have purchased the Holding Company's debt on the terms offered had they known the true financial condition of the Holding Company and the Bank. A. 115. The Holding Company Repurchases Stock Through the Quarter Ending September 30, 2007 On October 24, 2002, the Holding Company's Board approved a stock repurchase program for the Holding Company's Class A Common Stock (the "Repurchase Program"), in the belief that the market price at that time did not reflect the real value of the Holding Company's stock. 116. The Repurchase Program authorized the Holding Company to repurchase up to 1 million shares of Class A Common Stock in open market transactions at prices and on conditions determined by the Executive Committee of the Holding Company's Board, which was chaired by Defendant Camner. - 32 US2008 1144828.23 Case 11-03055-LMI 117. Doc 1 Filed 12/05/11 Page 33 of 53 By April 2007, the Holding Company's Board increased the number of shares authorized to be repurchased to 4.4 million shares. Earlier increases had raised the authorization to 3 million shares in October 2006, and then to 3.6 million shares in January 2007. 118. During the quarter ending March 31, 2007, the Holding Company repurchased 356,282 shares at an average price of $24.85 per share, at a total cost of at least $8,853,608. During the quarter ending June 30, 2007, the Holding Company repurchased 936,600 shares at an average price of $21.90 per share at a total cost exceeding $20,511,540. During the quarter ending September 30, 2007, the Holding Company repurchased approximately 315,413 shares of the Holding Company's stock. The Company's Class A Shares traded at a low of $13.64 per share and a high of $20.48 per share during this quarter. Assuming an average share price of approximately $17.00 per share, the Holding Company expended approximately $5,362,021 on stock repurchases during the quarter ending September 30, 2007. 119. These stock repurchases drained capital from the Holding Company at a time the Bank's Option ARM loan portfolio was deteriorating and the true financial condition of the Holding Company and Bank were unknown because Defendants, in their respective capacities as CEO and CFO of the Holding Company, had failed to cause to be implemented, in a timely manner, robust stress testing of the Option ARM portfolio and a reliable ALLL methodology conforming to OTS directives and regulatory policy. 120. Defendants did not advise the Holding Company's Board to suspend the Repurchase Program in order to preserve capital until October 2007. - 33 US2008 1144828.23 Case 11-03055-LMI 121. Doc 1 Filed 12/05/11 Page 34 of 53 Because robust stress testing and a reliable ALLL methodology conforming to OTS directives and regulatory policy were not implemented in a timely manner, the Holding Company's Board was lulled by the financial information reported by the Holding Company into not withdrawing the Executive Committee's authorization to repurchase stock until after the stock repurchases in 2007 described above already had occurred. B. 122. The Holding Company Continues Issuing Debt through September 2007 The Holding Company's Board approved several debt offerings beginning in late 2006 and ending in September 2007 based on information about the respective financial conditions of the Holding Company and the Bank that was prepared without the benefit of timely implementation of stress testing of the Option ARM portfolio and a reliable ALLL methodology conforming to OTS directives and regulatory policy. 123. On September 7, 2007, the Holding Company's Board authorized an offering of trust preferred securities. Pursuant to this authorization, on or about September 20, 2007, $7.5 million in trust preferred securities were issued. 124. On September 24, 2007, the Holding Company's Board authorized another debt offering, pursuant to which $12.5 million in junior subordinated debentures were issued on September 28, 2007. 125. If robust stress testing of the Option ARM portfolio and a reliable ALLL methodology conforming to OTS directives and regulatory policy had been implemented in a timely manner, the impact on the Holding Company's financial statements would have dissuaded investors from subscribing to the trust preferred securities and the junior - 34 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 35 of 53 subordinated debentures on the terms offered in September 2007, and the Holding Company would not have incurred the additional $20 million of debt, which prolonged the life of the Holding Company and deepened its insolvency. 