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FDIC authorizes lawsuits against executives of failed banks

The agency aims to recoup more than $1 billion in losses to its insurance fund.

October 08, 2010|Bloomberg News

The Federal Deposit Insurance Corp. has authorized lawsuits against more than 50 officers and directors of failed banks as the agency aims to recoup more than $1 billion in losses stemming from the credit crisis.

The lawsuits were authorized during closed sessions of the FDIC board and haven't been made public. The agency, which has shut down 294 lenders since the start of 2008, has held off court action while conducting settlement talks with executives whose actions may have led to bank collapses, said Richard Osterman, the FDIC's acting general counsel.

"We're ready to go," Osterman said. "We could walk into court tomorrow and file the lawsuits."

The FDIC, which reviews losses for every bank failure, has brought only one case against officers or directors tied to recent collapses — a suit filed in July that seeks $300 million in damages from four executives of Pasadena's IndyMac Bancorp Inc.

When a bank fails, the agency's investigators take about 18 months to complete their autopsies, meaning most of the probes stemming from the financial crisis are ongoing, Osterman said.

If FDIC investigators determine litigation is possible early in their review process, they send letters to officers and directors alerting them that a suit may be coming to recoup a portion of the losses to the agency's insurance fund.

One such letter was attached to a Nov. 24 motion filed by the FDIC in the bankruptcy case of Florida's BankUnited Corp. The Nov. 5 letter, addressed to 15 bank directors and officers, said that BankUnited "blindly made loans to borrowers who, for the most part, were un-creditworthy, creating an unduly high risk of inevitable failure when the housing market began to decline." The executives "breached their fiduciary duties," the letter said.

As federal receiver for failed banks, the FDIC uses its deposit insurance fund to backstop the cost of the collapses, selling the bank assets to recoup any lost money. The agency has three years from the date of the failure to file suits seeking compensation for a civil wrong.

The recently authorized lawsuits, if filed by the agency and not settled, would claim damages of more than $1 billion, FDIC spokesman David Barr said.

Osterman said the goal was to reach as many settlements as possible. "It's in both our interest and theirs to try and settle this matter before it gets into the court and we get into expensive litigation," he said.

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