Bank United

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Hughes

Hubbard

Hughes Hubbard & Reed HT

1775 I Street, N.W.

Washington, D.C. 20006-2401

Telephone: 202-721-4600

Fax: 202-721-4646

hugheshubbard.com

Dennis S. Klein

Direct Dial: 202-721-4710

[email protected]

Novem ber 5, 2009

PRIVILEGED & CONFIDENTIALVIA FEDERAL EXPRESS AND C ERTIFIED MAIL TO ALL ADD RESSES

Mr. Tod Aronovitz3077 BirkdaleWeston, FL 33332

Ms. Sharon Brown358 NW Claria CourtPort St Lucie, FL 34986

Felix Garcia

12531 SW 9 4th CourtMiami, FL 33176

Hardy Katz3774 El Prado Boulevard

Coconut Grove, FL 33133

Ram iro Ortiz7250 SW 99th Street

Miami, FL 33156

Mr. Allen Bernkant13643 Deering Bay Dr. #125Deering Bay, FL 33158

Mr. Alfred Camner

6855 SW 101 StMiami, FL 33156

Robert Green

17633 Middlebrook WayBoca Raton, FL 33496

Humberto Lopez5711 M aggiore StreetCoral Gables, FL 33146

Albert Smith1311 SW 97th Avenue

Pembroke Pines, FL 33025

Mr. Lawrence Blum3235 Treasure Trove LaneCoconut Grove, FL 33133

Ms. Lauren Camner2401 Anderson Road, Apt. #2Coral Gables, FL 33134

Marc Jacobson

115 E. Rivo Alto DriveMiami Beach, FL 33139

Neil Messinger3506 South Moorings Wa yMiami, FL 33131

Bradley W eiss

2977 W entworthWeston, FL 33332

Re:emand for Payment of Civil Damages

BankUnited FSB — In ReceivershipSt. Paul Mercury Insurance Comp anyPolicy Number EC06800963RSUI Indemnity CompanyPolicy N umber N HS627127

New Yorkn

Washington, D.C.n

Los Angelesn

MiaminJersey CitynParisnTokyo

Case 09-19940-LMI Doc 373-2 Filed 11/24/09 Page 1 of 6



November 5, 2009Page 2

Dear Nam ed Individuals:

Hughes Hubbard & Reed L LP rep resents the Federal Deposit Insurance Corporation("FDIC") as Receiver for BankUnited, FSB (the "Bank"). By this letter, the FDIC hereby makes

demand for p ayment of civil damages on Tod A ronovitz, Allen B ernkant, Lawrence B lum,Sharon Brow n, Alfred Camner, Lauren Camner, Felix Garcia, Robert Green, Marc Jacobson,Hardy Katz, Humberto Lopez, Neil Messinger, Ramio Ortiz, Albert Smith, and Bradley Weiss(the "Directors and Officers"), all of whom are former directors and/or officers of the Bank, fortheir negligence, gross negligence and /or breach of fiduciary duties related to certain residential

loans made by the Bank. On M ay 21, 2009, the FDIC w as appointed as receiver of the Bank.This letter is a dem and for civil dam ages arising out of losses suffered as a result of wrongfulacts and omissions comm itted by the named Directors and Officers.

As shown b elow, we are forw arding this letter directly to St. Paul Mercury InsuranceComp any, under policy number EC06800963, and to the RSU I Indemnity Company, under

policy num ber NH S627127. The Bank purchased extended discovery periods for both policiesto and including Novem ber 10, 2009.

The FDIC 's demand for pay ment of civil damages herein is based on the breach of duty,failure to supervise, negligence, and/or gross negligence of the n amed Directors and O fficers inconnection w ith residential loan transactions carried out b y the B ank, as discussed in furtherdetail below.

Tod Aronovitz

Allen BernkantLawrence BlumSharon Brown

Alfred CamnerLauren CamnerFelix GarciaRobert Green

Marc JacobsonHardy KatzHumberto LopezNeil Messinger

Ramiro OrtizAlbert SmithBradley W eiss

Residential Real Estate Lending

Named Directors and Officers:

The FDIC m akes demand on the above-named Directors and Officers for payment ofcivil damages arising out of losses suffered due to w rongful acts com mitted in connection w iththe origination and adm inistration of unsafe and un sound residential real estate loans. The




November 5, 2009

Page 3

specific wron gful acts include, without limitation, pursuing an ov erly aggressive growth strategyfocused primarily on the controversial Payment Option ARM product (the "Option ARM"),/concentrating the bulk of the Bank 's assets in Option ARM s, failing to imp lement adequatecredit adm inistration and risk managem ent controls over the Bank 's lending practices, and

failing to heed warnings and/or recom mend ations of bank supervisory authorities and bankconsultants — all of which collectively com bined to expose the B ank to excessive risks andsubstantial losses. The w rongful acts further include the alleged failure of the Directors andOfficers to ap preciate the risk associated with the B ank's investment strategy, their failure toprovide adequate oversight and sup ervision of the B ank's adm inistration of its residential loans,as well as their lack of know ledge and/or inattention to the Bank 's loose lending policies, andtheir failure to timely address and/or alter these strategies and policies to protect the Bank fromloss as the B ank's financial situation increasingly worsened.