126. The breaches of fiduciary duties to the Holding Company by Defendants with respect to the failure to implement, in a timely manner, robust stress testing and a reliable ALLL methodology, as described above, resulted in the futile prolongation of the life of the Holding Company and the deepening of its insolvency, for which Defendants are liable to the Holding Company's bankruptcy estate. C. 127. The Holding Company Continues Declaring Dividends on its Stock Through May 2008 The Holding Company's Board declared dividends of $0.005 per share on the Company's Class A Common Stock and $.1375 per share on the Company's Series B Preferred Stock on or about March 5, 2007, May 31, 2007, August 29, 2007, November 30, 2007, February 29, 2008, and May 27, 2008. These dividends were paid on or about March 30, 2007, June 28, 2007, September 28, 2007, December 31, 2007, March 31, 2008, and June 30, 2008, respectively. From March 2007 through June 2008, the Holding Company paid dividends in the amount of approximately $1,057,000 on the Company's Class A Common Stock, and approximately $956,000 on the Company's Series B Preferred Stock, for a total of approximately $2,013,000. 128. It was not until on or about August 5, 2008 that the Holding Company's Board voted to suspend the declaration and payment of dividends on the Holding Company's Class A Common Stock "as a means of preserving capital." - 35 US2008 1144828.23 Case 11-03055-LMI 129. Doc 1 Filed 12/05/11 Page 36 of 53 If robust stress testing of the Option ARM portfolio and a reliable ALLL methodology conforming to OTS directives and regulatory policy had been implemented in a timely manner, giving the Holding Company's Board a more accurate and complete picture of the Holding Company's financial condition at the time the dividends described above were declared and paid, the Board would have suspended dividends before the 2007 and 2008 dividends were declared and paid to preserve capital and avoid the risk of authorizing illegal dividends, and the approximately $2 million would have been retained in the Holding Company. 130. The breaches of fiduciary duties to the Holding Company by Defendants with respect to the failure to implement, in a timely manner, robust stress testing and a reliable ALLL methodology, as described above, divested the Holding Company of approximately $2,013,000 in dividend payments for which Defendants are liable in damages to the Holding Company's bankruptcy estate. IX. The Holding Company Unsuccessfully Attempts to Raise Capital and Contributes $80 Million in Capital to the Bank in August 2008 131. The Holding Company's 2007 Form 10-K (for the Fiscal Year ending September 30, 2007) stated that its "capital position is strong." 132. In September 2007, Defendants sought investors for the Holding Company or Bank, including at least one Spanish-based bank. In October 2007, Defendants told the Holding Company's Board that such an investment was unlikely to occur, and Defendants would explore other capital-raising avenues. 133. On January 2, 2008, the Holding Company filed a Form S-3 shelf registration with the SEC ("January 2008 Shelf Registration"), to register securities in an - 36 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 37 of 53 amount up to $400 million. The Holding Company announced it intended "to use the net proceeds of the offering for general corporate purposes," which "may include funding working capital needs, possible acquisitions, [and] acquiring our debt and equity securities, if available on favorable terms." The Holding Company never issued securities registered under the January 2008 Shelf Registration. 134. As part of their capital raising efforts, Defendants engaged in discussions and negotiations with private equity firms and investment banks throughout 2008. 135. On January 24, 2008, the Holding Company announced a multi-year strategic plan ("Strategic Plan") to transition the Bank to a retail commercial bank. As part of the Strategic Plan, the Holding Company announced it closed four of its nine sales offices and reduced its wholesale residential staff by more than 45 percent. 136. In a Form 8-K filed on May 12, 2008, the Holding Company announced that as part of its Strategic Plan, the Bank would no longer originate Option ARMs except for "private banking customers" and that it was "exploring capital-raising alternatives." 137. On or about June 18, 2008, the Holding Company filed with the SEC a preliminary prospectus to support the $400 million stock offering. On June 24, 2008, the Holding Company filed a Form 8-K announcing an agreement concerning the holders of its Series B Preferred Stock and Class B Common Stock (the "Supervoting Shares"). Under the agreement, holders of the Supervoting Shares, including Defendant Camner, agreed to convert those shares to Class A Common Stock if the Holding Company successfully raised $400 million through a sale of securities. 