Published May 02, 2013
President Obama's nominee for Commerce secretary was embroiled in a massive bank failure more than a decade ago, in a collapse that cost depositors and federal insurers millions of dollars.
The 2001 collapse of Superior Bank FSB now appears likely to re-emerge, more than a decade later, as Commerce nominee Penny Pritzker prepares for a confirmation hearing and Republicans already draw attention to the bank implosion.
Pritzker's family, which founded Hyatt and is one of the wealthiest in the country, co-owned Superior Bank at the time of its collapse. The lawyer who represented depositors in the case told FoxNews.com on Thursday that the Pritzker family enjoyed a "special deal" while the "little guys" ended up "footing the bill."
"The message of our Cabinet members should be people who do the right thing," attorney Clint Krislov said Thursday. "And it should not be a message of, if you're very wealthy you get a special deal and you get to sit on the Cabinet, too."
Uninsured depositors at the Illinois bank are still owed roughly $10 million, according to federal records -- after a court challenge was rejected in 2007, those savings may never be recovered. The collapse also cost the FDIC, which insures banks, nearly $300 million.
The failure, according to federal regulators, was triggered by a pattern of risky lending.
The Office of Thrift Supervision took the rare step of shuttering the Hinsdale, Ill., bank on July 27, 2001. The office said at the time the bank "suffered as a result of its former high-risk business strategy," including "significant volumes of subprime" mortgage and auto loans.
What happened after the collapse, though, is what triggered the lawsuit involving Krislov.
The Pritzker family, as part of a settlement to shield itself from liability, agreed to pay $460 million to the federal government. But the family was subsequently able to claim part of a separate $125 million settlement from the bank's accounting firm.
Krislov said the family was first in line for the money, followed by the depositors.
"That is what is fundamentally troubling," he said. "They got a priority ahead of depositors while depositors were still short."
An FDIC representative, though, suggested to the Chicago Tribune in 2004 that the sheer size of the $460 million settlement justified the trade-off.
"If it means $30 million is turned over to the Pritzkers, I think it's hard to dispute that it's not advantageous for creditors of that failed institution," the spokesman said.
Pritzker's involvement with the bank's questionable lending practices is unclear. She served as chairwoman of the bank from 1991 to 1994, after her uncle Jay went in with another wealthy family to buy Superior in the late '80s.
Pritzker spokeswoman Susan Anderson stressed that Pritzker was not an officer or director at the time the bank failed.
"She left its board in 1994, seven years before the bank failed. During her tenure, the bank received clean audits and regulators gave it high marks," she said in an email to FoxNews.com, calling her record as a manager "extraordinary."
She also noted that despite the losses sustained by depositors, they did get 81 percent of their savings back, in addition to the $100,000 insured amount. "This is ... typical when a bank fails," she said.
The FDIC insures depositors for up to $100,000. In the case of Superior, those with accounts above that amount were still repaid part -- but not all -- of their uninsured savings.
Krislov said he wrote to Penny Pritzker after his clients lost their suit asking her to pay the remaining $10 million to the uninsured depositors.
"I just figured it was the right thing to do," he said, adding that he never heard back.
The Pritzker family also reportedly struck a deal in 2011 that allowed them to enjoy a discount off the $460 million settlement.
The history of the bank was glossed over in Thursday's announcement at the White House, though the Republican National Committee blasted out old news clippings from the saga.
Obama, during the nomination ceremony, cited Pritzker's "extraordinary experience."
"Penny is one of our countries' most distinguished business leaders. She's got more than 25 years of management experience in industries, including real estate, finance, and hospitality. She's built companies from the ground up," Obama said.
Pritzker is on the board with Hyatt Hotels Corp., which was co-founded by her dad. She's also chairwoman of Pritzker Realty Group. She previously served on Obama's jobs council, and helped raise hundreds of thousands of dollars for the president's 2008 and 2012 campaigns -- she held positions with both campaigns.
Pritzker is also one of the wealthiest people in the country. Forbes pegs her net worth at $1.85 billion, and lists her as the 277th wealthiest person in the U.S.
Krislov acknowledged the family has done some "very terrific things" in philanthropy, but said: "She would not be my first pick" for Commerce.
The White House did not return a request for comment.