The B ank experienced residential real estate loan growth — focused primarily on the

controversial Option AR M p roduct — at an excessive and reckless rate. In 2006, the Bank had

concentrated nearly 50% of its total assets in Option AR Ms — growing the Bank's m ortgageportfolio from $6.116 billion on Decem ber 31, 2004 to $12.523 billion on Decem ber 31, 2007.In 2007, Option AR Ms represented roughly 70% of the Bank 's residential loan portfolio and60% of its total loan portfolio. By 2008 , Option ARM s represented an astonishing 575% of theBan k's capital. The inherent risk of these Option ARM c oncentrations was coupled w ithdeficiencies in the B ank's underwriting, appraisal process, and credit administration — including,without limitation — the Bank 's disregard for borrow ers' credit quality, prudent underwritingstandards, and industry-standard app raisal practices, as well as aggressively pursuing anexcessively liberal loan structure without ad equate policies, procedures, or internal controls.Collectively, these unsafe and unsound banking p ractices left the B ank highly susceptible toweaknesses in the real estate market.

The unsafe and unsound b anking practices, breaches of fiduciary duty and negligenceand/or grossly negligent acts included, w ithout limitation, the following:

• Adop ting an overly aggressive and reckless growth strategy by investing nearly halfof the Bank 's assets in a single "controversial" loan product — the Option AR Mwithout adequate "stress" testing and insufficient collateral coverage to w ithstandanything more than a minor decline in real estate values.

• Making the special Option ARM lending product — appropriate for only a smallportion of the population — available to every potential Bank customer. In fact, the

Option ARM mortgages are adjustable rate mortgages that typically permit borrowers to select from among awide range of monthly payment choices, including (i) a payment based on a mortgage that is fully amortizedover a particular numb er of years; (ii) an interest only pay me nt that does not include any principal pay do wn;and (iii) a set minimum monthly p aym ent that covers neither that principal amount nor the full amount of theinterest owed on the loan. The substantial risk associated with Option A RM is that it allows minimu m m onthlypaym ents by the borrow er which begins a process of "negative amortization," in which the unpaid interestamoun ts are added to the outstanding principal amount ow ed, thus increasing the overall loan balance.





Ban k altered mortgage broker com pensation and incentives in a manner that tookaway any incentive for brokers to sell any product other than Option ARM s. As aresult, the Bank's m ortgage portfolio grew from $8.722 billion on Decem ber 31, 2005to $12.523 billion on Decem ber 31, 2007.

• Funding the long term Op tion ARM assets with rate-sensitive brokered-d eposits andnon-core liabilities, failing to control asset risk b y d iversifying the loan p roduct, andinstead embracing geog raphic-only diversification and selling the Bank 's loanproduction in several widely-distributed and arguably oversaturated U.S. m arkets,including Northern an d Southern C alifornia, Arizona-N evada, Illinois, Virginia-Maryland, in addition to the home mark et of Southeastern Florida.

• Despite the high risk posed b y its heavily concentrated Option AR M lending, failingto adequately reserve for the increasingly likely loan losses that the Bank w ould

sustain.

• Encouraging an extrem ely liberal and aggressive lending mentality to "make the loanas long as the borrower has a pulse."

• Engaging in reck less, high-risk, and limited scrutiny lending to fuel the B ank'saggressive and rapid growth — in direct contradiction to public representations of theBan k's conservative lending and strict underwriting policies. In fact, low-qualitymo rtgages were extended w ithout fully verifying borrow ers' incom es, assets, and/orcreditworthiness. In 2008, the B ank disclosed that only 17.4% of the loans in itsresidential mortgage portfolio were "full documentation employment verified." Theremaining 82.6% of the Bank 's loan portfolio was based on either reduced

docum entation or no-documentation loans.

• This high-risk lending was even more om nipresent in the Bank's Op tion ARMportfolio. As of March 31, 2008, only 12.4% of the Bank's Option ARM mortgageswere fully docu men ted and a shocking 31.3% of its portfolio ($2.3 billion) were no-documentation loans.