138. By July 2008, the Holding Company abandoned efforts for a public offering and shifted its capital-raising efforts to private equity investors. - 37 US2008 1144828.23 The Holding Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 38 of 53 Company could not raise capital because the Bank's Option ARM portfolio continued to deteriorate, and potential investors harbored deep concerns regarding their inability to estimate the potential losses in the Option ARM portfolio during their due diligence efforts. 139. In response to the continued deterioration in the Bank's Option ARM portfolio, on July 24, 2008, the OTS advised the Holding Company and the Bank that the Bank needed a capital infusion. 140. The Holding Company entered into a Memorandum of Understanding (the "HC MOU") with the OTS on or about July 24, 2008, in which the OTS stated, "the deterioration in BankUnited's nontraditional mortgage loan portfolio has caused the Bank, which represents the primary asset of the [Holding Company], to be in need of: (i) additional capital from [the Holding Company]; and (ii) certain other corrective actions." The HC MOU contemplated the Holding Company's Board would prepare and then implement a plan to raise at least $400 million in additional capital. The OTS had made clear $400 million was the minimum the OTS would consider acceptable. 141. The Bank also entered into a separate Memorandum of Understanding (the "Bank MOU") with the OTS on or about July 24, 2008, in which the Bank agreed to achieve and maintain capital ratios at 8 percent core and 15 percent risk-based until the OTS agreed to relax those requirements. 142. The OTS issued an Examination Report in early August 2008 and advised the Bank that its "rapidly deteriorating asset quality, rising loan losses, continued projected operating losses, poor tangible capital ratios at the holding company level, as well as liquidity issues give cause for continued capital concerns." The OTS further noted the - 38 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 39 of 53 Holding Company's ability to raise capital was uncertain given the then-current condition of the Bank and negative trends. 143. In short, based on the Holding Company's lack of success in raising capital and the communications received from the OTS, by August 2008, there was no realistic prospect for salvaging the Holding Company's investment in the Bank, and any further investment by the Holding Company in the Bank would be futile and divest the Holding Company of assets with no resulting benefit to the Holding Company. 144. On or about August 5, 2008, Defendant Camner advised the Holding Company's Board that the OTS had ordered the Holding Company to make an $80 million capital contribution to the Bank and to backdate the contribution to June 30, 2008. 145. Notwithstanding that no realistic prospect for the Bank's survival existed, the $80 million capital infusion was presented to the Holding Company's Board by Camner as a fait accompli; as a matter about which the Holding Company had no choice. 146. Before advising the Holding Company's Board regarding the $80 million capital contribution, Camner, in breach of his duties of care and loyalty to the Holding Company, (a) did not analyze and evaluate, or seek the advice of the Holding Company's auditor or other financial personnel within the Holding Company's management regarding whether and for how long such a contribution would enable the Bank to obtain and maintain the capital levels and ratios that the Bank had agreed to achieve and maintain pursuant to the Bank MOU; (b) did not analyze and evaluate whether and for how long contributing $80 million to the Bank at that juncture would enable the Bank to avoid or delay the initiation of enforcement action by the OTS; (c) did not analyze and evaluate whether and for how long contributing $80 million to the Bank at that juncture would enable the Bank to continue - 39 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 40 of 53 operating as a going concern and avoid regulatory seizure in light of the prolonged and continued inability of the Holding Company to raise capital and the continued rapid deterioration in the Bank's Option ARM portfolio; and (d) did not provide the Board with all information relevant to making the decision that was reasonably available ("Relevant Information"). 