Witness: Hinsdale's Superior Bank peddled risk loans

Superior Bank, seized by federal regulators in 2001, was a subprime lender that used predatory and deceptive practices, a witness for Ernst & Young LLP testified at a trial over the firm's role in the bank's demise.

Charles Grice, a regulatory compliance consultant, labeled Superior Bank's universal lending division a predatory lender and said the bank engaged in originating and buying subprime loans and securitizing them for sale to investors. Grice testified in a case brought by former Superior Bank official Alan Schein against Ernst & Young, which served as the bank's auditor for a decade.

"The machine was all about Hoovering up these loans and selling them to Wall Street," Grice told jurors yesterday in state court in Fort Lauderdale, Florida.

Schein is seeking at least $200 million in damages over claims that Ernst & Young's failure to detect problems at the bank led to the 2001 seizure. Schein claims he relied on Ernst & Young's auditors when he sold a mortgage-marketing business to Superior before joining the bank in 1998.

Grice testified that a type of loan Superior marketed, one that Schein said he developed, was overly risky and caused borrowers to owe thousands more than their old loans.

"We didn't find a single borrower that got a better rate than they had before," Grice said. The loan "was sold to people with a technique that was deceptive and predatory."

Grice acknowledged under cross-examination by Schein's attorney, Jack Scarola, that he had examined less than a third of the division's loans.

Seized in 2001

Superior, based in Hinsdale, was taken over by federal regulators in July 2001 after losses depleted capital reserves. Those losses were tied to mortgages involving high- risk borrowers that were packaged as investments, officials at the Federal Deposit Insurance Corp. said.

Ernst & Young paid $125 million to settle regulators' claims over its audits of Superior's books. Superior's owners, including members of the billionaire Pritzker family, agreed in December 2001 to pay the government $460 million over the bank's collapse. Penny Pritzker, who helped oversee fundraising for President Barack Obama's 2008 campaign, served as head of the bank's board until 1994, according to court filings.

The case is Alan Schein v. Ernst & Young LLP, 03-000266, Complex Litigation Unit, Circuit Court for the 17th Judicial Circuit of Florida, Broward County (Fort Lauderdale).