A Chicago family that owned Mutual Bank filed a suit against the Federal Deposit Insurance Corp. (FDIC), seeking $32.9m in losses suffered when regulators closed the bank in July 2009. Pethinaidu Veluchamy and his family own 93% of First Mutual Bancorp, which owned the bank when the Illinois Department of Financial Professional Regulation (IDFPR) shut it down at the end of July. United Central Bank assumed the $1.6bn in deposits and purchased another $1.3bn of the $1.6bn in assets. Veluchamy claims the FDIC failed to act on the bank’s application to redeem $23.6m of subordinated debt they purchased from the bank to raise capital, according to a HousingWire review of court documents. The family claims these actions prevented the conversion of that debt into deposits, resulting in a $32.9m loss when the bank was declared insolvent. Prior to June 2008, the FDIC declared Mutual Bank “well capitalized,” according to the lawsuit. The category slipped to “adequately capitalized" at the end of June 2008, and the FDIC advised the bank it would need an additional $30m in capital to be upgraded. After raising capital through the summer, the bank returned to a “well capitalized” category in October 2008. But in February 2009, the FDIC and the IDFPR downgraded the bank again and filed a Section 51 Order stating regulators would take control of the bank if it did not increase its capital ratios. In June 2009, the FDIC downgraded the bank to “critically undercapitalized,” and on July 1, 2009, the Board of Directors of the Bank held a special meeting to redeem the $23.6m in subordinated debt. Veluchamy agreed to place the proceeds at the bank in an interest-free account. The regulators shuttered the bank on July 31, 2009. A spokesperson for the FDIC declined to comment. Write to Jon Prior.