147. In presenting the Holding Company's Board with the fait accompli, Defendant Camner, in breach of his duties to the Holding Company, failed to (a) disclose that neither he nor any other member of the Holding Company's management had analyzed or evaluated whether and for how long an $80 million contribution would enable the Bank to maintain the capital levels and ratios that the Bank had agreed to achieve and maintain pursuant to the Bank MOU; (b) disclose that neither he nor any other member of the Holding Company's management had analyzed and evaluated whether and for how long contributing $80 million to the Bank at that juncture would enable the Bank to avoid or delay the initiation of enforcement action by the OTS; (c) allow the Holding Company's Board time to deliberate and exercise its independent judgment about the legal, regulatory, and financial implications of making the $80 million contribution and backdating it as effective June 30, 2008; and (d) provide the Holding Company's Board with Relevant Information or allow the Holding Company's Board time to deliberate and exercise its independent judgment about whether and for how long contributing $80 million to the Bank at that juncture would (i) prevent or delay the initiation of enforcement action by the OTS or (ii) enable the Bank to avoid closure by the OTS and seizure by the FDIC, in light of the prolonged and continued inability of the Holding Company to raise capital and the continued rapid deterioration in the Bank's Option ARM portfolio. - 40 US2008 1144828.23 Case 11-03055-LMI 148. Doc 1 Filed 12/05/11 Page 41 of 53 Having been presented with a fait accompli and having not been provided with Relevant Information and a reasonable time to deliberate, on August 5, 2008, the Holding Company's Board, with little discussion, authorized an $80 million capital contribution from the Holding Company to the Bank, which was recorded as effective June 30, 2008 in the Bank's Thrift Financial report. 149. On or about August 5, 2008, as a result of Camner's breaches of his fiduciary duties of care and loyalty in his capacity as CEO of the Holding Company, the Holding Company contributed $80 million in capital to the Bank, even though there was no realistic prospect for the Bank's survival. The Holding Company received nothing of value for this contribution and lost $80 million by making the contribution. The Holding Company's bankruptcy estate is entitled to recover this $80 million loss from Defendant Camner as damages for breach of his fiduciary duties to the Holding Company as CEO of the Holding Company. X. Defendants' Failure to Prevent the Holding Company from Engaging in Unsafe and Unsound Practices, Resulting in the Bank Being in an Unsatisfactory Condition, Leads to the Closing of the Bank by the OTS and the Holding Company's Bankruptcy 150. Defendants continued their attempts to raise capital in the August through October 2008 period. These efforts were not successful. 151. On September 16, 2008, less than a month and a half after the $80 million capital contribution from the Holding Company to the Bank, the OTS notified the Holding Company's Board that the deterioration in the Option ARM portfolio "has resulted in the need for greater levels of capital and allowance for loan and lease losses [ALLL] at the Bank," and that a "Cease and Desist Order" was necessary to address the deficiencies noted - 41 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 42 of 53 in the January 31, 2008 Report of Examination. Accompanying the September 16, 2008 OTS notification was a "Stipulation and Consent to Issuance of Order to Cease," which the OTS directed the Holding Company's Board to sign and return. 152. On or about September 19, 2008, the OTS issued cease and desist orders to the Holding Company (the "Holding Company's Order") and the Bank (the "Bank's Order"). The "OTS Findings of Fact" incorporated into the Holding Company's Order stated that: Based on [the OTS's] January 31, 2008 Report of Examination of the Holding Company, the OTS finds that the Holding Company has engaged in unsafe and unsound practices that have resulted in the Holding Company's wholly owned savings association subsidiary, BankUnited, FSB, [the Bank] ... being in an unsatisfactory condition primarily due to the rising delinquencies and defaults in its payment option arm loan portfolio, a significant portion of which was originated on a "stated income" basis. The deterioration in this portfolio has resulted in the need for greater levels of capital and allowance for loan and lease losses at the [Bank]. (emphasis added). 153. In their respective positions as CEO and CFO of the Holding Company, Camner and Lopez had fiduciary duties to the Holding Company to manage the Holding Company in a manner such that the Holding Company did not engage in unsafe and unsound practices resulting in the condition of the Bank becoming unsatisfactory to the OTS. As evidenced by the Holding Company's Order, Defendants breached these duties by, inter alia, vigorously promoting Option ARM lending even after the downturn in the housing market had begun, permitting Option ARM loans to predominate in the residential mortgage loan portfolio, permitting a significant portion of residential mortgage loans originated by the Bank to be made on a stated income, no documentation or reduced documentation basis, and permitting other lax underwriting standards to be employed in the origination of residential mortgage loans. - 42 US2008 1144828.23 Case 11-03055-LMI 154. Doc 1 Filed 12/05/11 Page 43 of 53 The Holding Company's Order (a) required the Holding Company to raise capital for the Bank, (b) required the Holding Company to ensure the Bank complied with the Bank's Order, and (c) imposed restrictions on the Holding Company's use of existing capital. 