• Using limited and no-documentation lending to expand the volume of Option ARMsand m ake this loan product an increasingly dom inant part of the Bank's residentialportfolio. The percentages of full docum entation loans in the Bank's portfolio fell byalmost half from 2005 to 2007, while the percentages of no-docum entation loans in

the entire portfolio nearly doubled over the same p eriod.

• Oversight over the Bank's affairs was seriously flawed, as demonstrated by, i n t e r

cilia, (i) designing officer com pensation packages strictly focused on loan p roduction,with little concern f or responsibly fund ing the assets or for collection of the m oniesadvanced , (ii) failing to monitor the rising volum e of loan delinquencies, and (iii)establishing a lending policy that was inadequate to protect the B ank.





• Ap proving and putting in place a com pensation structure that drove the Bank'sdirectors and officers to pursue recklessly risky lending and b usiness practices. Thecomp ensation for some of the named Directors and Officers — which jumped

considerably at precisely the time the B ank began its aggressive shift toward O ption

ARM lending — consisted of perform ance-based bonuses, restricted stock grants, andother compensation that were dependent on the Bank meeting, inter alia, certain loan

origination targets and earnings per share numb ers. The comp ensation structurecreated com pelling personal financial incentives for the Bank 's Directors and Officersto engage in risky, aggressive, and short-sighted lending practices.

o Failing to prov ide adequate personnel and adm inistrative capacity to app ropriatelymon itor loan appraisals and carry out diligent underw riting review. Paired w ith theBan k's rapid grow th, this led to a quality control backlog of 8,900 loans in M arch2006 — more than one month's originations.

• Chronically understaffing the Bank's appraisal departmen t, thereby p reventingdiligent and timely review of all appraisal information. This was further buttressedby a co rporate culture and routine to underm ine and/or circumven t a diligent appraisal

process.

© Inapprop riately v esting total quality control responsibilities w ith loan productionman agement instead of providing sufficient staffing to ensure the traditional quality-control process could take place. As a result, employ ees were placed in dual andconflicting roles, whereby employees were rewarded for meeting the Bank'saggressive loan production goals, yet also responsible for m aintaining quality-control

standards with respect to such loans.

• In or about July 200 6, engaging the under-qualified and likely conflicted law f irm offormer CEO and Chairman of the Board of Directors, Alfred Cam ner — in a seemingattempt to diminish the backlog of loans lacking quality-control review — to provide

an initial quality control check of each new mortgage funded by the Bank. TheCamner, Lipsitz Poller law firm, however, provided no qualitative analysis of the

assets, as was needed , but appeared to solely review the legal sufficiency of loan

documentation.

o Failing to take corrective and protective action despite the mo unting negativeam ortization of the Bank's Op tion ARM p ortfolio and econom ic indicators, concerns

articulated by bank regulatory authorities, and the Bank 's increasingly detrimentalfinancial situation. Instead, choosing to continue heav ily concentrating the B ank'sassets with the Option ARM product until the Bank's ultimate dem ise.

As a result of these unsafe and unsound bank ing practices, the B ank blindly m ade loansto borrowers w ho, for the most part, were un-creditworthy, creating an unduly high risk ofinevitable failure when the housing market began to decline — an event the B ank neitherappropriately considered nor adequately prepared for. The named Directors and Officers





wrongfully engaged in these unsafe and unsound bank ing practices and/or breached theirfiduciary duties.

As a result of the Directors' and Officers' unsafe and unsound b anking practices and/or

breaches of their fiduciary duties, the Bank sustained certain loan losses between January 1 , 2006and M ay 21, 2009 totaling $227,301,403. In addition to these losses, the FDIC recognized a $4billion loss at the time it closed the Bank to p ay off v olatile liabilities used by the Bank to fundits overly aggressive and highly risk-tainted loan portfolio. The FDIC 's investigation of losses inthe Bank 's residential real estate portfolio is not com plete and the FDIC anticipates new losseswill arise in the poorly structured loan portfolio as the extensive volume of Op tion ARMmo rtgages reset rates over the next four years. Accord ingly, the FDIC will supplemen t thisdemand, as appropriate, as its investigation progresses.

The FD IC is continuing its investigation of this matter and reserves the right to mo difyand/or supplem ent its dem ands herein for mo netary dam ages against the Directors and Officers.

Please direct any questions to the undersigned.

Dennis S. Klein

Enclosures

cc:y O vernight MailThe St. Paul Com panies, Inc.385 W ashington Street

St. Paul, Minnesota 55102-139 6Attention: Professional E& O C laim Unit

By FAX: (404) 260-3997 (Attn: Claims Department), Federal Express, and CertifiedMail

RSUI G roup, Inc.

945 East Paces Ferry Rd.Suite 1800

Atlanta, GA 30326-1160Attn: Claims D epartment


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