WASHINGTON – The Federal Deposit Insurance Corp. is poised to fatten its docket of lawsuits against directors and officers of failed community banks next year.
Lawsuits against individuals have picked up in recent months. The FDIC had filed 23 lawsuits through early December, according to Cornerstone Research, a Boston consulting firm that advises lawyers who represent bank officers. The agency filed 16 lawsuits in 2011, according to American Banker, an affiliate of Credit Union Journal.
The FDIC also is pursuing more cases against smaller institutions. The average size of failed banks at the heart of its lawsuits in the first quarter was $1.2 billion. The average size fell to just $154 million in the fourth quarter. NCUA most recently filed suit against the former CEO of Texans Credit Union in Dallas for decisions related to that credit union’s conservatorship.
The FDIC is expected to keep filing more lawsuits. “Using the S&L crisis as a historical benchmark, the possibility of more lawsuits has historical credibility,” said Kevin LaCroix, a lawyer who writes the “D&O Diary” blog.
Following the savings and loan crisis of the 1980s, federal agencies filed lawsuits in connection with nearly a quarter of the institutions that failed, LaCroix said. So far, agencies have only pursued litigation against directors and officers of 9% of the institutions that failed during the recent crisis.
Various factors drove the recent upswing, American Banker noted. Several failures are bumping up against a statute of limitations deadline. Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, that period typically is three years, said Henry Turner, a Decatur, Ga., lawyer who represents bank officers and directors. The latest crisis began in late 2008.
A federal jury this month agreed with the FDIC that the residential construction division of IndyMac acted recklessly, declaring three former executives were culpable for more than $168 million in loan losses.