155. Regarding the Bank, the Issuance and Consent to Issuance of Order to Cease and Desist (the "Bank's OTS Stipulation") provided as "OTS Findings of Fact" that: Based on [the OTS's] January 31, 2008 Report of Examination of the [Bank], the OTS finds that the [Bank] has engaged in unsafe and unsound practices that have resulted in the [Bank] being in an unsatisfactory condition, primarily due to the rising delinquencies and defaults in its payment option arm loan portfolio, a significant portion of which was originated on a "stated income" basis. The deterioration in this portfolio has resulted in the need for greater levels of capital and allowance for loan and lease losses. 156. The Bank Order directed the Bank to upgrade the ALLL methodology, to cease originating Option ARM loans, and to develop a business plan that moved the Bank away from offering nontraditional mortgage products. 157. On October 20, 2008, Camner was asked to resign and retire as CEO and Chairman of the Holding Company's Board by the other members of the Holding Company's Board. 158. On October 24, 2008, the Holding Company announced Camner's retirement as Chairman and CEO of the Holding Company, and his new role as "Chairman Emeritus." 159. On December 16, 2008, the Holding Company filed a 2008 Form NT 10- K, announcing a delay in filing its financial statements. The Holding Company admitted "the implementation and execution of the Company's controls and procedures did not ensure the systematic and accurate execution of account level analyses related to the residential loan - 43 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 44 of 53 portfolio, including the allowance for loan losses," and that its "internal control over financial reporting and disclosure controls and procedures were not effective at September 30, 2008." 160. In a Form 8-K filed on January 27, 2009, the Holding Company announced that although its 2008 Form NT 10-K had stated that the Holding Company "expected to report a loss of approximately $327 million in the fourth fiscal quarter of 2008," the ALLL analysis at the time was incomplete, and additional review of the Holding Company's ALLL indicated that the loss for the fourth fiscal quarter of 2008 would be approximately $607 million. 161. On February 10, 2009, the Holding Company filed a notice of late filing of Form 10-Q for the quarter ending December 31, 2008, announcing that it was unable to timely file a Form 10-Q for the quarter, and reporting "preliminary" ALLL values of $704.5 million for the quarter ending December 31, 2008 and $772.6 million for the quarter ending March 31, 2009. 162. On April 14, 2009, the OTS issued a Prompt Corrective Action Directive ("PCA Directive") to the Bank. The PCA Directive stated that: (1) the OTS notified the Bank on February 10, 2009 that the Bank was critically undercapitalized as of January 30, 2009; (2) the OTS had considered and denied the Bank's Capital Plan as set forth in a letter to the Bank dated April 10, 2009; and (3) the Bank must be recapitalized by (a) merging with or being acquired by another financial institution, financial holding company, or other entity, or (b) the sale of all or substantially all of the Bank's assets and liabilities to another financial institution, financial holding company, or other entity within 20 days. - 44 US2008 1144828.23 Case 11-03055-LMI 163. Doc 1 Filed 12/05/11 Page 45 of 53 The Holding Company announced the PCA Directive in a Form 8-K filed with the SEC on April 17, 2009. 164. On May 12, 2009, the Holding Company filed a notice of late filing of Form 10-Q for the quarter ending March 31, 2009, explaining that it was unable to file a timely Form 10-Q for the quarter because it had not completed its financial results for Fiscal Year 2008, the quarter ending December 31, 2008, and the quarter ending March 31, 2009. 165. The Holding Company having been unsuccessful in its efforts to raise capital, on May 21, 2009, the OTS closed the Bank and appointed the FDIC as a receiver of the Bank for the purpose of liquidation or winding up the Bank's affairs, because, among other reasons, the Bank's liabilities exceeded its assets, the Bank was unable to meet its obligations to its creditors and others, and the Bank was in an unsafe and unsound condition to transact business. 