Federal regulators say Security Bank broke federal laws by hiring a convicted felon to manage its portfolio of bad loans, made illegal loans to insiders and failed to comply with legislation to rein in money laundering.
Its leaders were twice hit with fines from federal examiners for not playing by the rules.
"Fines and other actions including lawsuits against former directors and officers of failed banks are increasingly common," said Ken Thomas, a Miami economist and bank analyst. "But what is quite unusual is for a bank to hire someone with a criminal record, especially at such a high level to sit in on board meetings."
By 2007, with Florida's real estate market in free-fall, Security was in serious trouble. So its chief executive, Harold L. Connell, persuaded a group of Latin American investors to invest nearly $20 million to keep the bank afloat.
Despite the downturn, Connell believed the way to save the bank was by focusing on real estate. Borrowers soon defaulted and Security's troubles deepened.
In February 2011, regulators fined six directors and officers $40,000 in all for not following guidelines meant to improve the bank's financial health.
Then, nearly a year after shutting down the bank, regulators hit five of same officers and directors with fines totaling nearly $70,000.
This time, regulators revealed that the bank had hired Mitchell Aronson, who'd been convicted of tax evasion and conspiring to conceal taxable income in 1988. Under federal law, banks are not allowed to hire convicted felons without clearing the move with regulators.
Regulators also criticized Security's officers and directors for renewing $635,000 in loans to a company owned in part by an unnamed director.
Examiners said this director sold part of the collateral for the loans two months before Security gave him fresh cash.
Financial documents showed that the director's company had a negative net worth and was losing money at the time of the loan — facts that Security's management and directors were aware of before approving the deal.
The unnamed director ultimately defaulted and Security wrote off the losses. Regulators said the loans violated federal rules because an insider is not supposed to receive terms more favorable than those available to the average bank customer.
After the bank closed in May 2012, the FDIC said Security had failed because of "unsafe and unsound practices."
Connell could not be reached for comment.