A former executive at Michigan-based Grand River Bank claims he was fired for raising to the Federal Reserve his concerns about a now-shuttered subsidiary.
Todd Gray, once GRB’s senior vice president of retail lending, believed the bank’s mortgage subsidiary, Grand River Mortgage Co., “had significant risks that did not justify the potential rewards” when it was created in 2021, he said in a lawsuit filed last week in U.S. District Court for the Western District of Michigan.
Gray told Robert Bilotti, the bank’s founding investor who spearheaded GRMC, that mortgage executives at other institutions were surprised by the planned mortgage launch “because it could lead to capital drain at a time where experts anticipated upcoming adverse market conditions,” according to the lawsuit.
“Rather than listen to [Gray’s] warnings, Mr. Bilotti began to sideline [Gray], particularly from dealings with the buildout of the new mortgage business at GRMC, and later with the operations,” the lawsuit reads.
At a meeting in May 2022, Gray voiced concerns about management’s lack of involvement in the launch of GRMC to the bank’s board, according to the lawsuit. Weeks later, Jill Redder, who took minutes at the meeting, informed Gray that she had been told to modify the minutes to reflect that Gray was “eager to help with the new business,” the lawsuit alleged.
Months later, Gray was “admonished” by Bilotti — told never to speak on the mortgage endeavor with board members, according to the lawsuit. Gray continued to voice his concerns to GRB executives. Meanwhile, the mortgage industry “rapidly declined” and GRMC lost the bank millions of dollars, according to the lawsuit.
“The capital losses attributable to GRMC forced GRB to go to the secondary market for additional capital. Because of their financial position, GRB was forced to work with a lead investor that specialized in taking interest in distressed banks and set terms for GRB’s subordinated debt that were less favorable than market rates,” the suit claimed. “The payments on this subordinated debt will negatively affect GRB for years to come and will add another layer of difficulty to becoming profitable.”
Gray submitted a whistleblower report to the Federal Reserve in October 2023, raising alarm that the board was “violating its fiduciary duty and violating rules of corporate governance” by not listening to his GRMC concerns.
He notified high-level management at the bank of his report, which the Fed used as guidance in its annual examination and to subsequently take “confidential regulatory steps designed to shore up GRB’s corporate decision-making and support its financial stability.”
The bank fired Gray in July, nine months later, “based at least in part in retaliation for filing a whistleblower report and/or GRB’s belief that [Gray] was about to file a negative report with GRB’s regulators,” the lawsuit alleged.
Thereafter, Gray suffered “lost earnings and benefits and future earnings and benefits and suffered mental anguish, emotional distress, unfair reputational damage, and undue harm to his career,” according to the suit. He had been the bank’s senior vice president of retail lending for more than five years.
Gray wants the court to make his former employer pay him lost and future wages and benefits; compensatory damages for emotional and mental distress; punitive damages; and reasonable attorney’s fees.
GRB’s recently appointed CEO, Drew Ysseldyke, told Banking Dive via email that the bank does not comment on pending or active lawsuits.