166. Also on May 21, 2009, the FDIC announced the sale of the Bank to a newly chartered federal savings bank (the "New Bank"), and that a consortium of private investors had agreed to invest $900 million in capital into the New Bank. 167. On May 22, 2009, the Holding Company filed the Bankruptcy Case. XI. The Defendants Approve and Direct the Transfer of Approximately $45 Million from the Holding Company to the Bank, an Insider, Within the One Year Period Preceding the Filing of the Bankruptcy Case. 168. Within the one year period preceding the filing of the Bankruptcy Case, the Defendants, as officers of the Holding Company, approved two transfers from the Holding Company to the Bank in the total amount of approximately $45 million (collectively, the "Transfers"). In particular, on January 9, 2009 the Holding Company - 45 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 46 of 53 received a check in the amount of $19,871,221.06 from the United States Treasury in connection with a tax refund (the "Tax Refund Check"). The Tax Refund Check was paid to the order of the Holding Company and otherwise constituted an asset of the Holding Company. On information and belief, upon receipt of the Tax Refund Check, the Defendants approved and directed that the Tax Refund Check be transferred to the Bank. 169. Similarly, in March 2009, the Holding Company filed Form 1139 with the Internal Revenue Service for the purposes of collecting amounts related to a net operating loss carryback claim (the "NOL Claim"). The Form 1139 was filed on behalf of the Holding Company and its subsidiaries and all amounts received in connection with the NOL Claim properly were payable only to the Holding Company. Nevertheless, on information and belief, at the direction of the Defendants, the Form 1139 included instructions to wire all amounts received in connection with the NOL Claim directly to the Bank. 170. In April 2009, the IRS delivered a wire transfer (the "Wire Transfer") in the amount of $25,812,825 on account of the NOL Claim. On information and belief, the Wire Transfer was delivered directly to the Bank. 171. The Transfers were made to the Bank, an insider, for antecedent debt, within one year before the filing of the Bankruptcy Case, at a time when the Holding Company was insolvent. At the time of the Transfers, the persons in control of the Bank had reasonable cause to believe the Holding Company was insolvent. Accordingly, the Transfers were fraudulent transfers under Florida's Uniform Fraudulent Transfer Act as to creditors whose claims arose before the Transfers were made. 172. The approval and direction of these fraudulent transfers by the Defendants constituted a breach of their fiduciary duties to the Holding Company. - 46 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 47 of 53 CLAIMS FOR RELIEF COUNT I Failure to Implement and Maintain Effective Risk Management Procedures and Internal Controls -- Breach of Duty of Care (Against Defendants Camner and Lopez) 173. Plaintiff hereby incorporates by reference and realleges each and every allegation set forth above, as though fully set forth herein. 174. As officers of the Holding Company, each Defendant owed fiduciary duties to the Holding Company to act in good faith, with the care an ordinarily prudent person in a like position (having the special skills and knowledge reasonably expected of a person in his position) would exercise under similar circumstances, and in a manner he reasonably believed to be in the Holding Company's best interest. 175. These duties required each Defendant to (1) devote sustained, affirmative attention to ensuring that effective internal controls were established and maintained over financial accounting and reporting; (2) exercise vigilant oversight to ensure that effective systems, procedures, and personnel were in place to enable the Holding Company and its subsidiaries properly to account for and accurately to report on the financial results of the Holding Company on a consolidated basis; (3) exercise vigilant oversight to ensure the implementation and maintenance of effective internal risk assessment and management functions that would enable the Holding Company and the Bank to assess and manage the risks in the Option ARM portfolio; (4) ensure that the Holding Company and its subsidiaries timely comply with regulations and directives from federal regulators; and (5) protect the Holding Company against the diminution in value of its interest in its primary subsidiary and most valuable asset--the Bank--by seeing to it that the Bank was managed properly. - 47 US2008 1144828.23 Case 11-03055-LMI 176. Doc 1 Filed 12/05/11 Page 48 of 53 Defendants breached these fiduciary duties. In so doing, Defendants' conduct was the antithesis of the good faith, care, and devotion to the best interests of the Holding Company and its constituents as required of corporate fiduciaries under applicable law. 177. As a result of these aforesaid breaches, Defendants damaged the Holding Company in amounts to be proven at trial by causing a diminution in value of the Holding Company's interest in its primary subsidiary and most valuable asset--the Bank--which was placed in receivership, causing the Holding Company to declare bankruptcy. 