Federal bank regulators recognized that Lex Golden was a poor banker and that his family was abusing its control of Allied Bank for years, but failure to follow through on recommendations allowed Golden and his son Alex to remain in control of the bank until its failure in September 2016, a new report concludes.
The Office of Inspector General of the Federal Reserve System completed its 40-page “Review of the Failure of Allied Bank” on Monday and made it public Thursday morning.
“Ineffective oversight by Allied Bank’s board of directors allowed two management officials, the Special Assets Officer and the President, to exert a dominant influence over the bank’s affairs, including its lending decisions, and allegedly engage in insider abuse,” the OIG’s summary said.
And while the Federal Reserve Bank of St. Louis “generally took decisive supervisory action” between 2009 and the bank’s failure, the OIG also determined that the St. Louis Fed “could have taken stronger steps” by recommending that the Fed’s board of governors “report suspicious activity to law enforcement” when signs of insider abuse were first identified.
While suspicious activity reports were apparently never filed, the St. Louis Fed did attempt to remove Lex and Alex Golden from their management positions in March 2013 by submitting requests for enforcement actions to the Federal Reserve Board. Although the Fed’s Legal Division followed up on the requests, nothing was ultimately done to remove the management as Allied’s financial situation continued to deteriorate.
No one associated with Allied Bank has been charged with any crime. Lex Golden, reached by phone Thursday morning, said he had not seen the report and had no immediate comment.
The Fed’s OIG undertook a complete review of Allied’s failure even though it cost the Federal Deposit Insurance Corp. only about $6.9 million, far below the usual threshold of $50 million that triggers such a post-mortem report. After an initial review, the OIG wrote, “we determined that Allied Bank’s failure represented unusual circumstances that warranted an in-depth review for several reasons, including questionable business practices and alleged insider abuse.”
While the report does not name Lex or Alex Golden, they are the father and son who served as chief lending officer — a job title later changed to special assets officer in 2012 — and president, respectively. According to the OIG report, examiners from both the St. Louis Fed and the the Arkansas State Bank Department described the Goldens as “dominant management officials who controlled the bank’s lending, policy decisions, and daily operations.”
The OIG also criticized “weak oversight” by Allied’s directors, who were “primarily located in Mulberry, Arkansas, roughly a 2-hour drive from Little Rock, Arkansas, where most of the banking activities occurred.” This distance, examiners told the OIG, “contributed to the board’s ineffective oversight.”
And this ineffective oversight, gave Lex and Alex Golden the opportunity to “engage in questionable business practices and alleged insider abuse.” In January 2013, examiners noted that directors “often approved management initiatives that benefited members of the controlling family but were detrimental to Allied Bank,” to its parent company, Acme Holding Co., and to the employee stock ownership plan that owned Acme.