Shares of regional banks tumbled on Thursday<\/a> as fears mounted around the health of their lending businesses. Zions’ 13% share plunge ended up sparking worries about possible broader issues with lending for the regional bank sector, knocking the whole U.S. stock market on Thursday with the Dow Jones Industrial average finishing lower by 300 points<\/a>.<\/p>\n Zions’ subsidiary, California Bank & Trust, is suing Andrew Stupin and Gerald Marcil \u2013 the until now, relatively unknown managers of several funds utilizing the name “Cantor Group,” along with their associate Deba Shyam.<\/p>\n The lawsuit, filed in Los Angeles County on Wednesday, alleges, a “sweeping betrayal of trust by sophisticated financial borrowers who abused CB&T’s confidence, manipulated loan structures for their own enrichment, and systematically eliminated the collateral protections that were supposed to secure the bank’s loans.”<\/p>\n Zions and a lawyer representing the defendants didn’t respond to CNBC’s multiple requests seeking comment. The relationship in question stemmed from about $60 million in financing that Zions’ CB&T made in 2016 and 2017 to two related investment vehicles, Cantor Group II and Cantor Group IV.<\/p>\n Stock Chart IconStock chart icon Zions, 5 day<\/p>\n The credit facilities were to be used by the funds to purchase distressed residential and commercial mortgage loans.<\/p>\n Zions said they had an underwritten agreement guaranteeing them first-priority interest, meaning the bank’s claim on collateral was superior to other creditors’ claims in the event of a default.<\/p>\n However, the deeds that were supposed to to secure the loans were ultimately subordinated without CB&T’s knowledge, Zions said in the lawsuit.<\/p>\n Those underlying properties were transferred to other entities or were in foreclosure, meaning the collateral was “irretrievably lost,” Zions claimed.<\/p>\n And the new senior lenders, who replaced CB&T, were the same managers of the Cantor funds or those affiliated with the group, according to the suit. “In effect, CB&T’s losses became Defendants’ gains,” Zions said in the lawsuit. “Acting through a web of affiliated companies, the borrowers and guarantors orchestrated a scheme that enriched themselves while stripping CB&T of its collateral, all while keeping the bank in the dark for years about the true status of its securities interests\u2026”<\/p>\n![\"hide](\"https:\/\/static-redesign.cnbcfm.com\/dist\/a54b41835a8b60db28c2.svg\")
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