178. Plaintiff is entitled to judgment against Defendants, jointly and severally, for the damage thus caused to the Holding Company. COUNT II Failure to Provide Accurate and Complete Information to the Holding Company's Board -- Breach of Duty of Care (Against Defendants Camner and Lopez) 179. Plaintiff hereby incorporates by reference and realleges each and every allegation set forth above, as though fully set forth herein. 180. As officers of the Holding Company, each Defendant owed fiduciary duties to the Holding Company to act in good faith, with the care an ordinarily prudent person in a like position (having the special skills and knowledge reasonably expected of a person in his position) would exercise under similar circumstances, and in a manner he reasonably believed to be in the Holding Company's best interest. 181. These duties required each Defendant to (1) provide accurate and complete information and disclosures to the Holding Company's Board regarding (a) the financial condition of the Holding Company and its subsidiaries, (b) the adequacy and effectiveness of - 48 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 49 of 53 the Holding Company's internal controls over financial accounting and reporting, (c) the adequacy and effectiveness of the systems, procedures, and personnel in place to enable the Holding Company and its subsidiaries properly to account for and accurately to report on the financial results of the Holding Company on a consolidated basis, and (d) the adequacy and effectiveness of internal risk management and assessment functions in place to enable Defendants and the Bank to assess and manage the risks in the Option ARM portfolio; and to (2) not make material misrepresentations and omissions in consolidated financial statements filed with the SEC and relied upon by the Holding Company's Board. 182. Defendants breached these fiduciary duties. In so doing, Defendants' conduct was the antithesis of the good faith, care, and devotion to the best interests of the Holding Company and its constituents required of corporate officers under applicable law. 183. In reliance on the inaccurate information presented to it by Defendants about the financial condition of the Holding Company--information that was inaccurate because of, inter alia, Defendants' failures to cause to be implemented effective internal controls over financial accounting and reporting, including timely stress testing of the Option ARM portfolio and development of a reliable ALLL methodology--the Holding Company's Board (1) authorized the expenditure of approximately $34 million by the Holding Company in 2007 to repurchase the Holding Company's Class A Common Stock at artificially inflated prices, and (2) authorized the payment of dividends on the Holding Company's stock of approximately $2,013,000. The Holding Company was damaged by these expenditures in amounts to be proven at trial. These damages were proximately caused by Defendants' breaches of fiduciary duty described above in this Count II. - 49 US2008 1144828.23 Case 11-03055-LMI 184. Doc 1 Filed 12/05/11 Page 50 of 53 The Holding Company was damaged further by the breaches of fiduciary duty described above in this Count II because the presentation by Defendants of inaccurate information about the financial condition of the Holding Company resulted in the improvident incurrence by the Holding Company of debt in 2007, which artificially prolonged the Holding Company's existence and caused it to incur additional losses. Defendants' breaches of fiduciary duty were the proximate cause of these losses, the amounts of which are to be proven at trial. 185. Plaintiff is entitled to judgment against Defendants, jointly and severally, for the damage thus caused to the Holding Company. COUNT III Failure to Provide the Holding Company's Board With All Reasonably Available Information Relevant to Whether to Authorize the August 2008 $80 Million Capital Contribution and a Reasonable Opportunity to Consider Whether Such Capital Contribution Should Be Made -- Breach of Duties of Loyalty and Care (Against Defendant Camner) 186. Plaintiff hereby incorporates by reference and realleges each and every allegation set forth in paragraphs 131 through 149 of this complaint, as though fully set forth herein. 187. Camner, as CEO of the Holding Company, owed a fiduciary duty to the Holding Company to discharge his duties in good faith, with the care an ordinarily prudent person in a like position (having the special skills and knowledge reasonably expected of a person in his position) would exercise under similar circumstances, and in a manner he reasonably believed to be in the best interests of the Holding Company. 188. In connection with the proposed $80 million capital contribution by the Holding Company to the Bank, Defendant Camner also had a fiduciary duty of loyalty to the - 50 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 51 of 53 Holding Company to provide the Holding Company's Board with all Relevant Information and a reasonable opportunity to consider whether, in light of the Relevant Information, it was in the Holding Company's best interest to infuse $80 million of cash into the Bank. 189. Instead, as previously described in this complaint, Defendant Camner presented the Holding Company's Board with a fa?t accompl?, and the capital contribution was made without consideration of all Relevant Information and proper deliberation. 190. Defendant Camner's actions in this regard were the antithesis of good faith, care, and devotion to the best interests of the Holding Company and its constituents as required of corporate fiduciaries under applicable law. As a consequence, Defendant Camner breached his fiduciary duties of care and loyalty to the Holding Company. 191. The aforesaid breaches of fiduciary duty were the proximate cause of injury to the Holding Company in the amount of $80 million. 192. Plaintiff is entitled to judgment against Defendant Camner in the amount of $80 million. COUNT IV Approval of Transfers Constituting Fraudulent Transfers from Holding Company to Bank -- Breach of Duties of Care and Loyalty (Against Defendants Camner and Lopez) 193. Plaintiff hereby incorporates by reference and realleges each and every allegation set forth in paragraphs 168 through 172 of this complaint, as though fully set forth herein. 194. As officers of the Holding Company, each Defendant owed a fiduciary duty of care to the Holding Company to act in good faith, with the care an ordinarily prudent person in a like position (having the special skills and knowledge reasonably expected of a - 51 US2008 1144828.23 Case 11-03055-LMI Doc 1 Filed 12/05/11 Page 52 of 53 person in his position) would exercise under similar circumstances, and in a manner he reasonably believed to be in the best interests of the Holding Company. 195. In connection with their duties as officers of the Holding Company, the Defendants had an obligation to refrain from approving and directing fraudulent transfers of the Holding Company's property. 196. Instead, as previously described in this complaint, the Defendant's approved and directed the payment of the Transfers, which constituted fraudulent transfers under Florida law. 197. Approval of the Transfers by the Defendants was the antithesis of good faith, care, and devotion to the best interests of the Holding Company and its constituents as required of corporate fiduciaries under applicable law. As a consequence, in addition to breaching their fiduciary duties of care to the Holding Company, the Defendants breached their fiduciary duties of loyalty to the Holding Company. 198. The aforesaid breaches of fiduciary duty were the proximate cause of injury to the Holding Company in the amount of approximately $45.7 million. 199. Plaintiff is entitled to judgment against the Defendants in the amount of $45.7 million. PRAYER FOR RELIEF WHEREFORE, Plaintiff respectfully prays that the Court enter judgment in favor of Plaintiff, on behalf of the bankruptcy estate of BankUnited Financial Corporation, as follows: (a) against Defendants Camner and Lopez, jointly and severally, on Counts I and II of the Complaint, awarding damages in the amount proven at trial; - 52 US2008 1144828.23 Case 11-03055-LMI (b) Doc 1 Filed 12/05/11 Page 53 of 53 against Defendant Camner on Count III of the Complaint, awarding damages in the amount of $80 million; and (c) against Defendants Camner and Lopez, jointly and severally, on Count IV of the Complaint, awarding damages in the amount of $45.7 million. Dated: December 5, 2011 KILPATRICK TOWNSEND & STOCKTON LLP /s/ Todd C. Meyers Todd C. Meyers Georgia Bar No. 503756 Alfred S. Lurey Georgia Bar No. 461500 Robbin S. Rahman Georgia Bar No. 592151 1100 Peachtree Street, Suite 2800 Atlanta, Georgia 30309-4530 (404) 815-6500 (Telephone) (404) 815-6555 (Facsimile) tmeyers@kilpatricktownsend.com -andKOZYAK TROPIN & THROCKMORTON, P.A. Corali Lopez-Castro, Esq. Florida Bar No. 863830 2525 Ponce De Leon, 9th Floor Miami, Florida 33134 (305) 372-1800 (Telephone) (305) 372-3508 (Facsimile) clc@kttlaw.com Counsel for the Official Committee of Unsecured Creditors of BankUnited Financial Corporation, et al. - 53 US2008 1144828.23